Tier 3 (PS) Standard

Reporting Requirements for Tier 3 Public Sector Entities

Mandatory Date:
{{ matches.count }} matches for: {{ matches.query }}

Statement of Authority

This Standard was issued on 18 May 2023 by the New Zealand Accounting Standards Board of the External Reporting Board pursuant to section 12(a) of the Financial Reporting Act 2013.

This Standard is secondary legislation for the purposes of the Legislation Act 2019, and pursuant to section 27(1) of the Financial Reporting Act 2013 takes effect on 15 June 2023.

This Standard has a mandatory date of 1 April 2024, meaning the Standard must be applied for accounting periods that begin on or after 1 April 2024. A Tier 3 public sector entity may choose to apply this Standard before the mandatory date for accounting periods that end after the Standard takes effect on 15 June 2023. Further information on the commencement and application of this Standard is provided in Appendix B.

Reporting entities that are subject to this Standard are required to apply it in accordance with the requirements and applicable guidance in Appendices A–D.

In finalising this Standard, the New Zealand Accounting Standards Board has carried out appropriate consultation in accordance with section 22(1) of the Financial Reporting Act 2013.

This Standard, when applied, supersedes the Standard Public Benefit Entity Simple Format Reporting – Accrual (Public Sector) (PBE SFR-A (PS)).

Copyright

© External Reporting Board (XRB) 2023

This XRB Standard contains copyright material.

Reproduction in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgement of the source.

Requests and enquiries concerning reproduction and rights for commercial purposes should be addressed to the Chief Executive, External Reporting Board at the following email address: enquiries@xrb.govt.nz

ISBN 978-1-99-100535-9

How to read this Standard

Reporting Requirements for Tier 3 Public Sector Entities (Tier 3 (PS) Standard) is set out in paragraphs 18 and Appendices AD. All the paragraphs in the Standard and Appendices have equal authority. Tier 3 (PS) Standard should be read in the context of its objective, the Basis for Conclusions and Standard XRB A1 Application of the Accounting Standards Framework.

The Basis for Conclusions is available on the XRB website.

1. The objective of this Standard is to enhance financial reporting by Tier 3 public sector public benefit entities by setting out simple format accrual-based reporting requirements, that promote the provision of useful, transparent and comparable information in Tier 3 performance reports.

2. This Standard applies to a public sector public benefit entity that is eligible for, and elects to apply, the Tier 3 PBE Accounting Requirements. A public sector public benefit entity is eligible to apply this Standard if it:

  1. Has total expenses less than or equal to $2 million; and

  2. Does not have public accountability for financial reporting purposes.

Please refer to the Glossary for further information about how “public sector public benefit entity”, "total expenses" and "public accountability" are defined for financial reporting purposes.

3. A public sector public benefit entity that is eligible for, and elects to apply, the Tier 3 PBE Accounting Requirements shall prepare a performance report in accordance with the requirements set out in Appendix A, the commencement and application provisions in Appendix B, the transitional provisions in Appendix C (when applicable), and Appendix D when accounting for interests in other entities. The requirement to prepare a performance report exists regardless of the term used in any legislation that defines the reporting obligations of the entity, for example annual financial statements.

4. An entity that is eligible for, and elects to apply, this Standard may elect to apply the requirements of a Tier 2 PBE Standard to a specific type of transaction, in accordance with the requirements set out in Appendix D of this Standard.

5. This Standard requires an entity to prepare a performance report that fairly presents the entity’s service performance, financial performance and cash flows for the financial year, and its financial position at its balance date. The Standard applies to the performance report of a single entity as well as an entity that has certain interests in other entities (discussed below).

6. When preparing a performance report, an entity is required to identify its interests in other entities and assess whether, for the purposes of financial reporting, any of those interests result in the other entity meeting the definition of a controlled entity, an associate or a joint arrangement. Refer to Appendix D for further guidance on how to determine the nature of an entity’s interest in another entity, as well as for the requirements that an entity must apply when accounting for an interest in a controlled entity, an associate or joint arrangement.

7. If an entity has an interest in another entity that is not a controlled entity, an associate or a joint arrangement, it accounts for that interest in accordance with the requirements for investments in Section 6 of this Standard.

8. Where this Standard does not provide guidance on a specific type of transaction or event, the entity shall use its judgement to determine an appropriate method of accounting. The entity shall refer to, and consider the applicability of, the following in descending order:

  1. How this Standard deals with similar or related transactions or events;

  2. The relevant requirements in the Tier 2 PBE Standards dealing with the same, similar or related transactions or events; and

  3. The definitions and concepts in the PBE Conceptual Framework to the extent that they do not conflict with this Standard.

This Appendix contains the requirements for an entity applying Reporting Requirements for Tier 3 Public Sector Entities. It is an integral part of the Standard.

A1. This part of the Standard1 sets out the requirements for the preparation of a simple format report known as the “performance report”. The Standard may be applied by an eligible public sector public benefit entity (PBE) that elects to apply this Standard in accordance with the requirements of XRB A1 Application of the Accounting Standards Framework.

A2. This Standard comprises a number of sections (as shown in the Table of Contents). These refer to specific aspects of reporting. Within each section information is presented in numbered paragraphs to enable cross-referencing within this Standard.

A3. Terms are defined in the Glossary in section 11 to assist with the understanding of this Standard.

A4. The performance report for a public sector PBE is designed for those users who cannot require

the entity to disclose the information needed for accountability and decision making. Most users fall into two groups:

  1. Providers of resources to the entity; and

  2. Recipients of services from the entity. A5. Examples of these users are:

  3. Taxpayers or ratepayers who provide funding to an entity, persons who pay fees and charges to an entity, and purchasers of goods or services provided by an entity (resource providers); and

  4. Service recipients who benefit from the services provided by the entity (such as pupils of a school or their caregivers).

Significance

A6. This Standard frequently uses the term “significant”, which is an important concept to consider when preparing an entity’s performance report in accordance with this Standard. Significance applies to both financial and non-financial information.

A7. Items are significant if excluding them from the performance report or making an error in reporting them could, individually or collectively, influence the decisions made by users relying on the performance report. For example, if an entity neglects to report an asset that it owns and as a result a user decides to provide funding to the entity, the excluded asset would be considered significant.

A8. Items may be significant because of their nature, their size, or a combination of both. For the purposes of this Standard, significance has the same meaning as materiality.

A9. Deciding whether items are significant is a matter of judgement and must be considered in the context of each specific item and from the perspective of the users of the entity’s performance report.

Objective of Reporting

A10. An entity should prepare a performance report that addresses the following questions:

  1. “Who are we?” – an overview of the entity;

  2. “Why do we exist?” – why the entity was established and what it seeks to achieve;

  3. “What did we do?” – what the entity did during the year in providing goods or services;

  4. “When did we do it?” – the period covered by the report, and a comparison of information with previous reporting periods;

  5. “What did it cost?” – what it cost to provide the goods or services, and to run the entity;

  6. “How was it funded?” – the sources of revenue used to pay for its activities in providing goods or services;

  7. “How did we do our accounting?” – the accounting policies applied; and

  8. “What do we need to continue operating?” – the ability of the entity to continue achieving its objectives and operate in the foreseeable future. This question can be answered by looking at the performance report as a whole.

A11. The performance report is usually prepared for a financial year (which is a twelve-month period that ends on the entity’s “balance date”). The performance report shall identify and reflect the period to which it refers, and contain only the revenue, expenses and cash flows for that period. The performance report may be prepared for a part year, but this is unusual and most likely occurs when the entity is formed or ceases to exist during a year, or changes its balance date. If this is

the case, the entity will need to check that the revenue, expenses and cash flows are only for that part year.

Required Components of the Performance Report

A12. An entity shall prepare a performance report every financial year with, at a minimum, the following components:

  1. Entity information which explains what the entity is and why it exists (section 3);

  2. A statement of financial performance showing what the entity has generated (revenue) and the cost of running the entity (expenses), over the year, so that users and preparers know whether the entity has made a surplus or a deficit for that financial year (section 5);

  3. A statement of financial position showing what the entity owns (assets), what the entity owes (liabilities) and the difference (accumulated funds) at the balance date (section 6);

  4. A statement of cash flows showing the cash the entity received, and the cash the entity paid out during the year (section 7);

  5. A statement of accounting policies which explains the accounting rules used to prepare the performance report (section 8); and

  6. Notes to the performance report explaining some of the amounts shown in the statements in (b) to (e) above, as well as other information to help explain the entity’s financial performance and financial position, including commitments, contingencies and related party transactions (section 9).

A13. In addition, a statement of service performance, which explains what the entity did (see section 4), shall be prepared by an entity that is required by law to prepare this statement (by whatever name it is called). The statement of service performance is optional for other entities.

A14. An entity may use other titles for the statements in paragraphs A12−A13 if the entity considers them to be more suitable for the entity and users of the performance report. For example, the statement of financial position is sometimes referred to as the balance sheet, and the statement of financial performance is sometimes referred to as the operating statement.

Presentation of the Entity’s Performance

A15. The performance report shall “fairly present” the entity’s service performance, financial performance and cash flows over the financial year, and its financial position at balance date, in accordance with this Standard. Fair presentation is achieved by compliance with this Standard, and also requires an entity to:

  1. Select and apply appropriate accounting policies;

  2. Present and disclose information in the best way to achieve the following goals:

    1. Relevance: the information can be used to assess the entity’s performance.

    2. Faithful representation: the information represents what has happened in a way that most users would see as a fair representation of the situation. Information is complete, neutral and free from material error.

    3. Understandability: information is presented so that users can identify the main points of the entity’s performance in that year and ask questions about that. Users should not have to be a qualified accountant to do this.

    4. Timeliness: the performance report should be provided as soon as possible following the end of the financial year so that the information is useful and relatively current. For some public sector PBEs, legislation defines the period by which the annual performance report must be completed.

    5. Comparability: users are able to compare what the entity did this year with what the entity did last year. Users might also want to see how the entity performed compared to similar entities in the same sector this year.

    6. Verifiability: the information reported is capable of being supported by independent means. Verifiability helps assure users with different levels of knowledge that the information in the performance report is without material error or bias.

A16. Where the requirements of this Standard have been followed but more information about particular events during the year is needed in order to give users a full picture of what happened, additional relevant information shall be provided.

A17. It is important that information reported in the performance report is internally consistent. This is done by cross-referencing each line of a statement to any other information that relates to that line item in the rest of the performance report. For example, the total for property, plant and equipment would be referenced to the note containing the property, plant and equipment schedule. It is also important that any non-financial information, for example, information included within the statement of service performance, is consistent with financial information included elsewhere in the performance report.

General Information

A18. Each component in the performance report specified in paragraphs A12−A13 shall be clearly identified.

A19. An entity’s performance report shall incorporate all the activities of the entity. The performance report shall include all branches or other operating units, if the entity is structured into more than one unit. This is done by collating and reporting information from all the branches or operating units and excluding all transactions between those units.

A20. The following information shall be displayed prominently, and repeated at the top of each page of the performance report:

  1. The name of the entity that is preparing the performance report;

  2. The date of the end of the financial year covered by the performance report, or the period to which the performance report applies, as appropriate; and

  3. The level of rounding used in the presentation of the performance report (as a general rule whole dollars – rather than dollars and cents – should be used; rounding to the nearest thousand may be appropriate for a larger entity).

Comparative Information

A21. Although the performance report focuses on the current financial year’s information, comparative information for the previous financial year shall be included in the statement of service performance, statement of financial performance, statement of financial position, statement of cash flows and any associated notes to the performance report unless this Standard specifically allows otherwise. Comparative information shall also be provided for the disclosures about related parties in the notes to the performance report. The performance report may contain further comparative information where it is considered useful for users of the report.

A22. An entity required by law to publish its budget is required to report budgeted information in an additional column alongside its actual results as further comparative information. Other entities may choose to, but are not required to, report budgeted information (or plans) alongside their actual results.

Consistency of Presentation

A23. An entity shall select and apply its accounting policies consistently for similar transactions and other events, unless this Standard specifically requires or permits categorisation of items for which different policies may be appropriate. If this Standard requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category.

A24. An entity may prepare its performance report on either a GST-inclusive or a GST-exclusive basis, provided that GST is reported in a consistent way throughout the performance report.

A25. All amounts shall be presented in New Zealand dollars. If the entity has transactions or balances that are not in New Zealand dollars, it shall translate amounts to New Zealand dollars as follows:

  1. Transactions are to be translated using the exchange rate on the date the revenue, expense or cash flow occurs; and

  2. Monetary asset and liability balances are to be translated using the exchange rate at balance date.

A26. An entity shall not change the way the information is presented, or the categories of disclosure, from one period to the next unless:

  1. There has been a significant change in the entity’s operations;

  2. The change in presentation or category of disclosure would provide more useful information for users (refer to paragraph A15(b) for guidance on those characteristics that information should have to make it useful for users); or

  3. This Standard requires that the presentation or a category of disclosure is changed.

A27. Any changes to presentation or categories of disclosure due to the application of paragraph A26 also require similar changes to the comparative amounts, unless it is impracticable to do so.

No Offsetting of Amounts

A28. Users of the performance report should be given as much relevant information as possible about the entity. Therefore, the entity shall report gross amounts for transactions, and not offset (net- off) any associated transactions or balances. This means that:

  1. Assets and liabilities shall not be offset against each other; and

  2. Revenue and expenses shall not be offset against each other.

A29. Valuation adjustments such as write-downs of inventory or property, plant and equipment provide for the change in value of an entity’s assets. Measuring assets net of valuation adjustments is not considered offsetting. Accounting for the net amount of GST owing to or from Inland Revenue is also not considered offsetting.

Correction of Errors

A30. Significant errors shall be corrected as soon as practicable. Errors arising during the reporting period shall be corrected before the performance report is finalised. Errors relating to past periods shall be corrected in the current performance report before the report is finalised by adjusting the opening balance of the relevant asset, liability or accumulated funds at the beginning of the financial year. No adjustments to past periods are required (see paragraph A251).

Changes in Accounting Estimates

A31. The use of estimates is an essential part of preparing the performance report on an accrual basis.

For example, estimates may be required of:

  1. Revenue earned to date under a contract;

  2. Bad debts arising from uncollected receivables;

  3. The current value of old inventory; and

  4. The useful lives of items or categories of property, plant and equipment.

A32. An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience. The revision of an estimate does not relate to prior periods and is not the correction of an error.

