Every few generations the Government seeks to update its laws and standards into the more modern time. In 2012 the External Reporting Board started work on new accounting requirements for New Zealand organisations, focusing more on its Not-For-Profit organisations. Firstly, this essay defines Not-For-Profit organisations and Public Benefit Entities, secondly, who the new Accounting Standards Framework came from and how they are integrating it into New Zealand’s business sector, and lastly, the four Tiers of the PBEs and what they will now be required to comply with.
A Not-for-Profit (NFP) organisation is a business that aims to break even with neither a profit nor loss to be given to any individual involved with the organisation. Under the old financial reporting standards NFP organisations were not required to prepare any financial statements and thus many users had no idea just what was happening in the organisation. This means that fraudulence may have been running rampant as New Zealand has seen recently in the media. Under the new system, business are classed as For-Profit or as a Public Benefit Entity (PBE) which are defined as “reporting entities 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 a financial return to equity holders” (The Treasury, para. 2). In clearer terms, any organisation that focuses solely on the goods or services it is supplying to clients, rather than making a profit. This also means that the Government, its Departments and Office of Parliament must report under the PBE reporting standards, but State Owned Enterprises are not as they are in operation to make a profit for their investors and the Government.
The review that is currently in Parliament at present is reviewing the Financial Reporting Act 1993. It is to set out guidelines on which entities have to produce which General Purpose Financial Reports. Before the rollout registered charities and the like were not required to produce any financial statements. The new Accounting Standards Framework that the External Reporting Board (XRB) issued in April 2012 set out two sectors, For-Profit Entities and for Public Benefit Entities (PBE). PBEs are then split into Public Sector PBEs which the Public Audit Act 2001 states as “the Crown; each office of Parliament...Council-Controlled Organisations...Crown entities...Educational bodies” and many others as stated in the corresponding schedules of the act, and Not-For-Profit PBEs which focus on breaking even rather than making a profit for its beneficiaries or investors. The new Accounting Standards Framework for Public Benefit Entities will be rolled out in 3 stages over the 2012 to 2015 period. Stage one was completed in November 2012, when the XRB issued the first set of accounting standards for the For-Profit entities. In May 2013 stage two was completed by the XRB issuing Tiers One and Twos accounting standards for Public Sector PBEs. Stage three is expected to be completed and effective for the periods beginning on or after 1 April 2015, after the accounting standards for Not-For-Profit PBEs are completed by the XRB.
Accounting Reporting Standards for Public Benefit Entities will now be determined by the Tier into which the organisation falls into. There are four Tiers, each determined by the amount of expenses the organisation has. The first Tier is for Publicly Accountable PBEs or PBEs with expenses of more than $30 million. Organisations under the new standards with the power to tax, levy or rate to obtain the public’s funds are no longer classed as Publically Accountable, unless they are “under the Securities Legislation , banks, deposit, takers and superannuation schemes” (PWC, pg 8) will they be considered Publically Accountable. Organisations in this Tier will have to comply with “Full PBE Accounting Standards” and will have to have full disclosure in their financial statements. The second Tier is for PBEs with expenses over $2 million and under $30 million. Organisations in this Tier will have to comply with “PBE Accounting Standards – Reduced Disclosure Regime” and there will be less information that they are required to disclose in their financial statements as they are smaller than Tier One organisations. The third Tier is for PBEs with expenses that are less than $2 million and are not included in Tier Four. Organisations in this Tier will have to comply with “PBE Simple Format Reporting – Accrual Basis” so they will not have to prepare their financial statements to the extent of the above Tiers. The fourth and final Tier is only for PBEs that have been allowed by the Government to only use cash accounting. Organisations in this Tier will have to comply with “PBE Simple Format Reporting – Cash Basis” which means that they will only have to disclose cash transactions in their financial statements.
In conclusion, a Not-For-Profit organisation is now being called a Public Benefit Entity, which is classified as any organisation that is focusing solely on the goods or services it is supplying to clients, rather than making a profit from them. The new Accounting Standards Framework is coming from the External Reporting Board and they are integrating it into New Zealand’s business sector in three phases, two of which are already complete. Lastly for PBEs, the four Tiers that determine the amount of General Purpose Financial Statements that each organisation will have to prepare.

Reference List:
Parliamentary Counsel Office. Public Audit Act 2001. Retrieved from http://www.legislation.govt.nz/act/public/2001/0010/latest/DLM88578.html
Parliamentary Counsel Office. Public Audit Act 2001 – Schedule 1. Retrieved from http://www.legislation.govt.nz/act/public/2001/0010/latest/DLM88974.html
Price Waterhouse Cooper. Public Sector PBE Standards. Retrieved from http://www.pwc.co.nz/KenticoFiles/bd/bd15c5ab-7036-436b-8271-788214ff7cd4.pdf
Price Waterhouse Cooper. Tiers of Joy or Bitter-Suite? Retrieved from http://www.pwc.co.nz/KenticoFiles/7a/7aa96b7f-4fe2-48f7-8ad0-04b97c600800.pdf
The Treasury. Public Benefit Entities. Retrieved from http://www.treasury.govt.nz/publications/guidance/reporting/accounting/pbe