For the first time in eight years, the thresholds that guide financial reporting and assurance requirements have changed with several changes to financial reporting and assurance thresholds taking effect from 1 January 2022.
The financial reporting and assurance thresholds, which were first set in 2015 when the financial reporting landscape was comprehensively overhauled, are reviewed every eight years by the Ministry of Business, Innovation and Employment, and 2022 marks the first eight-year milestone.
The financial reporting and assurance obligations of entities are usually linked to an entity’s size so any previous advice will now be out of date and will require revisiting for all balance dates after 31 December 2021.
The threshold changes have increased by approximately ten percent because of inflationary changes since 2015, however, the changes are unfortunately not this simple.
While most thresholds have changed, not all have. Some thresholds are set by legislation and others are set by the External Reporting Board (XRB) through their Accounting Standards Framework. Only the thresholds set by legislation have changed.
When the XRB originally set the size thresholds in the Accounting Standards Framework, they stated that all size-based criteria would be kept under review and adjusted for inflation periodically. So, while those thresholds have not yet changed, be aware that these may change in the future in response to the legislative changes.
This inconsistency in threshold changes may cause some confusion, especially for public benefit entities including not-for-profits. To help understand the changes, here’s how the thresholds have changed for various types of entities.
Financial Reporting Act 2013 definition of ‘large’ (excluding overseas companies below)
Previous Threshold (up to 31 December 2021), either:
New Threshold (from 1 January 2022), either:
Financial Reporting Act 2013 and Companies Act 1993 definition of ‘large overseas company’ (includes overseas companies, subsidiaries of overseas companies and NZ ‘branches’ of overseas companies)
Previous Threshold (up to 31 December 2021), either:
New Threshold (from 1 January 2022), either:
Financial Reporting Act 2013 definition of ‘specified not-for-profit entity’ (i.e. point at which Tier 4 no longer applies to not-for-profit entities)
Friendly Societies and Credit Union Act 1992 threshold for no longer opting out of preparation of financial statements
Charities Act 2005 definition of ‘large’ charity (i.e. point at which an audit is required)
Charities Act 2005 definition of ‘medium’ charity (i.e. point at which a review is required)
The thresholds in the XRB’s Accounting Standards Framework that are contained in XRB A1 and relate to public benefit entities moving between tiers, have not changed.
The requirement for a public benefit entity to report in tier 2 and apply Public Benefit Entity (PBE) Accounting Standards with Reduced Disclosure Regime (RDR) remains at greater than $2m of operating expenditure. The requirement for a public benefit entity to report in tier 1 and apply PBE Accounting Standards remains at greater than $30m of operating expenditure.
To learn about these changes and more, join our Financial Reporting Update webinar on 23 March 2022 from 12pm – 1pm NZT. You will have the exclusive opportunity to have any reporting threshold related questions answered by our team.
REGISTER HERE