A33. The effect of a change in an accounting estimate shall be recorded by including it in the statement of financial performance as part of the relevant revenue or expense item in the current period.

A34. To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or accumulated funds, it shall be recorded by adjusting the amount of the related asset, liability, or accumulated funds for the current period.

Events After the Balance Date

A35. Events after the balance date are those events, both favourable and unfavourable, that occur between the balance date and the date when the performance report is finalised. The balance date is the last day of the financial year to which the statements relate. The date of finalisation is the date on which the statements have received approval from the individual or body with the authority to authorise those statements for issue.

A36. An entity shall adjust the amounts recorded in its performance report and update the related disclosures to reflect events after the balance date that provide evidence of conditions that existed at the balance date. The following are examples of events that require an entity to adjust the amounts recorded in its performance report, or to record items that were not previously recorded:

  1. The settlement after the balance date of a court case that confirms that the entity had a liability at the balance date.

  2. The receipt of information after the balance date indicating that an asset was impaired or damaged at the balance date. For example:

    1. The bankruptcy of a debtor that occurs after the balance date usually confirms that a loss already existed at the balance date on a receivable account, and that the entity needs to adjust the carrying amount of the receivable account; and

    2. The disposal of damaged inventories after the balance date may provide evidence about their net realisable value at the balance date.

  3. The discovery of fraud or errors that show that the performance report is incorrect.

A37. An entity shall not adjust the amounts recorded in its performance report to reflect events after the balance date that are indicative of conditions that arose after the balance date. The following are examples of such events:

  1. The entity decides after the balance date, to incur expenses relating to an activity that occurs after balance date;

  2. Purchases and disposals of assets that occur after balance date;

  3. A decision by a lender made after balance date to forgive some amounts borrowed by the entity; and

  4. The entity enters into significant commitments after the balance date, for example issuing significant guarantees after balance date.

1This Appendix is part of the Standard and so the term “Standard” is used throughout. “Standard” refers to “Reporting Requirements for Tier 3 Public Sector Entities”, abbreviated as “Tier 3 (PS) Standard”.

Purpose and Value to Users

A38. The purpose of the entity information is to summarise for users what the entity does and how it is organised. This information will assist users in their understanding of the reporting entity.

Required Information

A39. The entity information shall provide general descriptive information about the entity. This information shall comprise:

  1. The entity’s name, type of entity and legal basis (if any);

  2. The entity’s purpose or mission2 (the key difference the entity is trying to make);

  3. The entity structure (i.e. whether it includes separate operating units, divisions or branches);

  4. The entity’s governance arrangements (i.e. who makes the key decisions on behalf of the entity); and

  5. The names of any entities controlled by the entity for financial reporting purposes.

A40. The information required by paragraph A39 may be incorporated by cross-reference from the performance report to some other statement or report (e.g. an annual return submitted to a regulator) that is publicly available to users of the performance report at the same time.

A41. The amount of detail provided will depend on the size of the entity and the complexity of the entity’s operations.

Purpose and Value to Users

A42. The purpose of the statement of service performance is to provide information to help users understand what the entity did during the financial year to achieve its objectives.

Requirement to Complete a Statement of Service Performance

A43. A public sector entity which is required by legislation to provide a statement of service performance (by whatever name called including “statement of performance”) in accordance with generally accepted accounting practice (GAAP) shall prepare a statement of service performance in accordance with this Standard.

A44. This requirement is optional for all other public sector PBEs. However, given the usefulness of this information for users of simple format reports, all public sector PBEs applying this Standard are encouraged to prepare a statement of service performance.

Required Information

A45. The statement of service performance provides information about:

  1. What the entity is seeking to achieve over the medium to long term (i.e. its objectives); and

  2. The significant activities the entity has undertaken during the financial year to achieve these objectives.

A46. The statement of service performance shall:

  1. Describe what the entity is seeking to achieve over the medium to long term; and

  2. Describe, and quantify as far as practicable, the significant activities the entity has undertaken, or what it has achieved, during the financial year.

A47. The information required by paragraph A46(a) is likely to be closely related to the entity’s mission or purpose. The main difference is that the mission or purpose is usually stated in broad or general terms and applies over the life of the entity. By contrast, the information required by paragraph A46(a) should be more specific, focused on what the entity is seeking to achieve over the medium to long term.

A48. The information disclosed in the statement of service performance should be what the entity considers important for a user’s overall understanding of its service performance (i.e. its significant activities or achievements). Therefore, the entity is not expected to include a detailed account of everything it has done in the financial year.

A49. To meet the requirement in paragraph A46(b), the entity shall provide users with an appropriate and meaningful mix of measures and/or descriptions of its significant activities or achievements for the financial year. The measures and/or descriptions used by an entity may include:

  1. Quantity measures (to the extent practicable);

  2. Quality measures (to the extent practicable); and

  3. A measure of the timeliness of delivery of the entity’s goods or services if this is important to the recipient.

A50. The most appropriate and meaningful measures and/or descriptions are those that measure or describe aspects of performance that are of particular value or importance to users to understand the entity’s service performance. Refer to paragraph 15(b) for guidance on the qualitative characteristics that information should have to make it useful for users.

A51. The information disclosed in the statement of service performance should be what the entity considers important for a user’s overall understanding of its service performance (i.e. its significant activities or achievements). Therefore, the entity is not expected to include a detailed account of everything it has done in the financial year.

A52. An entity may present the information in the statement of service performance in whichever format it considers to be the most helpful to users’ understanding of the entity’s significant activities or achievements. For example, an entity can choose to present the information using:

  1. Graphs;

  2. Tables; or

  3. Images or infographics showing the entity’s activities and achievements during the financial year.

A53. Service performance information shall be reported consistently from year to year. If the entity changes what it reports or how it reports its service performance information, it shall explain the nature of those changes and the reason those changes were made. Possible reasons for a change in what is reported and how it is reported include changes in:

  1. The nature of the entity’s activities from the prior period or from what was planned;

  2. The descriptions of goods and services or the way in which they are aggregated; or

  3. The measures and/or descriptions used.

Changes to comparative information are permitted, but not required. If an entity chooses to restate comparatives, it shall disclose the effect of the changes on that comparative information.

Optional Information

A54. An entity may wish to report additional information such as:

  1. Comments on those factors which affect the achievement of the entity’s objectives. This might include the working relationships between volunteers and employees, decisions to broaden or narrow the delivery of services, or the impact of factors external to the entity – such as economic, legal and geographical factors; and

  2. The entity’s budget (plans) for the financial year being reported on, and an explanation of actual performance achieved against the plans set by the entity – for some entities this may be a legislative requirement and if so, is required rather than optional information.

2Also called vision, strategic goals, or outcome goals.

Purpose and Value to Users

A55. The purpose of the statement of financial performance is to report all revenue and expenses of the entity for the financial year. The statement provides users with information about the entity’s financial performance, including its revenue, expenses and the resulting surplus or deficit for the financial year.

Format of the Statement of Financial Performance

Required Information

A56. The statement of financial performance shall be presented as follows:

Revenue (by category)

xx

Less expenses (by category)

xx

Surplus/(Deficit)

xx

Alternative Format

A57. Additional line items, headings and subtotals may be presented in the statement of financial performance when such presentation will help users to understand the entity’s financial performance.

A58. Where the making of grants and donations is a major activity of the entity, and/or where the entity receives significant grants for capital purposes, an entity may elect to present these items separately from other revenue and expenses in accordance with the following format:

Revenue (by category)

xx

Less expenses (by category)

xx

Operating surplus/(deficit)

xx

Revenue from capital grants and donations

xx

Less grants and donations made

xx

Surplus/(Deficit)

xx

Revenue

A59. Revenue is the cash and other resource inflows of the entity, other than inflows from borrowings, sale of assets, or contributions of capital from owners (see paragraph A62)3.

A60. Revenue can come from various sources. Examples include funding from government (either as general funding or for the provision of goods or services), fees and charges (such as registration fees), grants and donations, and proceeds from the sale of goods or services.

A61. Revenue includes only amounts received and receivable by the entity on its own account. Amounts collected on behalf of others (that is, as agent of another entity) are not revenue of the entity. However, if there is a commission involved in this collection arrangement the commission received would be recorded as revenue (see also paragraphs A101–A104).

A62. All public sector PBEs are owned by someone – usually central or local government acting on behalf of the taxpayer or ratepayer. From time to time the owner may contribute capital4 to the entity. Contributions to the entity by owners are classified as “capital contributed by owners” in the statement of financial position, and not as revenue (see also paragraph A177). Sometimes the contributions of capital are referred to as “grants” (the entity may need to refer to the nature of the funding agreement in order to determine whether it should be categorised as equity or revenue). In order to account for them correctly, such grants will need to be distinguished from grants that are provided to fund the delivery of goods or services (which are accounted for as revenue).

Required Information

A63. In order to make information understandable to users, revenue shall be totalled (i.e., aggregated) and presented separately in categories. The following aggregated categories shall be reported separately in the statement of financial performance when applicable to the reporting entity:

  1. Donations, koha, bequests and other fundraising revenue;

  2. General funding received from central or local government;

  3. Grants from non-government organisations;

  4. Capital grants;

  5. Revenue from service delivery grants/contracts (central or local government);

  6. Revenue from service delivery grants/contracts (non-government);

  7. Interest, dividends and other investment revenue; and

  8. Other revenue.

A64. Categories (b) and (c) in paragraph A63 include all grants received from non-government organisations and all funding received from central or local government which are not explicitly linked to the delivery of specific goods or services. Any fees, charges and other revenue from other organisations and individuals that are in substance a contract for the delivery of goods or services (including student fees, registration fees, licensing fees and examination fees) would be included in category (e) or (f) in paragraph A63 depending on its source. Category (a) in paragraph A63 includes donations, koha, bequests and fundraising revenue received from the public or non-government organisations (such as charitable trusts, foundations and other philanthropic agencies).

A65. Category (d) in paragraph A63 includes any grants received from non-government organisations and funding received from central or local government with an external expectation from the provider that the funds are used to purchase or construct a significant asset.

A66. An entity only needs to report against a category specified in paragraph A63 when the category is applicable to the entity. If a category is not applicable, the entity may omit that category from their performance report.

A67. The categories may be described using terminology appropriate for the entity and need not use the titles used in paragraph A63, provided that the separate categories are still maintained.

A68. If there is difficulty in determining the category that should be used for a particular transaction, the entity shall use judgement to determine an appropriate classification. This classification shall then be used consistently in future periods so that the information reported is comparable over time.

A69. Disaggregated or additional categories of revenue may be presented in the statement of financial performance where doing so is necessary to provide users with an understanding of the main revenue sources of the entity. Too many categories can make it difficult for users to understand the overall picture. The number of disaggregated or additional categories used should therefore be limited to those that are really necessary.

A70. Further breakdowns or disaggregation of the categories in paragraph A63 may be provided in the notes to the performance report. For example, fees and charges may be disaggregated by type of fees (for example, school fees, examination fees, activity fees). Where the entity receives significant donations and grants, the entity may also elect to include in the notes to the performance report a list of donors or grant providers, together with a summary of their contributions, if it considers that this is useful information. The objective is to provide a breakdown that gives the most useful information to users of the performance report.

Accounting for Revenue

A71. Revenue shall be recorded on the occurrence of a recognition event. This is generally when there is a legal right to receive cash either now or sometime in the future. The timing of the recording of specific revenue types is provided in Table 1.

Table 1: Recording of Specific Types of Revenues

Source

When to Record

Comments

Donations, koha, bequests and other fundraising revenue

Insignificant donations and bequests

Record as revenue when cash is received.

Revenue recognition shall not be deferred even if insignificant donations and bequests with documented expectations over use are significant in the aggregate.

Significant donations and bequests received with no documented expectations over use

Record as revenue when cash received.

Revenue recognition shall not be deferred even if the reporting entity expects to spend the funding received on related expenditures in future periods.

Significant donations and bequests received with documented expectations over use

On receipt of the donation or bequest, record asset for funding received (generally cash) and a matching deferred revenue balance. As or when the documented expectations over use are met the deferred revenue balance is reduced and revenue is recorded.

The deferred revenue balance as at balance date reflects the extent to which the documented expectations over use have not yet been satisfied.

Judgement will be required to determine an appropriate approach for determining the point in time at which, or the period over which, the documented expectations are satisfied.

Donated assets (other than cash)

Significant donated assets with useful lives of 12 months or more: Record on receipt at readily obtainable current values (such as local council rateable value for land and buildings).

Significant donated assets that are difficult to value such as intangible assets, highly specialised assets, and heritage assets: Do not record.

Other donated assets: Do not record the asset or any revenue from the donation.

Significant donated assets that are recorded: Disclose in the notes to the performance report details of the assets in accordance with the disclosure requirements of this Standard in relation to the particular class of asset (see paragraphs A223–A226).

Significant donated assets not recorded: Details are disclosed in the notes to the performance report (see paragraph A227).

Donated goods or services (other than donated assets)

Do not record.

Significant donated goods or services (including services in kind) are to be disclosed in the notes to the performance report (see paragraph A85).

Fundraising – cash

Record as revenue when cash is received.

May be received in the form of donations or from the sale of goods or services.

Fundraising – other

If the entity receives an asset, refer to section on “donated assets” below.

If the entity receives goods or services, refer to section on “donated goods or services (other than donated assets)” below.

As part of a fundraising campaign the entity may receive donations of assets (other than cash) which it may keep, or the entity may receive donated goods which it may sell to raise funds.

Revenue from service delivery grants/contracts

Funding linked to the delivery of goods or services

Record as revenue by reference to the stage of completion of the services at balance date, based on the actual services provided as a percentage of the total services to be provided.

The stage of completion of a service may be determined in many ways including:

  1. On an event by event basis if that is the basis for charging; or

  2. Services performed to date as a percentage of total services.

Fees and charges in exchange for goods or services

If the goods or services are of similar value in each time period (for example, monthly access to tuition): Record as revenue evenly over the period in which the items are provided to the recipients.

If the goods or services vary in value from period to period: Record as revenue proportionally on the basis of the value of each item in relation to the total estimated value of all items covered by the fee or charge.

Any fees or charges received in advance of the period to which they relate should be recorded as a liability.

Other fees and charges

Record as revenue when the fee or charge is due to be received.

