Tier 3 and Tier 4 PBEs – new standards

What are the differences for Tier 3 entities?

The main differences between the current requirements (under Public Benefit Entity Simple Format Reporting – Accrual) and the upcoming requirements under the Tier 3 (NFP) Standards / Tier 3 (PS) Standard are as follows:

Introduce a new revenue recognition model 

• Revenue can now be deferred when there is a “documented expectation” instead of when there is a “use or return condition”.
• It is anticipated that this new model will make it easier to defer revenue to reflect how many Tier 3 entities operate.
• (Note – any revenue that could be deferred under the use or return condition model will still be able to be deferred under the new documented expectation model.

Increase the number of revenue and expenditure categories

• More categories which are more clearly defined are now included on the face of the Statement of Financial Performance. For example:
• • • Commercial activities are split out;
    • Grants for capital projects are split from other grants;
    • Government funding is split from non-governmental funding;
    • Donations are now clearly differentiated from membership fees and subscriptions;
    • Employee remuneration (including those paid as contractors) is to be split out from volunteer and other employee expenses.
• Due to the increased number of categories, the option to disaggregate further on the statement of financial performance has been removed.
• Overall, this will make it easier for entities to classify their revenue and expense items and promote consistency of reporting.
• Entities are still permitted to relabel the categories to use different terminology and/or provide more disaggregation in the notes to the performance report.

Alternative measurement for assets

• Entities are now able to revalue their property, plant and equipment, investment property, and publicly traded financial investments without needing to apply the applicable Tier 2 PBE Standard RDR.  Depreciation must still be calculated on revalued assets.
• Changes are made straight to a separate property, plant and equipment revaluation reserve within accumulated funds in the Statement of Financial Position. The whole class of assets must be revalued. Once a revaluation is made there must be consistency going forward, with no changing back to other methods, and revaluation updates made on a regular schedule
•  Entities that previously revalued their property, plant and equipment assets using a local council valuation are able to continue using these valuations.

More disclosure for accumulated funds

• Enhanced disclosures are required where entities have restricted or discretionary reserves.
• The new standard says that to make information understandable to users, the balance of accumulated funds is to be aggregated and presented separately in categories, as applicable. These include any capital contributed by owners, accumulated surpluses or deficits, revaluation reserves, restricted and discretionary reserves, and any other reserves.
• This seems to be designed to make entities think about why they have significant reserves (if in fact, they do) and perhaps how they could be better using these to meet their objectives.
• The enhanced disclosures will increase transparency over the resources available to an entity and its future plans.

Service performance reporting terminology aligned with PBE FRS 48

• The terms “outcomes” and “outputs” have been removed and replaced with terms that are more aligned with the Tier 2 PBE Standards Reduced Disclosure Regime (PBE Standards RDR).
• More guidance on service performance reporting has also been added.

Tier 4 changes

There are a couple of changes for Tier 4 (NFP) reporting. These reflect the changes in categories for Tier 3, changing the language around outcomes and outputs, removing the need for a “Statement of Resources and Commitments” and replacing this with significant assets and significant liabilities listed in the notes. The name of “Statement of Receipts and Payments” is changed to “Statement of Cash Received and Cash Paid.”

Transition to the new standards

Some of the key items to keep in mind are as follows:

• Comparatives will need to be restated to line up with the new categories (unless it is impractical to do so).
• Revenue recognition changes will be treated as changes in accounting policy with an appropriate note.
• Adopting the revaluation provisions will need to be acknowledged as a change in accounting policy.
• An entity previously using a Tier 2 standard may continue to do so, or change to the new option, however, this will be a change of accounting policy.

You can access the new standards on the XRB website here:  https://www.xrb.govt.nz/standards/accounting-standards/not-for-profit-standards/tier-3

Should you require further information on the changes, please do not hesitate to contact the team at Forbes.