board meeting agenda - xrb

189572.2

Board Meeting Agenda

Thursday 15 September 2016 Heritage Hotel, 35 Hobson Street, Auckland

Est Time Item Topic Objective Page

A: NON-PUBLIC SESSION

Preliminary

9.15 am 1 Welcome and Introduction

Apologies

9.20 am 2 Board Management

2.1 Interest Register Note Paper 4

2.2 Minutes – August 2016 Approve Paper 7

2.3 Correspondence Note Paper 14

2.4 Communications from the NZASB Note Paper 15

2.5 Speaking Register Note Paper 16

2.6 Cover Memo – NZASB Summary Work Plan Note Paper 17

2.6.1 NZASB Summary Work Plan Note Paper 18

2.7 Documents Open for Comment Note Paper 23

B: PUBLIC SESSION

PBE Item for Approval

9.45 am 3 Approved Budget (Proposed amendments to PBE IPSAS 1)

(ALH)

3.1 Cover Memo Consider Paper 25

PBE Items for Consideration

10.15 am 4 Application of the PBE Policy Approach (VSF/JP)


4.2 Memo on IPSAS 39 Employee Benefits Consider Paper 30

4.3 Memo on Impairment of Revalued Assets Consider Paper 32

4.4 Impairment of Revalued Assets Note Separate paper

-

4.5 NZASB comment letter to IPSASB on ED 57 Note Supp paper -

10.30 am Morning tea

189572.2


For-profit and PBE Item for Consideration

10.45 am 5 Insurance: Reserve Bank Solvency Disclosures

(VSF)


For-profit Item for Consideration

11.15 am 6 Discussions with CFOs

6.1 Improving the Communication Effectiveness of Financial Statements

Discuss Slides 44

12.30 pm Lunch

PBE Items for Consideration

1.00 pm 7 Service Performance Reporting (JS/LK)


7.2 Analysis of submissions Consider Paper 85

7.3 Submissions received Note Supp Paper -

7.4 ITC and ED Note Supp Paper -

2.30 pm 8 PBE Interests in Other Entities (JS/ALH)


8.2 Analysis of submissions Consider Paper 167

8.3 Submissions received Note Supp Paper -

8.4 ITC and EDs Note Supp Paper -

3.00 pm Afternoon Tea

3.15 pm 8 Interests in Other Entities (contd)

For-profit and PBE Item for Consideration

3.45 pm 9 FRS-42 and PBE FRS 42 Practice Issues (AH)

9.1 Outreach undertaken Note Verbal -

Standards for Noting

4.15 pm 10 Standards Approved (VSF)

10.1 Approval NZASB 73 Clarification of Classification and Measurement of Share-based Payment Transactions (Amendments to NZ IFRS 2)

Note Paper 192

189572.2


C: NON-PUBLIC SESSION

Items for Noting

4.20 pm 11 International & Domestic Update (JP)

11.1 Environment Update Note Paper 193

11.2 Financial Reporting Current Issues Discuss Verbal -

11.3 Agenda for September 2016 ASAF Meeting Note Paper 199

11.4 Update from XRB Board Meeting Note Verbal -

11.5 Changes to Board Papers Note Verbal -

5.00 pm Finish

Next NZASB Meeting: Thursday 3 November 2016, Wellington

189659.1

Register of Interests – 1 September 2016

Member Occupational Role Professional Affiliations For-Profit Entity Ownership/Governance Roles

PBE Ownership/ Governance Roles

Other Relevant Matters

Stephanie Allan

Group Financial Controller, Fonterra Co-operative Group Limited

Member, Chartered Accountants Australia New Zealand (CAANZ)

Trustee, Allan Family Trust and Taupo Trust

Director, Ohope Enterprises Limited

Todd Beardsworth Assistant Auditor-General, Accounting and Auditing Policy, Office of the Auditor-General

Fellow, CAANZ

Director, Beardsworth Properties Limited

Francis Caetano Group Financial Controller, Auckland Council

Member, CAANZ Trustee, Francis Caetano Trust and Jacqueline Caetano Trust

Shareholder, Tati River Investments Partnership

Carolyn Cordery

Associate Professor, Victoria University of Wellington

Fellow, CAANZ

Fellow, CPA Australia

Trustee, Anglican Trust Board, Diocese of Wellington

Member, Lottery Community Sector Research Committee

CA Charities and NFP Advisory Committee

Kimberley Crook Partner, Ernst & Young Fellow, CAANZ Member of the External Reporting Board