Fees and charges such as registration fees that primarily entitle a person to the benefits derived from the payment of the fees and charges and do not require the provision of on-going benefits during the year, should be recorded in this way. However, if the fee or charge is received prior to the year to which it relates, it should be recorded as a liability.

Entrance fees and one-off fees

Record as revenue when the event takes place.

Any fees received for events that have not yet taken place are recorded as a liability.

General funding received from central or local government Grants from non-government organisations

Capital grants

Insignificant grants and general funding received

Record as revenue when cash is received.

Revenue recognition shall not be deferred even if insignificant grants with documented expectations over use are significant in the aggregate.

Significant general funding or grants received with no documented expectations over use

Record as revenue when cash is received.

Revenue recognition shall not be deferred even if the reporting entity expects to spend the funding received on related expenditures in future periods.

Significant general funding or grants received with documented expectations over use

On receipt, record asset for funding received (generally cash) and a matching deferred revenue balance. As or when the documented expectations over use are met the deferred revenue balance is reduced and revenue is recorded.

The deferred revenue balance as at balance date reflects the extent to which the documented expectations over use have not yet been satisfied.

Judgement will be required to determine an appropriate approach for determining the point in time at which, or the period over which, the documented expectations are satisfied.

Interest, dividends and other investment revenue

Interest

Record as revenue as it is earned during the period.

If the borrower pays interest in advance, the entity records a liability being the amount of the advance payment.

If the borrower pays interest in arrears (after the investment period has elapsed), the entity records as an asset, any amount owed to the entity as a receivable.

Dividends and similar revenue

Record as revenue when receivable, for example when the dividend is declared (which would usually be before it is paid).

Dividends declared after the end of the financial year of the entity are not recorded as revenue.

Other revenue

Sale of goods

Record as revenue when the goods are sold (this is usually when the goods are received the purchaser).

If the purchaser pays before they receive their goods, the entity records a liability.

If the purchaser does not pay on receipt of the goods, the entity records a debtor.

Subscriptions to a series of events

Record as revenue as events occur, allocating to each event on a basis that reflects the extent to which services are performed at each event.

Any subscriptions received for events that have not yet taken place are recorded as a liability.

Commission for acting on behalf of another entity as the agent of that other entity (the principal)

Record as revenue when receivable, which would usually be defined in the agency agreement.

Revenue includes only amounts received and receivable by the entity on its own account, not the amounts collected for the principal.

Lease or rental revenue

Record as revenue on a straight-line basis over the term of the agreement, unless another systematic basis is representative of the time pattern of the user’s benefit.

If the lessee pays in advance, the entity (as lessor) records a liability being the amount of the advance payment.

If the lessee pays after the leased asset is used, the entity (as lessor) records, as an asset, any amount owed to the entity.

Gain on sale of an asset

Record as revenue when control of the asset transfers to the new owner.

The gain is the proceeds from the sale less the amount recorded as the value of the asset prior to its sale.

Insignificant Donations, General Funding, Grants and Bequests

A72. Revenue from insignificant donations, general funding, grants and bequests is recorded when the funding is received.

Significant Donations, General Funding, Grants and Bequests with No Documented Expectations over Use

A73. Where there are no documented expectations communicated from the resource provider about how the funds will be used, revenue from significant donations, general funding, grants and bequests is recorded when the funding is received.

Significant Donations, General Funding, Grants and Bequests with Documented Expectations over Use

A74. Where there are documented expectations (identified in accordance with paragraphs A75–A80) about how or when the funding received from significant donations, general funding, grants (including capital grants) and bequests will be used, the reporting entity shall record the funding as deferred revenue. As or when the documented expectations over use are satisfied by the reporting entity, the deferred revenue balance is reduced, and revenue is recorded.

Identifying Documented Expectations

A75. For the purpose of paragraph A74, an expectation over how or when the funding received from significant donations, general funding, grants and bequests will be used arises when:

  1. the expectation is documented and agreed by both parties – being the resource provider (the funder) and the reporting entity (who receives the transfer of resources from the resource provider, typically in the form of a transfer of cash); and

  2. the expectation is specific enough to allow the reporting entity to reliably demonstrate to the resource provider when the expectation has been satisfied (regardless of whether the resource provider monitors the use of the funding provided or not).

A76. Examples of specific expectations include obligations to acquire or build a specific asset or assets (e.g. construct a building under the terms of a capital grant); or expectations that the funding will be used for the provision of specific goods or services to third-party beneficiaries, to cover general operating costs over a specified time period, or to support the delivery of specific programmes or activities.

A77. An expectation to use funds from significant donations, general funding, grants and bequests to support the general operating costs of the reporting entity over an unspecified period of time is not specific enough to allow for funding received to be recognised as deferred revenue. In these circumstances, revenue is recognised immediately when the funding is received.

A78. Internal expectations or decisions by those charged with governance about how or when the reporting entity expects to use funds received from donations, general funding, grants and bequests are not relevant when determining how to account for the associated revenue.

A79. The expectation is documented when it is agreed in writing between the reporting entity and the resource provider. For an expectation to be both documented and agreed between the parties:

  1. The resource provider communicates the expectation to the entity within, for example, a formal contract, memo, letter or email; and

  2. The entity communicates acceptance of the expectation to the resource provider by, for example, signing the formal contract, memo or letter; or agreeing to the expectation via email.

A80. Where an application for funding sets out how or when the reporting entity expects to use the funds, then approval of the application by the resource provider is sufficient to demonstrate that there is agreement between both parties concerning the expectation over use.

Timing of Revenue Recognition

A81. The timing of revenue recognition is dependent on the nature of the documented expectation over use. A documented expectation over use (identified in accordance with paragraphs A75–A80) will either be satisfied by the reporting entity at a point in time or over a period of time.

A82. The unit of account for the recognition of significant donations, general funding, grants and bequests with documented expectations over use, is each separate documented expectation identified. There may be multiple documented expectations attached to the funding, which will need to be accounted for separately when reducing the deferred revenue balance and recognising revenue.

A83. Judgement will be required to determine an appropriate revenue recognition approach for determining the point in time at which, or the period over which, the documented expectation is satisfied. The following are examples of documented expectations and the different revenue recognition approaches that may be used:

  1. Deliver specified goods or services to beneficiaries (e.g. to deliver education programmes to 1,000 recipients) – revenue could be recognised as the specified goods or services are delivered.

  2. Purchase an asset (e.g. a vehicle) – revenue could be recognised at the time the asset is purchased.

  3. Construct an asset (e.g. building) – revenue could be recognised over the construction period (e.g. on a stage of completion basis).

  4. Support general operating costs (over a specified time period, e.g., three years) – revenue could be recognised on a straight-line basis over the stipulated time period.

  5. Host an event or deliver a specific programme or activity – revenue could be recognised on a stage of completion basis as the costs to host the event or deliver the specific programme or activity are incurred.

A84. Figure 1 provides an overview of the revenue recognition approach for donation, general funding, grant and bequest funding received.

Figure 1: Decision Tree: Accounting for Grant, Donation and Bequest Revenue

Goods or Services in Kind

A85. An entity shall not record as revenue goods or services received in kind, unless they are significant donated assets (see paragraph A127). However, an entity shall provide information about significant goods or services received in kind in the notes to the performance report (see paragraph A222).

Expenses

A86. Expenses are the cash and other resource outflows from the entity, other than outflows to settle liabilities or purchase assets, or which are distributions of capital to owners5.

A87. Expenses do not include prepayments. Executory contracts are also excluded (an executory contract is one where neither party has performed their obligation under the contract, for example, inventory that has been ordered but not received and therefore not paid for).

A88. Expenses include only amounts paid and payable by the entity on its own account. Amounts paid on behalf of others (that is, as agent of another entity) are not expenses of the entity (see paragraphs A101−A104).

Required Information

A89. In order to make information understandable to users, expenses shall be totalled (i.e., aggregated) and presented separately in categories. The following aggregated categories shall be reported separately in the statement of financial performance when applicable to the reporting entity:

  1. Expenses related to fundraising;

  2. Employee remuneration and other related expenses;

  3. Other expenses related to service delivery;

  4. Grants and donations; and

  5. Other expenses.

A90. An entity only needs to report against a category specified in paragraph A89 when the category is applicable to the entity. If a category is not applicable the entity may omit that category from its performance report.

A91. The categories may be described using terminology appropriate for the entity and need not use the titles used in paragraph A89, provided that the separate categories are still maintained.

A92. If there is difficulty in determining the category that should be used for a particular transaction, the entity shall use judgement to determine an appropriate classification. This classification shall then be used consistently in future periods so that the information reported is comparable over time.

A93. Reimbursements for expenses incurred by employees on behalf of the organisation are not classified as employee expenses but are recorded in the appropriate category of expenses, for example, as an expense relating to providing goods or services.

A94. Category (b) in paragraph A89 includes all remuneration paid to employees of the entity. Costs incurred for independent contractors are also included in category (b) in paragraph A89.

A95. Category (e) in paragraph A89 includes all expenses attributable to the activities carried out by the entity in pursuit of their stated purposes (excluding expenses allocated to other categories).

A96. Disaggregated or additional categories of expenses may be presented in the statement of financial performance where doing so is necessary to provide users with an understanding of the main expenses of the entity. Too many categories can make it difficult for users to understand the overall picture. The number of disaggregated or additional categories used should therefore be limited to those that are really necessary.

A97. Further breakdowns or disaggregation of the categories in paragraph A89 may be provided in the notes to the performance report. For example, employee remuneration and other employee related expenditure could be disaggregated into salaries and wages, employer superannuation contributions (for example, KiwiSaver) and other costs relating to employees (for example, ACC levies). The objective is to provide a breakdown that gives the most useful information to users of the performance report.

Accounting for Expenses

A98. Expenses shall be recorded on the occurrence of a recognition event. This is where there is a legal obligation to pay cash either now or sometime in the future (this is normally referred to as the point at which an expense is “incurred”). The timing of the recording of specific expense types is provided in Table 2.

Table 2: Recording of Specific Types of Expenses

Source

When to Record

Comments

Expenses related to fundraising6

Advertising costs, printing of fundraising materials, staff training

Record the expense when the advertising service is received, or the other expense is incurred.

This category would include expenses associated with seeking gifts or donations.

Amounts paid to third party fundraisers

Record the expense when it is incurred.

 

Employee remuneration and other related expenses

Wages and salaries, and annual leave.

Record the expense as staff provide services and become entitled to wages and salaries and leave entitlements.

Amounts for leave entitlements are recorded as liabilities.

Amounts deducted from staff wages and salaries and held to pay to a third party (for example, Inland Revenue, KiwiSaver) are recorded as liabilities.

Wages and salaries paid in advance

Record the expense when the staff provide services.

Record as an asset (prepayment) until the relevant services are provided.

Performance related bonuses

Record the expense when the employee is notified that the bonus has been granted.

 

Other (including ACC levies)

Record the expense in accordance with the relevant agreement.

Often recorded as an expense evenly over the period of the agreement.

Superannuation contributions

Record the expense as staff provide services.

This category comprises the entity’s contribution to KiwiSaver or other superannuation schemes on behalf of staff. Amounts not yet paid over are recorded as liabilities.

An entity sponsoring a defined benefit plan shall account for that plan in accordance with PBE IPSAS 25 Employee Benefits.7

Independent contractor costs

Record the expense as contractors provide services and become entitled to fees.

 

Other expenses related to service delivery

Purchase of inventory for sale or distribution

Record the expense when the goods are sold or distributed.

Where donated inventory is not recorded as an asset, there is no expense to record on sale or distribution.

Inventory written down or written off

Record the expense when it is determined that the amount on the statement of financial position is greater than the value of the inventory (either as a sale or a distribution).

Inventory may lose value as:

  1. It ages (for example, fresh food);

  2. Future customers would not pay as much for the inventory;

  3. Stock becomes obsolete; and

  4. The inventory is less valuable to service recipients.

Administration and overhead costs

Record the expense when the cost is incurred.

Examples include premises rental, utilities (rates, power, phone), maintenance, IT costs, stationery etc.

Other costs associated with the delivery of services

Record the expense when the cost is incurred.

 

Grants and donations

Grants and donations made

Record the expense when the grant or donation has been approved and the recipient advised.

 

Other expenses

Interest expense

Record the expense as it is incurred during the period.

This category is the amount paid during the period related to borrowings. Includes any interest amount owing but not yet paid.

Impairment charges

(changes in the value of assets)

Reversal of an impairment charge recorded in a prior period

Record the expense when it is apparent that an asset is recorded at an amount that is greater than its net realisable value.

Reverse the expense when there is an indication that an impairment charge recorded in a prior period may no longer exist or may have decreased (see paragraphs A122−A123).

The impairment expense is the amount by which the asset’s recorded amount is reduced.

Impairment charges mostly relate to property, plant and equipment, inventory, and receivables (which become bad debts).

See also Table 3 for further discussion on impairment.

Depreciation

Record the expense at year end based on the established depreciation rate.

See also Table 3 for further discussion on depreciation.

Loss on sale of an asset

Record the expense when control of the asset transfers to the new owner.

The loss is the amount recorded as the value of the asset prior to its sale, less the proceeds from the sale.

Other expenses

Record the expense when it is incurred.

It may be useful to consider the above principles.

Other Information

Required Information

A99. The statement of financial performance shall include any additional information that the entity considers necessary for users to understand the financial performance of the entity.

A100. An entity shall include the entity’s budget (or plans) for the current financial year where this is required by legislation. Other entities may include this information if they wish and it is available.

Amounts Payable or Receivable on Behalf of Others

A101. Revenue and expenses include only the amounts relating to the entity on its own account, that is, where it is the “principal”. Where the entity is acting as an “agent” (including as a trustee or nominee) for another party (for example, the Government8, another entity, or some other third party), the amounts collected or paid belong to that other party rather than the entity.

A102. An entity is a principal (that is, acting on its own behalf) when:

  1. The entity has the primary responsibility for providing the goods or services to the beneficiary or customer;

  2. The entity establishes the prices, either directly or indirectly, for those goods or services; and

  3. The entity bears the customer’s credit risk for any amount receivable from the customer.

A103. An example of the entity as principal is when the entity organises a conference for a group of organisations involved in the same service area, receives the conference fees, and is responsible for all the conference-related payments such as advertising and catering.

A104. An entity is acting as an agent when it does not have exposure to the significant risks and rewards associated with the transactions. One feature indicating that an entity is acting as an agent is that the amount the entity earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer.

3See the Glossary for a more detailed definition of revenue.

4This is analogous to a for-profit entity, where the shareholders contribute share capital.

5See the Glossary for a more detailed definition of expenses.

6If expenses are classified under a separate category in this Standard then exclude them from this category. For example, a full-time staff member spends a small proportion of their time involved in fundraising, so their salary is still classified under employee costs. However, if a person is employed on contract solely for fundraising purposes this would be included under expenses related to fundraising.

7Superseded by PBE IPSAS 39 Employee Benefits from 1 January 2019.

8For the purposes of this Standard, the collection and payment of GST or PAYE are not considered to be transactions undertaken by the entity as an agent.

Purpose and Value to Users

A105. The purpose of the statement of financial position is to provide a snapshot of the entity’s assets, (what the entity owns), liabilities (what the entity owes) and accumulated funds (the difference between assets and liabilities) at a certain point in time (being the balance date). The statement provides users with information about the financial sustainability of the entity, including the assets that can be used to run the entity in the future, and the liabilities that will have to be settled in future periods.

Format of the Statement of Financial Position

Required Information

A106. The statement of financial position shall be presented as follows:

Assets (by category)

xx

Less Liabilities (by category)

xx

Net assets

xx

Accumulated Funds (by category)

xx

Assets

A107. Assets are resources controlled by the entity that are expected to provide benefits to the entity in the future9.

Required Information

A108. In order to make information understandable to users, assets shall be totalled (i.e., aggregated) and presented separately in categories. The following aggregated categories shall be reported separately and split between current and non-current (see paragraph A118):

  1. Cash and short-term deposits;

  2. Debtors and prepayments;

  3. Inventory;

  4. Property, plant and equipment; and

  5. Investments.

A109. Cash and short-term deposits comprise petty cash, cheque or savings accounts, and deposits held at call or with a maturity of three months or less from the date of commencement.

A110. Debtors (sometimes called accounts receivable) comprise amounts owed to the entity by customers or others. This includes any GST receivable from Inland Revenue.

A111. Prepayments are expenses paid in advance of a good or service being received by the entity (such as rent, insurance or salaries and wages).

A112. Inventories are materials or supplies that are to be consumed in producing goods or services, held for sale or distribution in the ordinary course of operations, or are in the process of production for sale or distribution. Inventories may include information brochures printed for the entity but not yet distributed, consumable stores, maintenance materials, spare parts for plant and equipment, and work-in-progress, such as educational/training course materials under development.

A113. Property, plant, and equipment (sometimes called fixed assets) are tangible items that are used in the production or supply of goods or services, or for administrative purposes, and are expected to be used during more than one financial year.

A114. Investments are shares, term deposits (with a maturity of more than three months from the date of commencement), bonds, units in unit trusts, or similar financial instruments held by the entity.

A115. An entity only needs to report the minimum categories specified in paragraph A108 separately when the category is applicable and significant to the entity.

A116. The categories may be described using terminology appropriate for the entity and need not use the titles used in paragraph A108, provided that the separate categories are still maintained.

A117. If there is difficulty in determining the category that should be used for a particular transaction, the entity shall use judgement to determine an appropriate classification. This classification shall then be used consistently in future periods so that the information reported is comparable over time.

A118. In presenting the statement of financial position the entity shall identify those assets which are expected to be converted to cash within 12 months of the balance date, for example, debtors that are expected to be collected within a few months of balance date, or inventories that are expected to be sold or used within the next year. These shall then be classified as “current assets”. The remaining assets shall then be classified as “non-current assets”.

A119. Additional categories to those in paragraph A108 may be presented in the statement of financial position where doing so is necessary to provide users with an improved understanding of the assets of the entity. Too many categories can make it difficult for users to understand the overall picture. The number of additional categories used should therefore be limited to those that are really necessary.

A120. Breakdowns or disaggregation of the categories in paragraph A108, may be provided in the notes to the performance report, for example, classes of property, plant and equipment, or different types of inventory (such as inventories held for consumption versus inventories held for sale). The objective is to provide a breakdown that gives the most useful information to users of the performance report.

Accounting for Assets

A121. Assets shall be recorded on the occurrence of a recognition event and reported using the measurement basis appropriate for the asset type. Details for recording and measuring specific asset types are provided in Table 3.

Table 3: Recording of Specific Types of Asset

Cash and Short-term Deposits (note: bank overdrafts should be separately recorded as a liability)

When to record

When the cash is received (either in hand or in the bank account).

Measurement

At the amount held.

Debtors

When to record

When action is taken (such as goods or services sold) to give the entity the right to collect cash in the future.

Compensation due from third parties (such as insurers) for assets that were impaired, lost, or given up should also be recorded as a debtor (and included as revenue in the statement of financial performance).

Initial measurement

At the amount owed.

When to record impairment

When it is likely that the amount owed (or some portion) will not be collected. Record the loss as a bad debt expense.

Change measurement at balance date

Consider whether any amounts are impaired (see paragraph A124).

If the entity charges interest on overdue amounts, add this to the amount of the debtor and record revenue.

When to no longer record

When amount is collected or written off.

Prepayments

When to record

When the payment is made.

Initial measurement

At the amount relating to the future goods or services to be received.

When to record impairment

If the entity is unlikely to get the service it has paid for.

Change measurement at balance date

Re-measure at the amount relating to the future services still to be received at that date.

When to no longer record

Once the entity receives the benefit for which it has paid, the prepayment (or portion thereof), is transferred from prepayments and is recorded as an expense.

Inventory

When to record

When the inventory is acquired.

Measurement

Purchased inventories: At cost.

When to record impairment

Goods for sale: Write-down to lower of cost and selling price.

Goods for use or distribution: Write-down if the value to the entity decreases (for example, materials to be distributed are out of date or damaged).

Change measurement at balance date

Only if impaired.

When to no longer record

When the inventory is sold, distributed or written off.

Property, Plant and Equipment (including Heritage Assets)

When to record

When the property, plant and equipment is purchased or when it is donated.

Initial measurement

Purchased: Cost (cash price equivalent).

Donated: Current value (such as local council rateable value).

When to record impairment

Asset to be sold: If the market price for an equivalent asset falls below the carrying amount of the asset.

Asset to be used: If the value to the entity in using the asset falls below the carrying amount of the asset (for example, the entity no longer provides the service supported by the asset).

Change measurement at balance date

Record depreciation: spread the cost of the asset over the expected useful life of the asset, using a structured method such as straight line or diminishing value.

Note that land is not depreciated.

For classes of asset that the entity elects to revalue: record revaluation gains/losses when the assets are revalued.

When to no longer record

When sold, otherwise disposed of or written off.

Investments

When to record

When the investment is purchased or when it is donated.

Initial measurement

Purchased: At the amount paid.

Donated: Current value (such as market value).

When to record impairment

If it appears that the carrying amount of the investment will not be recovered, it shall be written down to the current market price.

Change measurement at balance date

If the current market price falls below cost.

For publicly traded investments that the entity elects to measure at current value: record revaluation gains/losses when the investments are revalued.

When to no longer record

When sold, otherwise disposed of, or written off.

Other Assets

When to record

When:

  1. The asset is acquired; and

  2. The asset has a cost or value that can be measured reliably(a).

Initial measurement

At the amount paid or other value that can be measured reliably.

When to record impairment

If it appears that the carrying amount of the asset will not be recovered, that is, it is more than the current market value (if it can be determined).

When to no longer record

When the asset is sold or otherwise disposed of.

(a) Information that is reliable is free from material error and bias and can be depended on by users to faithfully represent that which it purports to represent or could reasonably be expected to represent.

Reversal of Impairment Charges

A122. If there is any indication that an impairment charge recorded in prior periods for an asset

  1. May no longer exist; or

  2. May have decreased (i.e. if it is apparent that an asset is recorded at an amount that is less than its net realisable value);

an entity shall reverse all or part of that impairment charge.

A123. The reversal of the impairment charge shall:

  1. In the case of inventories, be limited to the amount of the original write-down;

  2. In the case of investments, not result in the carrying amount of the asset being recorded at more than its original cost; and

  3. In the case of property, plant and equipment, not result in the carrying amount of the asset (net of depreciation) being recorded at more than it would have been had the impairment not been recorded.

Calculating Debtors

A124. In calculating the value of debtors at the end of each financial year, the entity shall assess whether there is evidence that a receivable may not be collected. The factors to consider are:

  1. Financial difficulty of the other party;

  2. A breach of contract by the other party, such as a default in interest or principal payments;

  3. The entity granting to the other party a concession relating to debt payment; or

  4. Other information indicating that the receivable may not be collected.

Heritage Assets

A125. Some classes of property, plant and equipment may be described as heritage assets because of their cultural, environmental, or historical significance. Examples of heritage assets include historical buildings and monuments, archaeological sites, conservation areas and nature reserves, and works of art.

A126. Heritage assets shall be accounted for in the same manner as other property, plant and equipment (that is, at cost or if donated then at readily obtainable current values). Heritage assets for which current values are not readily obtainable, do not need to be recorded in the statement of financial position but shall be disclosed in the notes to the performance report (by class if appropriate).

Donated Assets

A127. Significant donated assets, such as items of property, plant and equipment, shall be recorded at readily obtainable current values (such as local council rateable value for land and buildings), where it is practicable to obtain such current values.

A128. Significant donated assets for which values are not readily obtainable, do not need to be recorded in the statement of financial position but shall be disclosed in the notes to the performance report (by class if appropriate).

Revaluation of Property, Plant and Equipment

A129. As specified in Table 3, purchased property, plant and equipment is generally to be measured on a cost basis. However, an entity may elect to revalue a class of property, plant and equipment. An entity is more likely to make such an election when the value of an asset is expected to increase over that asset’s life.

A130. When electing to apply a revaluation approach, the subsequent measurement approach shall be applied to all assets of that class of property, plant, and equipment.

A131. A class of property, plant, and equipment is a grouping of assets of a similar nature or function.

Possible classes of property, plant and equipment are:

  1. Land;

  2. Buildings;

  3. Motor vehicles;

  4. Furniture and fixtures;

  5. Office equipment;

  6. Computers (including software); and

  7. Machinery.

A132. When an entity elects to revalue a class of property, plant and equipment, it shall measure an item of property, plant and equipment at its current value less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

A133. When a revaluation approach is taken, the current value shall be based on a valuation by a suitably qualified independent valuer or, for land and buildings, a local council rateable valuation may be used.

A134. Where an entity elects to revalue a class of property, plant and equipment, it is still required to recognise depreciation on the individual assets. In such cases, depreciation shall be calculated based on the revalued amount from the date of the asset’s most recent revaluation.

A135. Electing to revalue a class of property, plant and equipment after initial recognition of the purchased asset is an accounting policy choice. Therefore, once a class of property, plant and equipment is revalued, the entity will need to continue measuring that class of assets at revalued amounts thereafter (rather than reverting to asset cost).

A136. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using current value at the reporting date.

A137. Where an entity elects to revalue land and buildings based on a local council rateable value, it is only required to revalue its land and buildings when that value is updated. The entity shall also disclose, in the notes to the performance report that the local council rateable value may not reflect current market value.

A138. If the entity chooses not to revalue property, plant and equipment but considers that a current value of some assets is useful information for users of the performance report, the entity may choose to disclose that current value, and the basis (valuation by and independent valuer or the local council rateable value) and date of that valuation in the notes to the performance report.

A139. If an entity elects to revalue a class of assets it shall:

  1. Present a separate property, plant and equipment revaluation reserve within accumulated funds in the statement of financial position and the notes to the performance report (see paragraphs A175 and A231−A232);

  2. Recognise revaluation gains for the class as “Gains/(losses) on the revaluation of property, plant, and equipment” directly in accumulated funds through the property, plant and equipment revaluation reserve, unless they reverse a revaluation loss recognised as an expense in a prior period;

  3. Recognise revaluation losses for the class as an expense in the statement of financial performance, except to the extent to which these losses offset any previous revaluation gains. If the revaluation losses offset previous revaluation gains, they are recognised as “Gains/(losses) on the revaluation of property, plant, and equipment” directly in accumulated funds through the property, plant and equipment revaluation reserve; and

  4. Recognise any gain on disposal over the carrying amount within other revenue in the statement of financial performance as “Gains/(losses) on disposal of property, plant and equipment”.

A140. For the purpose of applying paragraph A139, revaluation gains and losses relating to individual assets of the revalued class of property, plant and equipment shall be offset against other assets of that class but shall not be offset against assets of different class.

A141. Some or all of the revaluation gains included in accumulated funds in respect of property, plant and equipment may be transferred directly to accumulated surpluses or deficits when the assets are derecognised. This may involve transferring some or all of the gains when the assets of the revalued class of property, plant and equipment to which they relate are retired or disposed of. Transfers from the revaluation reserve to accumulated surpluses or deficits are not made through the statement of financial performance.

A142. If items of property, plant and equipment are stated at revalued amounts, an entity shall disclose the following in the notes to the performance report:

  1. The basis (valuation by a suitably qualified independent valuer or current local council rateable value);

  2. The date of the valuation; and

  3. The revaluation gain/loss for the period that has been recognised in the revaluation reserve.

Investment property

A143. Some classes of property, plant and equipment may be described as investment property because they are held primarily by the entity to generate rental income or for capital gains rather than for use in the entity’s ordinary activities.

A144. Investment property shall be accounted for in the same manner as other items of property, plant and equipment (see Table 3 and paragraphs A129–A142). This means that an entity can choose to account for investment property on a cost or revaluation basis. An entity may elect to present investment property as a separate class of property, plant and equipment.

Investments

A145. As specified in Table 3, investments are to be measured at the amount paid when purchased, less any impairment. However, where an entity holds investments which are publicly traded it may elect to measure those classes of investment at current market value.

A146. Electing to revalue a class of publicly traded investments after initial recognition of the purchased asset, is an accounting policy choice. Therefore, once a class of publicly traded investments is revalued the entity will need to continue measuring that class of assets at revalued amounts thereafter (rather than reverting to asset cost).

A147. If an entity elects to measure a class of publicly traded investments at current market value, it may elect to recognise gains/losses on revaluation either:

  1. in revenue or expenses in the statement of financial performance; or

  2. in accumulated funds in the statement of financial position.

A148. If an entity elects to recognise gains/losses on revaluation of publicly traded investments in accumulated funds in the statement of financial position, it shall:

  1. Present a separate investment revaluation reserve within accumulated funds in the statement of financial position and the notes to the performance report (see paragraphs A175 and A231−A232);

  2. Recognise revaluation gains for the investments as “Gains/(losses) on the revaluation of publicly traded investments” directly in accumulated funds through the investment revaluation reserve, unless they reverse a revaluation loss recognised as an expense in a prior period;

  3. Recognise revaluation losses for the investment as an expense in the statement of financial performance, except to the extent to which these losses offset any previous revaluation gains. If the revaluation losses offset previous revaluation gains, they are recognised as “Gains/(losses) on the revaluation of publicly traded investments” directly in accumulated funds through the investment revaluation reserve; and

  4. Recognise any gains on disposal over the carrying amount within other revenue in the statement of financial performance as “Gains/(losses) on disposal of publicly traded investments”.

A149. For the purpose of applying paragraph A147, revaluation gains and losses relating to individual assets of the revalued class of publicly traded investments shall be offset against other assets of that class but shall not be offset against assets of different classes.

A150. Some or all of the revaluation gains included in accumulated funds in respect of publicly traded investments may be transferred directly to accumulated surpluses or deficits when the assets are derecognised. Transfers from the investment revaluation reserve to accumulated surpluses or deficits are not made through the statement of financial performance.

A151. If investments are reported at current market value, an entity shall disclose:

  1. The accounting policies for investments, including the basis on which current market value was determined (for example, NZX-quoted price at the balance date).

  2. In the notes to the performance report, an analysis of investments by class reconciling the opening and closing carrying amounts of each class of investment, with those held at current market value being displayed separately from those held at cost less impairment.

Assets Held on Behalf of Others

A152. Assets held as an agent (including as a trustee or nominee) on behalf of another person, entity or other third parties are not recorded as assets of the entity. The statement of financial position should include only assets held by the entity on its own account as principal (see paragraphs A101–A104 for a discussion on principals and agents)

Liabilities

A153. Liabilities are the amounts owed by the entity at balance date10.

Required Information

A154. In order to make information understandable to users, liabilities shall be totalled (i.e., aggregated) and presented separately in categories. The following aggregated categories shall be reported separately and split between current and non-current (see paragraph A162):

  1. Bank overdraft;

  2. Creditors and accrued expenses;

  3. Employee costs payable;

  4. Deferred revenue; and

  5. Loans.

A155. Creditors (sometimes called accounts payable) are amounts owing to suppliers to pay for goods or services that have been acquired in the course of the entity’s operations. GST payable to Inland Revenue is also part of creditors.

A156. Accrued expenses are costs incurred but not yet paid. This includes electricity, gas and telephone services used but not yet paid; water and local authority rates payable but not yet paid, and rent for the use of premises not yet paid.

A157. Employee costs payable are amounts owing to, but not yet paid to employees. This category includes wages and salaries earned but not yet paid, holidays earned but not yet taken (holiday pay accrual), ACC contributions owing, PAYE withheld from employees’ remuneration but not yet paid over to Inland Revenue, and contributions to superannuation schemes (such as KiwiSaver) or other post-employment benefit schemes collected but not paid over.

A158. Loans are amounts borrowed by the entity. These are likely to be relatively uncommon for an entity applying this Standard.

A159. An entity only needs to report the minimum categories specified in paragraph A154 separately when the category is applicable and significant to the entity.

A160. The categories may be described using terminology appropriate for the entity and need not use the titles used in paragraph A154, provided that the separate categories are still maintained.

A161. If there is difficulty in determining the category that should be used for a particular transaction, the entity shall use judgement to determine an appropriate classification. This classification shall then be used consistently in future periods so that the information reported is comparable over time.

A162. In presenting the statement of financial position the entity shall identify those liabilities which are due to be paid within 12 months of the balance date, which shall then be classified as “current liabilities”. The remaining liabilities shall then be classified as “non-current liabilities”.

A163. The balance of deferred revenue with respect to unsatisfied documented expectations over significant donation, grant and bequest funding at balance date shall be reported as a category of liabilities in the statement of financial position.

A164. Additional categories to those in paragraph A154 may be presented in the statement of financial position, where doing so is necessary to provide users with an understanding of the main liabilities of the entity. Too many categories can make it difficult for users to understand the overall picture. The number of additional categories used should therefore be limited to those that are really necessary.

A165. Breakdowns or disaggregation of the categories in paragraph A154, may be provided in the notes to the performance report, for example, a breakdown of loans. The objective is to provide a breakdown that gives the most useful information to users of the performance report.

Accounting for Liabilities

A166. Liabilities shall be recorded on the occurrence of a recognition event and reported using the measurement basis appropriate for the liability type. Details for recording and measuring specific liability types are provided in Table 4.

Table 4: Recording of Specific Types of Liability

Bank Overdraft

When to record

When the overdraft occurs.

Measurement

At the amount of the actual overdraft (not the overdraft facility).

Creditors and Accrued Expenses

When to record

When transaction occurs that creates the payment obligation, for example, on the receipt of goods or services from a supplier.

Initial measurement

At the amount owing. If the entity has not received a supplier invoice it shall record an accrual for an estimate of the amount to be paid.

Change measurement at balance date

Review in case some part has been paid or is no longer owed (for example, if a supplier who sold goods to the entity changes the arrangement to a donation of goods, the liability for the amount owing to the supplier is reduced to zero and revenue is recorded).

When to no longer record

When settled.

Employee Costs Payable

When to record

When an employee has earned the entitlement or the entity has withheld amounts from wages and salaries already paid. It is uncommon for an entity with paid employees to have no employee costs payable.

Initial measurement

At the amount to be paid.

Change measurement at balance date

If employees have been granted increased wages and salaries, amounts owing may change (for example, annual leave is based on amounts to be paid when the employee is expected to take the leave).

When to no longer record

When settled.

Deferred Revenue

When to record

When a significant donation, grant or bequest with documented expectations over use is received.

Initial measurement

At the amount of the donation, grant or bequest received.

Change measurement at balance date

Assess whether (or to what extent) documented expectations over use have been satisfied. If the documented expectations have not been fully satisfied, assess the amount of the donation, grant or bequest that relates to those documented expectations which have not yet been satisfied.

When to no longer record

When the documented expectations over use are satisfied.

Loans

When to record

When the amount borrowed has been received.

Initial measurement

At the amount borrowed from the lender (usually referred to as the loan principal).

Change measurement at balance date

Include any loan principal outstanding and any interest owing that has not yet been paid.

When to no longer record

When all principal and interest has been paid.

Provisions

When to record

When an event has occurred that leads to an obligation.

Initial measurement

At the entity’s best estimate of the amount to be paid.

Change measurement at balance date

Review the estimate of the amount of the obligation in light of conditions at balance date.

When to no longer record

When no obligation remains.

Provisions

A167. A provision is a liability of uncertain timing or amount. For example, an entity’s lease of office premises may contain conditions that require the premises to be renovated at the end of the lease, so a provision for this is established.

A168. A provision shall be recorded as a liability when:

  1. The entity has a present obligation (legal or constructive) as a result of a past event;

  2. It is probable that the entity will have to settle the obligation; and

  3. The entity can make a reliable estimate of the amount of the obligation.

A169. The use of estimates is an essential part of the preparation of performance reports, and does not undermine their reliability. This is especially true in the case of provisions, which by their nature are more uncertain than most other liabilities. Except in extremely rare cases, an entity should be able to make an estimate of the obligation that is sufficiently reliable to use in recording a provision.

Possible Future Liabilities

A170. The only liabilities recorded in an entity’s statement of financial position are those where obligations exist at the balance date as a result of a past event. Therefore, no provision should be made for liabilities that might result from a future event as these liabilities do not yet exist. For example, costs likely to be incurred in the future in order to continue an entity’s activities in the future are not liabilities. Neither are expected future operating losses.

Contingent Liabilities

A171. Contingent liabilities are not recorded in the statement of financial position but are reported in the notes to the performance report (see paragraphs A238–A240).

Accumulated Funds

A172. The accumulated funds balance is the difference between the assets and liabilities of the entity. It is therefore the component that balances the statement of financial position. The accumulated funds balance represents the net assets available to the entity to fulfil its objectives in the future. In the for-profit sector the equivalent term is equity.

A173. Movements in accumulated funds include the surplus or deficit for the year, revaluation reserve movements, and other transactions directly with owners in their capacity as owners. In general, transactions with owners (described as “capital contributed by owners” in paragraph A177) is uncommon for a public sector entity and most transactions are recorded through the statement of financial performance rather than directly through the Accumulated Funds balance.

A174. For the purposes of applying the requirements in this Standard, the term “owners” specifically refers to those who have made capital contributions as described in paragraph A177. The term “owners” can include individuals or other entities.

Required Information

A175. In order to make information understandable to users, accumulated funds shall be aggregated and presented separately in categories. The following aggregated categories shall be reported separately, where they are applicable to the entity:

  1. Capital contributed by owners (if any);

  2. Accumulated surpluses or deficits; and

  3. Reserves:

    1. Restricted and discretionary reserves;

    2. Property, plant and equipment revaluation reserve;

    3. Investment revaluation reserve; and

    4. Other reserves.

A176. When an entity elects to apply the requirements of a Tier 2 PBE Standard to a specific type of transaction, in accordance with the requirements set out in Appendix D of this Standard, it may be required to present additional categories of accumulated funds balances based on the requirements of the Tier 2 PBE Standard applied.

A177. The “capital contributed by owners” category represents contributions to the entity by owners in their capacity as owners that:

  1. Conveys to owners the entitlement to:

    1. Distributions by the entity during its life; and/or

    2. Distributions of any excess of assets over liabilities in the event of the entity being wound up; and/or

  2. Gives the owner a voice in the management of the entity as an owner; and/or

  3. Can be sold, exchanged, transferred, or redeemed.

A178. The accumulated surpluses or deficits category represents the total of all the surpluses and deficits from the commencement of the entity, excluding any transactions with owners in their capacity as owners (if any), and amounts transferred to other reserves.

A179. Reserves are of four types:

  1. Restricted reserves which an entity may elect to create by a transfer from accumulated surpluses or deficits, where funds received may only be used for a particular purpose (the restriction). The restriction must be set by an external party and may apply to the use of revenue from the funds such as interest received, or to changes to the capital fund (or to both). The restriction must also not meet the criteria to be considered a “documented expectation”, in which case the funds would instead be recognised as deferred revenue (see paragraphs A74–A84).

  2. Discretionary reserves, which have been created by a transfer from accumulated surpluses or deficits as an internal decision of the entity so that it sets aside resources for a particular purpose. A feature of this type of reserves is that they may be transferred back to accumulated surpluses or deficits whenever the entity chooses.

  3. Revaluation reserves, including the:

    1. Property, plant and equipment revaluation reserve which represents the increase in value of items of property, plant and equipment over their carrying amounts (where an entity has elected to measure such items at revalued amounts); and

    2. Investment revaluation reserve which represents the increase in value of publicly traded investments over their carrying amounts (where an entity has elected to measure such items at revalued amounts and also elected to recognise the increases in value directly in accumulated funds).

  4. Other reserves, which have been created to present the effect of transactions recognised directly in accumulated funds as a result of the entity electing to apply the requirements of a Tier 2 PBE Standard instead of the requirements in this Standard (refer to Appendix D).

A180. An entity only needs to report the minimum categories specified in paragraph A175 separately when the category is applicable to the entity.

A181. The minimum categories may be described using terminology appropriate for the entity and need not use the titles used in paragraph A175, provided that the separate categories are still maintained.

Accounting for Accumulated Funds

A182. Capital contributed by owners shall be recorded at the amount received or paid to owners in their capacity as owners.

A183. Accumulated surpluses or deficits shall be recorded at the opening balance plus the current period’s surplus or deficit from the statement of financial performance, plus any transfers to/from reserves.

A184. Reserves shall be recorded as follows:

  1. Restricted and discretionary reserves shall be recorded at the opening balance of the reserve plus/minus transfers to/from accumulated surpluses or deficits.

  2. Revaluation reserves shall be recorded at the opening balance of the reserve plus/minus the increase/decrease in value of each class of revalued asset required to be recognised directly in accumulated funds (where an entity has elected to measure such items at revalued amounts).

  3. Other reserves shall be recorded at the opening balance of the reserve plus/minus any amounts required to be recognised directly in accumulated funds as a result of an entity electing to apply the requirements of a Tier 2 PBE Standard in lieu of the requirements in this Standard (refer to Appendix D).

Approval and Issue of Performance Report

A185. It is important for users to know when the performance report was authorised for issue, as the performance report does not reflect events after this date. The performance report is authorised for issue when it is signed and dated by the body or individuals with the authority to approve the performance report for issue.

Required Information

A186. An entity shall disclose in the performance report the date the performance report was approved and authorised for issue, who gave that authorisation and the relevant signature(s).

Other Information

Required Information

A187. The statement of financial position shall include any additional information that the entity considers necessary for users to understand the financial position of the entity.

A188. An entity shall include the entity’s budget (or plans) for the current financial year where this is required by legislation. Other entities may include this information if they wish and it is available.

Purpose and Value to Users

A189. The purpose of the statement of cash flows is to provide information about the cash flows of the entity, which can have a different timing to the accruals that are reported in the statement of financial performance. Cash flow information allows users to determine how much cash the entity has received, and how the cash was used during the year. An understanding of an entity’s cash flows is helpful to users in making decisions about the entity’s ability to continue operating in the future and whether funds received have been appropriately spent on advancing the entity’s objectives.

Format of the Statement of Cash Flows

Required Information

A190. The statement of cash flows shall be presented as follows:

Cash Flows from Operating Activities (by category)

xx

Cash Flows from Other Activities (by category)

xx

Net Increase/(Decrease) in Cash

xx

Add Opening Cash Balance

xx

Closing Cash Balance

xx

A191. Other activities are the acquisition and disposal of long-term assets and other investments not included in the cash balance. For example, the purchase of property, plant and equipment, or investments. It also comprises receipts and payments relating to long-term borrowing by the entity (the principal amount only), and any capital contributions to/from owners (if any).

A192. Operating activities are the activities of the entity that are carried out as part of its normal operations, for example, the funding received and the costs paid in delivery of the entity’s objectives.

A193. The statement of cash flows does not include:

  1. Cash receipts collected and payments made on behalf of others when the cash flows reflect the activities of the other party rather than those of the entity (see paragraphs A101–A104). For example, rent collected on behalf of, and paid over to, the owners of properties; and

  2. Transactions not involving cash, for example depreciation and donated goods or services.

Cash Flows from Operating Activities

Required Information

A194. In order to make information understandable to users, cash flows from operating activities shall be aggregated and presented separately in categories. The following aggregated categories shall be reported separately:

Cash Received:

  1. Donations, koha, bequests and other fundraising receipts from the public or non- government organisations;

  2. Grants from non-government organisations;

  3. General funding received from central or local government;

  4. Capital grants received;

  5. Funding from government service delivery grants/contracts;

  6. Funding from non-government service delivery grants/contracts;

  7. Interest, dividends and other investment receipts; and

  8. Other cash received.

Cash Payments:

  1. Payments related to fundraising;

  2. Employee remuneration and other related payments;

  3. Payments related to service delivery;

  4. Grants and donations paid; and

  5. Other payments.

A195. An entity only needs to report against a category specified in paragraph A194 when the category is applicable to the entity. If a category is not applicable, the entity may omit that category from its performance report.

A196. The categories may be described using terminology appropriate for the entity and need not use the titles used in paragraph A194, provided that the separate categories are still maintained.

A197. If there is difficulty in determining the category that should be used for a particular transaction, the entity shall use judgement to determine an appropriate classification. This classification shall then be used consistently in future periods so that the information reported is comparable over time.

A198. Further breakdowns or disaggregation of the categories in paragraph A194 may be provided in the notes to the performance report, for example, a breakdown of cash payments related to the entity’s main activities. The objective is to provide a breakdown that gives the most useful information to users of the performance report.

Cash Flows from Other Activities

Required Information

A199. In order to make information understandable to users, cash flows from other activities shall be aggregated and presented separately in categories. The following aggregated categories shall be reported separately:

Cash Received:

  1. Sale of property, plant and equipment;

  2. Sale of investments;

  3. Cash received from loans from other parties; and

  4. Cash received from owners (capital contributions).

Cash Payments:

  1. Payments to acquire property, plant and equipment;

  2. Payments to purchase investments;

  3. Repayments of loans from other parties; and

  4. Capital distributed to owners.

A200. An entity only needs to report against a category specified in paragraph A199 when the category is applicable to the entity. If a category is not applicable, the entity may omit that category from its performance report.

A201. The categories may be described using terminology appropriate for the entity and need not use the titles used in paragraph A199, provided that the separate categories are still maintained.

A202. If there is difficulty in determining the category that should be used for a particular transaction, the entity shall use judgement to determine an appropriate classification. This classification shall

then be used consistently in future periods so that the information reported is comparable over time.

Cash Balances

Required Information

A203. Cash balances is the same amount reported as “cash and short-term deposits” less “bank overdrafts” as reported in the statement of financial position. It includes petty cash, cheque or savings accounts, at call deposits or with a maturity of three months or less from the date purchased, and bank overdrafts (see paragraph A109).

Purpose and Value to Users

A204. The purpose of the statement of accounting policies is to disclose the specific policies and practices applied by the entity in preparing its performance report. This provides users with an understanding of the basis on which the performance report has been prepared.

Format of the Statement of Accounting Policies

Required Information

A205. The statement of accounting policies shall comprise two components;

  1. Accounting policies applied; and

  2. Changes in accounting policies.

Accounting Policies Applied

A206. Accounting policies applied are the specific policies and practices used by the entity in preparing its performance report for the reporting period.

Required Information

A207. The following shall be included in the statement of accounting policies.

Basis of Preparation

A208. The statement of accounting policies shall disclose that:

  1. The entity is eligible to apply this Standard, the criteria specified in XRB A1 that allows it to do so, and the fact that it has elected to do so;

  2. All transactions are reported using the accrual basis of accounting; and

  3. The performance report has been prepared on the assumption that the reporting entity is a going concern, or if this is not the case the fact that the performance report has been prepared on the basis that the entity will not continue to operate for more than 12 months in the future (see paragraph A209).

A209. The performance report is normally prepared assuming that the entity will continue in operation for the foreseeable future (normally considered to be a minimum of 12 months from balance date). This assumption may not be appropriate in some circumstances. For example, it may not be appropriate if the governing body determines after the balance date either (a) that there is an intention to liquidate the entity or to cease operating, or (b) that there is no realistic alternative but to do so. If the assumption of continuity is not appropriate this needs to be disclosed in the statement of accounting policies (additional disclosures are also required in the notes to the performance report – see paragraph A249). The entity shall consider whether different specific accounting policies are more appropriate in these circumstances, for example valuing assets at fire sale (i.e., current realisable) value.

Goods and Services Tax (GST)

A210. The statement of accounting policies shall disclose:

  1. Whether the entity is registered for GST; and

  2. Whether the performance report is prepared on a GST-inclusive or GST-exclusive basis.

Specific Accounting Policies

A211. The statement of accounting policies shall disclose the accounting policies for each significant type of transaction or balance. These policies shall be consistent with the requirements of this Standard (including the requirements of paragraph 8).

A212. The policies may be reported at an appropriate level of aggregation, for example, “revenue from the sale of services” as a category of accounting policies.

A213. Where an entity has elected to apply the requirements of a PBE Standard that is part of the Tier 2 PBE Accounting Requirements in place of a requirement of this Standard (see Appendix D), the PBE Standard applied shall be disclosed.

Changes in Accounting Policies

A214. A change in the accounting treatment, recording, or measurement of a transaction or other event is regarded as a change in accounting policy. For example, the initial application of a policy to revalue assets (rather than measuring them at cost) is a change in accounting policy.

A215. An entity shall change an accounting policy only if the change:

  1. Is required by this Standard; or

  2. Is in accordance with this Standard and results in the statements providing more faithfully representative or more relevant information about the effects of transactions or other events and conditions on the entity’s service performance, financial performance, financial position, or cash flows.

Required Information

A216. When an entity changes its accounting policy an entity shall disclose:

  1. The reason for the change, a description of the change in policy, and how and from when this change in policy has been applied; and

  2. For the current period, for each statement line item affected, the amount as calculated under the previous accounting policy.

A217. Where there have been no changes to accounting policies during the reporting period, that fact shall be reported.

Accounting for Changes in Accounting Policies

A218. Changes in accounting policies shall be applied from the beginning of the current reporting period.

9See the Glossary for a more detailed definition of assets.

10See the Glossary for a more detailed definition of liabilities.

Purpose and Value to Users

A219. The notes to the performance report contain information that expands on the information included in other parts of the performance report as well as providing any additional relevant information. This is designed to provide users with a greater understanding of the information reported in the statements of service performance, financial performance, financial position and cash flows.

Required Information

A220. The following matters shall be included in the notes to the performance report.

Deferred Revenue: Unused Significant Donations, Grants and Bequests with Documented Expectations over Use

A221. Where the entity has received a significant donation, grant or bequest where revenue recognition has been deferred at the balance date, the entity shall disclose in the notes to the performance report information to help readers understand:

  1. The purpose and nature of the documented expectations over future use; and

  2. When the entity expects to satisfy the remaining documented expectations over use.

Goods or Services in Kind Provided to the Entity

A222. An entity shall disclose in the notes to the performance report a description of any significant goods or services in kind provided to the entity during the financial year, such as free professional services. A dollar quantification may be provided but is not required.

Property, Plant and Equipment

A223. For each class of property, plant and equipment recorded in the statement of financial position, the entity shall disclose in the notes to the performance report:

  1. A description of the asset class (for example, equipment, furniture);

  2. The carrying amount of the asset class at the beginning of the financial year;

  3. The depreciation and/or impairment expense recorded for the asset class for the financial year;

  4. The amount of any revaluation gain/loss recognised in the revaluation reserve for the financial year (where the entity has elected to measure such items at revalued amounts); and

  5. The carrying amount of the asset class at the end of the financial year.

A224. The entity shall disclose the source and date of the valuation of assets for any assets recorded at valuation (such as significant donated assets) and any other assets for which the entity has chosen to disclose a current value (see paragraphs A129–A142).

Investments

A225. For each class of investments recorded in the statement of financial position, the entity shall disclose in the notes to the performance report:

  1. A description of the asset class (for example, shares, bonds);

  2. Whether the asset class is held at current market value or cost less impairment;

  3. The carrying amount of the asset class at the beginning of the financial year;

  4. The amount of any revaluation gain/loss recognised in the investment revaluation reserve or in revenue/expense in the statement of financial performance due to changes in the market value of the asset class for the financial year; and

  5. The carrying amount of the asset class at the end of the financial year.

A226. For each class of investments held at current market value the entity shall also disclose the source and date of the valuation (for example, NZX-quoted price at the balance date).

Significant Donated Assets not Recorded

A227. Where significant donated assets have not been recorded in the statement of financial position because values are not readily obtainable (see paragraph A128), the entity shall disclose in the notes to the performance report a description of the asset, categorised by class where appropriate.

Significant Heritage Assets not Recorded

A228. Where significant heritage assets have not been recorded in the statement of financial position because values are not readily obtainable (see paragraph A126), the entity shall disclose in the notes to the performance report a description of the asset, categorised by class where appropriate.

Assets Used as Security for Liabilities

A229. If an entity has used any of its assets as security for loans borrowed, the entity shall disclose in the notes to the performance report information about:

  1. The nature and amount of the loan that is secured; and

  2. The nature and amount of the asset(s) used as security.

Assets Held on Behalf of Others

A230. Where an entity is acting on behalf of another entity as its trustee, nominee or agent, the following matters shall be disclosed in the notes to the performance report:

  1. A description of the assets which it holds in this capacity; and

  2. The name of the entity on whose behalf the assets are held.

Changes in Accumulated Funds

A231. The notes to the performance report shall include an explanation of the movements between the opening and closing balances for each category of accumulated funds.

A232. An entity shall disclose information that enables users of its financial statements to evaluate the entity’s objectives, policies, and processes for managing its reserves.

A233. In meeting the requirements of paragraph A232 for restricted reserves, an entity shall disclose a description of the purpose of the reserve and the nature of the restriction on the reserve.

A234. In meeting the requirements of paragraph A232 for discretionary reserves an entity shall disclose a brief description of the purpose of the reserve, the entity’s general plans for applying the reserve towards its stated purposes, and when the entity expects the reserve will be applied.

A235. Information which an entity may consider disclosing in meeting the requirements of paragraphs A233−A234 includes:

  1. Whether the entity intends to begin any significant projects to which the reserve will be applied;

  2. To what extent the entity’s reserve represents investments in assets. This can be property, plant and equipment that are used in pursuit of its stated purposes in future periods. It can also include long term investments held to generate revenue returns to be used in pursuit of its stated purposes; or

  3. Whether the entity is accumulating funds with the intent to make a significant distribution to another entity with similar objectives.

Commitments

A236. Commitments are legal obligations to make payments in the future. Although commitments (operating or capital) are not yet recorded as liabilities, reporting them is essential for users of reports to gain a proper understanding of the entity’s future viability.

A237. An entity shall report in the notes to the performance report the timing and estimated amount of any significant commitments (both operating and capital). Types of commitments which may need to be reported include:

  1. Commitments to lease or rent assets;

  2. Commitments to purchase property, plant and equipment; and

  3. Commitments to provide loans or grants.

Contingent Liabilities

A238. A contingent liability is a possible obligation that arises from past events that is contingent (dependent) on some future event. For example, a court case not yet settled, or a guarantee issued.

A239. For each class of contingent liability at the balance date, an entity shall disclose in the notes to the performance report:

  1. A brief description of the nature of the contingent liability;

  2. A best estimate of the amount of the contingent liability (where this can be estimated);

  3. An indication of the uncertainties relating to the amount or timing of any outflow of resources; and

  4. The possibility of any reimbursement.

A240. For each guarantee or class of guarantee, an entity shall disclose in the notes to the performance report:

  1. The nature of the guarantee;

  2. The maximum amount of any guarantees provided to others; and

  3. The likelihood of the entity being required to make payment under the guarantee.

Related Party Transactions

Explanation

A241. A related party transaction is a transfer of money or other resource between the reporting entity and a person or other entity that is closely associated with the reporting entity that has the ability to influence the reporting entity. For a public sector entity related party transactions comprise significant transactions that are different from those conducted under normal terms and conditions (including the provision of free goods or services).

A242. Related parties comprise:

  1. People that have significant influence over the entity (such as members of the governing body, persons in key management roles, or others that are involved in the strategic management of the entity – whether employed or volunteer), and close members of their families; and

  2. Other entities that have significant influence over the entity.

A243. Related party relationships exist throughout the public sector. Disclosure of related party relationships and related party transactions and the relationship underlying those transactions is necessary for accountability purposes, and to enable users to better understand the entity’s performance report. This is because:

  1. Related party relationships can influence the way in which an entity operates with other entities;

  2. Related party relationships might expose an entity to risks, or provide opportunities that would not have existed in the absence of that relationship; and

  3. Related parties may enter into transactions that unrelated parties would not enter into, or may agree to transactions on terms and conditions that differ from those that would normally be available to unrelated parties.

A244. Examples of transactions with a related party that would be disclosed are:

  1. The sale of a significant resource (such as a used vehicle) to the chairperson of the governing body at less than market rates;

  2. The provision of preferential access to services provided by the entity to the dependent of a person in a key management role; and

  3. The provision of finance (including loans, grants and guarantees), for example, a low interest loan, to a related party.

Requirements

A245. An entity shall disclose in the notes to the performance report, transactions with a related party that have occurred during the financial year if the transaction is significant to the entity (individually or in aggregate with similar transactions) and is on terms and conditions that are likely to be different from the terms and conditions of transactions in similar circumstances between parties that are not related.

A246. For each disclosed transaction the following shall be reported:

  1. A description of the related party relationship;

  2. A description and amount of any revenue or expense (and the value of free goods or services provided) related to the transaction during the financial year; and

  3. Any amounts due from or to related parties at balance date.

Events After the Balance Date

A247. Where events after balance date occur (see paragraphs A35–A37), and those events have a significant impact on the information included in the performance report, the entity shall report in the notes to the performance report the following:

  1. The nature of the event; and

  2. An estimate of its financial effect, or a statement that such an estimate cannot be made; and

  3. The effect, if any, on the entity’s ability to continue operating.

A248. An entity is not required to provide comparative information for events occurring after the balance date. That is, an entity is not required to repeat disclosure of events occurring after the previous balance date.

Ability to Continue Operating

A249. Where the entity plans to stop operating within 12 months from balance date (see paragraph A209), or it is likely that the entity will be unable to continue operating, the entity shall include in the notes to the performance report the following:

  1. A statement that the entity intends to stop operating or that it is unlikely the entity will be able to continue operating;

  2. The reason why the entity intends to stop operating or why it may not be able to continue operating; and

  3. The estimated effect of the entity’s circumstances on the amounts of the entity’s assets and liabilities.

A250. The impact of such a change will depend upon the particular circumstances of the entity. For example, the impact on the recorded amounts of assets will depend upon whether operations are to be transferred to another entity, sold, or liquidated. Judgement is required in determining whether a change in the carrying amount of assets and liabilities is required. It is also necessary to consider whether the change in circumstances leads to additional liabilities or triggers clauses in debt contracts which will lead to the reclassification of those debts as current liabilities.

Correction of Errors

A251. When an entity corrects a significant prior period error (see paragraph A30), it shall report in the notes to the performance report:

  1. A description of the error and how it was corrected; and

  2. The line items and amounts that have been corrected.

Additional Information

A252. The notes to the performance report shall include any additional information that the entity considers necessary for users to understand the overall financial performance and position of the entity.

Optional Information

A253. An entity may include in the notes to the performance report:

  1. Breakdowns of the minimum categories, or the disaggregated categories or additional categories reported in the statement of service performance, statement of financial performance, statement of financial position or statement of cash flows;

  2. Additional information about donations, fundraising and other similar revenue including a list of donors; and

  3. Other information that the entity considers will be helpful to users in understanding the performance of the entity.

The following are examples of the accounting treatment required in the performance report.

1. Revenue Earned

Scenario 1

A Rural Education Activity Programme (REAP – the reporting entity) receives funding from the government on a “use or return” basis at the beginning of each quarter to provide education services during that quarter.

Treatment: The reporting entity records:

 

 

  1. The funding received as a liability in the statement of financial position (as part of creditors and accrued expenses or separately as a disaggregated category “revenue in advance”; and

  2. Revenue in the statement of financial performance (revenue from providing goods or services) as the education services are delivered (i.e. as the quarter year progresses), and reduces the liability for the funding received in advance by the same amount at the same time.

Scenario 2

A fish and game council (the reporting entity) receives money from the issuing of fishing and hunting licences. The licences give the users the right to fish or hunt for a designated period.

Treatment: The reporting entity records:

 

 

 

  1. The license money received as a liability in the statement of financial position (as part of creditors and accrued expenses or separately as a disaggregated category “revenue in advance”); and

  2. Revenue evenly in the statement of financial performance (revenue from providing goods or services) as the period covered by the licence progresses; and reduces the liability for the revenue received in advance by the same amount at the same time.

The fees are recorded as revenue in advance because the licence is granted for a designated period of time in the future (i.e., the reporting entity earns the revenue during the period over which it has granted the right to fish or hunt).

Scenario 3

A registration board (the reporting entity) receives fees for issuing registration certificates. The registrations give the users the right to practice in their designated profession. The reporting entity does not provide users with any further services during the year in connection with the registration fee.

Treatment: The reporting entity records the registration fees as revenue in the statement of financial performance (revenue from providing goods or services) when it is receivable. The fees are not treated as revenue in advance because the registration is a right to practice and that right is granted at the point the certificate is issued. The registration does not provide any further service during the year.

2. Grants with and without Documented Expectations over Use

Scenario 1 – Grant received with no documented expectations over use

A school (the reporting entity) receives a grant from a local philanthropic trust to support its activities. The grantor has not communicated any expectations to the reporting entity as to how the grant should be used.

Treatment: The reporting entity records the grant as revenue in the statement of financial performance (as donations, fundraising and other similar revenue).

Optional Information: The reporting entity may include information about this grant provider in any list of grant providers and their contributions included in the notes to the performance report (see paragraph A70).

Scenario 2 – Grant for the purchase of assets

A school (the reporting entity) receives a grant from a local philanthropic trust to support its activities. The grantor specifies in writing that the school must use the grant to purchase 10 computers for the school library. The school has only purchased five computers as at balance date.

Treatment: As there is a documented expectation attached to the grant:

Financial Year 1

 

 

 

  1. Upon receipt of the grant the reporting entity records it as deferred revenue in the statement of financial position; and

  2. When the reporting entity purchases the computers, it records:

    1. Half of the amount of the grant as grant revenue from non-government organisations in the statement of financial performance, and reduces the deferred revenue balance by the same amount at the same time; and

    2. The purchased computers (at the total cost of purchase) as assets in the statement of financial position (as property, plant and equipment).

Financial Year 2

The school spends the remaining half of the amount of the grant on additional computers for the school library. The entity records:

  1. The remaining half of the amount of the grant as grant revenue from non-government organisations in the statement of financial performance; and reduces the deferred revenue balance to zero; and

  2. The purchased computers (at the total cost of purchase) as assets in the statement of financial position (as property, plant and equipment).

Optional Information: The reporting entity may include in the notes to the performance report a list of grant providers, together with a summary of their contributions (see paragraph A70).

Scenario 3 – Bequest received to fund the construction of an asset

A school (the reporting entity) receives a bequest for the purposes of building a new sports hall. This expectation has been documented and agreed between the reporting entity and a representative of the donor’s deceased estate.

Treatment: There is a documented expectation over the use of the bequest, which relates to the construction of an asset. Therefore, the reporting entity:

 

 

  1. Records the grant as deferred revenue upon receipt of the funds;

  2. Records the bequest in the statement of financial performance (as revenue from donations, koha, bequests, and other fundraising revenue from the public or non-government organisations) on a stage of completion basis (i.e. recognise a percentage of the bequest as revenue, based on the percentage of total expected expenditure incurred to date), with a corresponding reduction in the deferred revenue balance; and

  3. Provides information in the notes to the performance report outlining the total amount of the bequest, the amount of the bequest unused, the fact that the bequest is to be used to fund the construction of the new sports hall, and when the reporting entity expects to fulfil the documented expectations in full (see paragraph A221).

3. Donated Goods or Services

An administering body (the reporting entity) has its performance report prepared free of charge by a chartered accountant who is not associated with the reporting entity. The value of the free services is significant to the reporting entity.

Treatment: The reporting entity does not record the donated services (see paragraph A85). However, the donated service is disclosed in the notes to the performance report (see paragraph A222).

4. Liabilities and Contingent Liabilities

At its annual student concert, a school (the reporting entity) made use of material subject to copyright. Legal proceedings are started seeking damages from the reporting entity for breach of copyright, but the school disputes liability. Up to the date of finalising the performance report for the year, the reporting entity’s lawyers advise that it is probable that the entity will not be found liable. However, when the reporting entity prepares its performance report for the following year, its lawyers advise that, owing to developments in the case, it is probable that the entity will be found liable.

Treatment: In the first year, the reporting entity does not record a liability in the statement of financial position because the legal advice is that the entity is not likely to be found liable. The matter is reported as a contingent liability in the notes to the performance report.

In the second year, the reporting entity records a liability in the statement of financial position (as a creditor provision) if the amount of damages can be reliably estimated; and records an equivalent amount as an expense in the statement of financial performance. If the amount of damages cannot be reliably estimated, no liability or expense is recorded and the facts are reported in the notes to the performance report.

5. Related Parties

Scenario 1

A trust (the reporting entity) has total operating payments of $200,000. A few of these payments ($50,000) are made to the spouse of the trust’s chairperson for office administration duties of the entity. The payments are made at a higher hourly rate than the office administrator receives.

Scenario 2

The reporting entity has total operating payments of $200,000. A few of these payments ($500) are made to the spouse of the chairperson for relieving the office administrator. The payments are made at a higher hourly rate than the office administrator receives.

Treatment: In both of the scenarios the spouse of the chairperson is a related party of the reporting entity (see paragraph A242).

In Scenario 1, the transactions with the related party are significant and are not made under normal terms and conditions (see paragraph A245) and therefore the entity reports in the notes to the performance report the information set out in paragraph A246(a)–(c).

In Scenario 2, the transactions with the related party are not significant and therefore the entity is not required to report those transactions in the notes to the performance report (but it may do so if it wishes).

This Glossary contains all terms defined in this Standard.

Accounting policies

The specific policies and practices used by the entity when preparing the performance report.

Accumulated funds

Represents the net assets available to the entity to fulfil its objectives in the future. It also represents the difference between the assets and liabilities of the entity. In the for-profit sector the equivalent term is equity.

Assets

Resources controlled by the entity as a result of past events (which would usually be transactions), from which future economic benefits are expected to flow to the entity (such as investments producing interest revenue).

Associate

An entity over which the investor has significant influence.

Bad debt

Money owing to the entity (accounts receivable) that is deemed uncollectible and written off as an expense. This may be due to the length of time it has been owing, or information known about the customer’s ability to pay (for example, the customer has gone into liquidation).

Balance date

The date to which the performance report is prepared. It is usually an end of month date, for example, 30 June 20XX.

Carrying amount

The cost of the asset less accumulated depreciation and accumulated impairment losses (if any).

Cash

Cash on hand and bank account balances (e.g., cheque and savings accounts)

Commitments

Contracts or similar arrangements entered into by the entity to pay money in the future.

Consolidated performance report

The performance report of an economic entity11 presented as that of a single entity.

Contingent liability

A possible obligation to pay money that will be confirmed by the occurrence or non-occurrence of an uncertain future event or an obligation that has arisen but is not recorded because (i) it is not probable that the entity will have to settle the obligation; or (ii) the amount of the obligation cannot be estimated reliably (that is, the entity is too uncertain of the amount of the obligation).

Control

An entity controls another entity when the entity is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature or amount of those benefits through its power over the other entity.

Controlled entity

An entity that is controlled by another entity.

Controlling entity

An entity that controls one or more entities.

Deficit

The amount in the statement of financial performance when expenses exceed revenue for the year. In the for-profit sector the equivalent term is loss.

Defined benefit plan

A retirement scheme where the amount paid to members on retirement is principally determined by years of membership in the scheme and/or salary level rather than the level of contributions by the member.

Depreciation

The allocation of the cost of the asset over its useful life using a structured method such as straight line or diminishing value.

Documented Expectation

An expectation from a resource provider, agreed with the entity in writing, about how and/or when funding will be used. A documented expectation is specific enough for the entity to be able to demonstrate when the expectation has been fulfilled (regardless of whether the resource provider monitors the use of the funding provided or not).

Economic entity

A controlling entity and its controlled entities.

Entity

An organisation which may take any of a number of forms, including but not limited to, a public entity, company, incorporated association, unincorporated association or trust. Dependent on organisational structure, this may be a legal entity, a unit within a wider organisation, or it may be comprised of one or more units.

Expenses

All outflows from the entity during the year other than capital outflows. Capital outflows comprise distributions to owners (in their capacity as owners), outflows to settle liabilities that were recorded in a previous year, and outflows to purchase assets. Expenses include cash paid out during the year, and any liability to pay out cash in the future related to an event (usually a transaction) in the current year or a prior year. These outflows may be from normal operating activities such as the costs of fundraising, or from transactions such as grants made by the entity. Expenses also include reductions in property, plant and equipment called depreciation expense and impairment expense.

Fair value

The amount for an arm’s length transaction if it takes place between two willing parties in the market. Fair value applies to both assets and liabilities.

Financial year

A twelve-month period ending on the entity’s balance date.

Impairment

When an asset is worth less in the market than the carrying amount in the statement of financial position, the difference is an impairment (and is recorded as an expense). This may occur if the asset becomes obsolete due to technological change, or the asset is damaged. Impairment tests apply to both tangible and intangible assets.

Intangible assets

Assets without a physical presence (for example, trademarks, patents).

Inventory

Also referred to as stock, these are current assets held for sale in the ordinary course of business. For example, a stock of licensing or registration forms held for distribution.

Joint arrangement

An arrangement of which two or more parties have joint control.

Joint control

The agreed sharing of control of an arrangement by way of binding arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Joint venture

A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Liabilities

Present obligations arising from past events, the settlement of which is expected to result in an outflow of resources from the entity. An example is the purchase of supplies prior to balance date, with the payment due in the next financial year.

Measurement

Quantification of activities in terms of money, being New Zealand dollars.

Notes to the performance report

Notes that provide further information on items in the various financial statements, either by a further breakdown of figures or a narrative description.

Performance report

A set of statements which collectively tell the story of the entity over the financial year. This includes the entity information, statement of service performance, statement of financial performance, statement of financial position, statement of cash flows, statement of accounting policies, and notes to the performance report prepared in accordance with this Standard.

Public accountability

While public sector PBEs are generally considered to be publicly accountable, “public accountability” has a specific meaning in the accounting standards issued by the XRB.

An entity is considered to have public accountability for financial reporting purposes when it has issued debt or equity instruments through a public offering or its main activity is holding cash or other assets on behalf of others (e.g. a superannuation scheme).

The full definition of “Public Accountability” is included in XRB A1.

Public benefit entity (PBE)

A reporting entity whose primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders.

Public sector public benefit entity (PS PBE)

A public benefit entity that is a public entity as defined in the Public Audit Act 2001, and all Offices of Parliament.

Recording

Including a revenue, expense, asset or liability item in the statements of the performance report (also referred to as recognition).

Recognition event

An event that brings about the legal obligation for the entity to:

  1. Settle a transaction with another party at a future date (payables), or by the payment of cash; or

  2. Have a legal obligation settled upon the entity by another party (receivables), or by the receipt of cash.

This is what distinguishes accrual accounting from cash accounting (for which the only recognition event is the receipt or payment of cash).

Related parties

People or entities that have significant influence over the reporting entity, such as members of the governing body, persons in key management roles, or others that are involved in the strategic management of the entity (whether employed or volunteer) and close members of their families.

Reporting entity

An entity preparing a performance report in accordance with this Standard. In the New Zealand reporting environment, it is a public entity that is required by law to apply standards issued by the External Reporting Board (XRB) or the New Zealand Accounting Standards Board of the XRB. For the purposes of applying this Standard the entity is a public sector entity.

Revenue

All inflows into the entity during the year other than capital inflows. Revenue includes the cash received during the year, and the right to receive a payment in the future related to an event (usually a transaction) in the current year. These inflows may be from normal operating activities such as the sale of a good or service. Capital inflows comprise contributions from owners (in their capacity as owners), inflows to settle a receivable that was recorded in the previous year, inflows from the sale of assets, and inflows from borrowings.

Significant

An item is significant if recording and/or disclosure of the particular item, whether financial or non-financial, could influence a user’s understanding of the entity’s overall performance. For the purposes of this Standard, it has the same meaning as material.

Significant influence

The power to participate in the financial and operating policy decisions of another entity but is not control or joint control of those policies.

Statement of cash flows

A statement that shows the movements between the cash balances at the beginning and the end of the year. It is divided into two categories: operating, and other activities.

Statement of financial performance

A statement that shows an entity’s revenue and expenses, to establish its surplus or deficit for the financial year. This statement is sometimes called the income statement or operating statement.

Statement of financial position

A statement that reports a picture of the entity’s position by listing what it owns and what it owes at the balance date. This statement is sometimes called the balance sheet.

Statement of service performance

A statement that provides information to help users understand what the entity did during the financial year to achieve its objectives. It is particularly useful in the public sector when the focus is on achieving planned objectives, rather than making a profit. The information in this statement is predominantly non-financial, but still involves measurement.

Surplus

The amount in the statement of financial performance when revenue exceeds expenses for the year. In the for-profit sector the equivalent term is profit.

Total expenses

For the purpose of applying the Tier 3 size criteria, total expenses means total expenses (including losses and grant expenses) recognised in accordance with Tier 3 PBE Accounting Requirements in the Statement of Financial Performance.

Where revenue and expense are offset as required or permitted, any net expense is included in total expenses.

Where the entity reporting is a group, total expenses is that of the group comprising the controlling entity and all its controlled entities.

11 Note the term “group” is sometimes used to refer to the economic entity.

This Appendix is an integral part of the Standard12.

Objective

B1. This part of the Standard sets out when the Standard commences to apply.

When this Standard takes effect (section 27 Financial Reporting Act 2013)

B2. This Standard takes effect on the 28th day after the date of its publication under the Legislation Act 2019. This Standard was published on 18 May 2023 and takes effect on 15 June 2023.

Accounting period in relation to which this Standard commences to apply (section 28 Financial Reporting Act 2013

B3. The accounting periods in relation to which this Standard commences to apply are:

  1. for an early adopter, those accounting periods following, and including, the early adoption accounting period; and

  2. for any other reporting entity, those accounting periods following, and including, the first accounting period for the entity that begins on or after the mandatory date.

B4. In paragraph B3:

early adopter means a reporting entity that applies this Standard for an early adoption accounting period.

early adoption accounting period means an accounting period of the early adopter:

  1. that begins before the mandatory date but has not ended or does not end before this Standard takes effect (and to avoid doubt, that period may have begun before this Standard takes effect); and

  2. for which the early adopter:

    1. first applies this Standard in preparing its performance report; and

    2. discloses in its performance report for that accounting period that this Standard has been applied for that period.

mandatory date means 1 April 2024.

12This Appendix is part of the Standard and so the term “Standard” is used throughout. “Standard” refers to “Reporting Requirements for Tier 3 Public Sector Entities”, abbreviated as “Tier 3 (PS) Standard”.

This Appendix is an integral part of the Standard13.

Objective

C1. This part of the Standard is designed to assist an entity that is either:

  1. preparing its first performance report under Tier 3 PBE Accounting Requirements (paragraphs C2–C10); or

  2. applying this Standard for the first time, having complied with Public Benefit Entity Simple Format Reporting – Accrual (Public Sector) (PBE SFR-A (PS)) in the previous year (paragraphs C11–C24).

Preparing the First Performance Report under Tier 3 PBE Accounting Requirements

Transitional Groups

C2. This Standard recognises that entities come from divergent reporting backgrounds and prescribes different transitional rules to meet different circumstances. There are likely to be four types of entities applying Tier 3 PBE Accounting Requirements for the first time:

Group 1: New entities – those who have started up in the current financial year.

Group 2: Entities previously applying Tier 4 PBE Accounting Requirements – those who have complied with Tier 4 PBE Accounting Requirements in the previous financial year.

Group 3: Entities previously applying Tier 2 PBE Accounting Requirements – those who have complied with Tier 2 PBE Accounting Requirements in the previous financial year.

Group 4: Other Entities – entities that have been operating prior to the current financial year, and in the previous financial year followed other accounting standards (for example, NZ IFRS PBE or Old GAAP), or have not followed any accounting standards issued by the External Reporting Board (XRB) or the New Zealand Accounting Standards Board of the XRB.

General Provisions

C3. These general provisions apply to all entities in Groups 1 to 4 applying this Standard unless there is an override in the Special Provisions in paragraphs C7–C10.

C4. An entity that is reporting in accordance with Tier 3 PBE Accounting Requirements for the first time, shall apply this Standard from the beginning of the earliest comparative period presented. This is the financial year prior to that for which the performance report is currently being prepared. For example, if the performance report is being prepared in accordance with these general provisions for the year ended 30 June 2025, the beginning of the earliest comparative period would be 1 July 2023.

C5. All assets and liabilities shall be recorded at the beginning of the earliest comparative period presented.

  1. For payables and receivables, amounts shall be recorded at the amount owing or owed at the beginning of the earliest comparative period.

  2. For property, plant and equipment, an entity shall record significant items at their readily obtainable current amounts (such as rateable value or government valuation). Where amounts are not readily obtainable the entity is not required to record the assets but shall disclose this fact in the notes to the performance report. An entity is not required to record insignificant items of property, plant and equipment.

  3. For other assets and liabilities an entity shall make its best estimate of the value at the beginning of the earliest comparative period presented and record the assets and liabilities at that amount. In this case accumulated funds is the number needed to make the statement of financial position balance on transition.

C6. Separate disclosure of significant restatements is encouraged, but is not required.

Special Provisions

Group 1: New Entities

C7. No comparative figures are required for this Group. This overrides any requirement elsewhere in this Standard for comparatives to be reported. A new entity shall disclose its date of commencement in the notes to the performance report.

Group 2: Entities Previously Applying Tier 4 PBE Accounting Requirements

C8. An entity in this Group shall follow one of the following two options:

  1. Follow this Standard from the start of the current period. In this case comparative information is not required, and this overrides any requirement elsewhere in this Standard for comparatives to be reported. However, the entity shall attach its previous financial statements and a list of its previous accounting policies; or

  2. Apply the general provisions of this Standard.

Group 3: Entities Previously Applying Tier 2 PBE Accounting Requirements

C9. An entity in this Group shall follow one of the following two options:

  1. Provide comparative data based on the applicable information reported in its financial statements for the previous year prepared in accordance with the Tier 2 PBE Accounting Requirements; or

  2. Apply the general provisions of this Standard.

Group 4: Other Entities

C10. An entity in this Group shall follow one of the following two options:

  1. Follow this Standard from the start of the current period. In this case comparative information is not required, and this overrides any requirement elsewhere in this Standard for comparatives to be reported. However, the entity shall attach its previous financial statements and a list of its previous accounting policies; or

  2. Apply the general provisions of this Standard.

Applying the Tier 3 (PS) Standard for the First Time

C11. The requirements in paragraphs C13−C24 are only applicable to entities that were previously applying Tier 3 PBE Accounting Requirements (i.e., those who applied PBE SFR-A (PS)) in the previous financial year.

C12. If the entity did not apply PBE SFR-A (PS) in the previous financial year, it shall instead apply this Standard in accordance with the transitional arrangements set out in paragraphs C2−C10.

Categories of Revenue and Expense

C13. When presenting its statement of financial performance, an entity may need to make significant changes to how it aggregates its revenue and expenses in accordance with paragraphs A63−A70 and A89−A97 of this Standard.

C14. In accordance with paragraph A27 of this Standard, where an entity makes any changes to its presentation or categories of disclosure due to the requirements of this Standard, it is also required to make similar changes to the comparative amounts, unless it is impracticable to do so.

Revenue Recognition

C15. An entity shall treat any changes in revenue recognition arising from the application of paragraphs A71−A84 of this Standard as a change in accounting policy. In accordance with paragraph A218 an entity shall apply the change in accounting policy from the beginning of the current reporting period and shall disclose the information required by paragraph A216.

C16. For the avoidance of doubt, an entity shall not reassess its recognition of revenue or unused donations or grants with conditions derived from significant grants, donations and bequests received in previous reporting periods except to the extent required to fulfil the disclosure requirements in paragraph A216(b). However, applying the requirements in this Standard may result in an entity recognising revenue from unused donation or grants with conditions on a different basis than it would have if it had continued to apply the requirements in PBE SFR-A (PS).

Revaluation of Assets

C17. There are likely to be two groups of entities applying the requirements in this Standard.

  1. Group 1: Entities that previously accounted for property, plant and equipment and/or publicly traded investments at cost in accordance with PBE SFR-A (PS).

  2. Group 2: Entities that previously elected to revalue their property, plant and equipment and/or publicly traded investments by applying the requirements of the applicable Tier 2 PBE Standard(s)

C18. An entity in Group 1 may elect to apply the requirements in paragraphs A129−A151 and revalue its property, plant and equipment and/or publicly traded investments in the current and future reporting periods, in which case it shall account for the election as a change in accounting policy in accordance with paragraphs A214−A218 of this Standard.

C19. An entity in Group 2 shall choose one of the following options for each revalued class of assets.

  1. Option 1: Continue applying the requirements in the applicable PBE Standard(s) to the revalued class of assets.

  2. Option 2: Cease applying the requirements in the applicable PBE Standard(s) to the revalued class of assets and instead apply the revaluation requirements in this Standard.

C20. An entity that chooses Option 1 shall continue applying the applicable Tier 2 PBE Standard(s) to that class of assets in the current and future reporting periods, unless the criteria for a change in accounting policies per paragraph A215 is met.

C21. An entity that chooses Option 2 shall treat any change arising from the application of paragraphs A129−A151as a change in accounting policy as described in paragraph A215(a). In accordance with paragraph A218 an entity shall apply the change in accounting policies from the beginning of the current reporting period and shall disclose the information required by paragraph A216.

C22. When applying the requirements in this Standard, an entity may elect to revalue property, plant and equipment assets based on a council valuation. An entity may make such an election regardless of whether the council valuation was most recently updated before the beginning of the current period. In this circumstance the entity shall revalue their property, plant and equipment using the most recent council valuation applicable to each revalued asset.

Opting-up

C23. An entity that has previously elected to apply the requirements of a Tier 2 PBE Standard to a specific type of transaction may be required to change the presentation of the statement of financial performance in accordance with paragraph D8 of this Standard.

C24. In accordance with paragraph A27 of this Standard, where an entity makes any changes to its presentation or categories of disclosure due to the requirements of this Standard, it is also required to make similar changes to the comparative amounts, unless it is impracticable to do so.

13This Appendix is part of the Standard and so the term “Standard” is used throughout. “Standard” refers to “Reporting Requirements for Tier 3 Public Sector Entities”, abbreviated as “Tier 3 (PS) Standard”.

This Appendix contains the requirements for an entity when applying a PBE Standard. It is an integral part of the Standard14.

Interests in Other Entities

D1. To determine whether an entity has an interest in a controlled entity, an associate or a joint arrangement the entity must refer to the guidance within the following Tier 2 PBE Standards:

  1. PBE IPSAS 35 Consolidated Financial Statements

  2. PBE IPSAS 36 Investments in Associates and Joint Ventures

  3. PBE IPSAS 37 Joint Arrangements

D2. If an entity controls another entity, it shall prepare a consolidated performance report which combines the assets, liabilities, net assets/equity, revenue and expenses of the controlling entity with those of the controlled entity in accordance with the requirements in PBE IPSAS 35 and PBE IPSAS 38 Disclosure of Interests in Other Entities. An entity that controls another entity, but which is not required to prepare a consolidated performance report because it qualifies for the exemption in paragraph 5 of PBE IPSAS 35 not to present consolidated financial statements, shall prepare a performance report in accordance with PBE IPSAS 34 Separate Financial Statements.

D3. If an entity has an interest in an associate or a joint venture it shall prepare a performance report in which it accounts for that interest in accordance with the requirements in PBE IPSAS 36 and PBE IPSAS 38. An entity that qualifies for the exemption in paragraph 23 of PBE IPSAS 36 not to apply the equity method to its investment in an associate or a joint venture shall prepare a performance report in accordance with PBE IPSAS 34.

D4. If an entity has an interest in a joint arrangement, it shall prepare a performance report in which it accounts for that interest in accordance with the requirements in PBE IPSAS 37 and PBE IPSAS 38.

D5. When applying the requirements in PBE IPSAS 34, PBE IPSAS 35, PBE IPSAS 36 or PBE IPSAS 38 an entity is not required to comply with the disclosure requirements in those standards denoted with an asterisk (*). Where an entity elects to apply a disclosure concession it shall comply with any RDR paragraphs associated with that concession.

Other Applications of PBE Standards

D6. An entity that is eligible to apply this Standard, and elects to do so, may elect to apply the requirements of a PBE Standard that is part of the Tier 2 PBE Standards to a specific type of transaction, as long as it applies that option to all transactions of that type. For example, an entity may decide to opt up to PBE IPSAS 27 Agriculture so that it can measure its biological assets and agricultural produce at fair value less costs to sell, or an entity may decide to opt up to PBE IPSAS 25 Employee Benefits to account for long-term employee benefits.

D7. If, for a specific type of transaction, an entity elects to apply the requirements of a Tier 2 PBE Standard instead of applying the requirements in this Standard, the entity:

  1. Shall disclose this in the statement of accounting policies; and

  2. Cannot choose to return to applying this Standard for that type of transaction unless the entity complies with the requirements of this Standard for changes in accounting policies (see paragraphs A214–A215).

D8. If, for a specific type of transaction, an entity elects to apply the requirements of a Tier 2 PBE Standard instead of applying the requirements in this Standard, and the PBE Standard requires that the effect of that transaction shall be recognised in other comprehensive revenue and expense, the entity shall instead:

  1. Recognise the effect of that transaction directly in accumulated funds; and

  2. Present the cumulative effect of similar transactions as a separate reserve within Accumulated Funds.

14This Appendix is part of the Standard and so the term “Standard” is used throughout. “Standard” refers to “Reporting Requirements for Tier 3 Public Sector Entities”, abbreviated as “Tier 3 (PS) Standard”.