Trustee, Crook Family Trust No. 1, Mainland Trust, Sherratt Family Trust and Jeff Sherratt Inheritance Trust

Member, AASB

Agenda Item 2.1

189659.1




Charles Hett Head of Actuarial Services, Deloitte

Fellow, Institute and Faculty of Actuaries (UK)

Fellow, New Zealand Society of Actuaries

Associate, Institute of Actuaries Australia

Member, Institute of Directors New Zealand

Board member, Transparency International (NZ Chapter)

Chair, Diabetes New Zealand investment committee

Director, WROK Limited, Life Management Limited and Storymaker Research Institute Limited

Trustee, C and E Hett Trust and S & B Inness Family Trust

Karl Hickey

Senior Finance Manager, ANZ Bank Limited

Member, CAANZ Trustee, KM Hickey Family Trust

Lyn Hunt Partner, PricewaterhouseCoopers

Member, Institute of Chartered Accountants in England and Wales (ICAEW)

Trustee, Chesterfield Family Trust

Kris Peach AASB Chair and CEO Fellow, CAANZ

Fellow, CPA Australia

Graduate Australian Institute of Company Directors (GAICD)

Director, YHA Victoria Bushwalking Club

Company Director, Trustee various family entities

Angela Ryan

Principal Accounting Advisor, The Treasury

Fellow, CAANZ

Member, IPSASB Director, WERA Investments Limited

189659.1




Warren Allen Chief Executive, XRB Life Member, CAANZ

Fellow, ICAEW

Fellow, Institute of Chartered Secretaries (FCIS)

Member, Institute of Directors New Zealand

Chair, Audit and Risk Committee, Ministry of Foreign Affairs and Trade

Immediate Past President, International Federation of Accountants (IFAC)

Ambassador, International Integrated Reporting Council (IIRC)

Member of Audit New Zealand’s Audit Quality Plan Oversight Group

Trustee, IR Foundation (UK Registered Charity part of IIRC)

Ambassador, CAANZ

Trustee, two personal family trusts

Trustee, Alan Langford Family Trust

Agenda Item 2.2

1 190332.1

New Zealand Accounting Standards Board

Minutes of the Meeting held on 4 August 2016 at XRB Office, Level 7, 50 Manners St, Wellington

commencing at 9.15 am

Members Present: Kimberley Crook Stephanie Allan Todd Beardsworth Francis Caetano Carolyn Cordery Charles Hett Karl Hickey Lyn Hunt Kris Peach Angela Ryan In attendance: Warren Allen – Chief Executive Anthony Heffernan – Acting Director, Accounting Standards David Bassett – Deputy Director, Accounting Standards Lisa Kelsey – Project Manager, Accounting Standards Aimy Luu Huynh – Project Manager, Accounting Standards Judith Pinny – Project Manager, Accounting Standards Vanessa Sealy-Fisher – Senior Project Manager, Accounting

Standards

NON-PUBLIC SESSION – AGENDA ITEMS 1 – 3

1. WELCOME AND INTRODUCTION

The Chair welcomed the Members, including new members Todd Beardsworth, Francis Caetano

and Charles Hett, to the meeting of the Board.

2. BOARD MANAGEMENT

2.1 Interest Register

The Board NOTED the Register of Interests of Members.

Charles Hett noted that he is the appointed Actuary of Partners Life Limited (with effect from

4th August 2016).

Warren Allen noted that he is now a member of Audit New Zealand’s Audit Quality Plan

Oversight Committee.

No other declarations of interest were made.

Members indicated that, in the normal course of their day-to-day professional responsibilities,

they deal with a broad range of financial reporting issues. Members have adopted the standing

Agenda Item 2.2

2 190332.1

policy in respect of declarations of interest that a specific declaration will be made where there

is a particular issue before the Board.

No specific declarations of interest were made.

2.2 Minutes

The Board APPROVED the minutes of the meeting held on 16 June 2016.

2.3 Board Action List

The Board NOTED the Board Action List from the meeting held on 16 June 2016. The Board

requested staff to consider the purpose and ongoing need for the Board Action List.

2.4 Correspondence

The Board NOTED the correspondence inwards and outwards.

Correspondence inwards included a comment letter from the Treasury to the IPSASB on ED 60

Public Sector Combinations.

Correspondence outwards included:

The NZASB comment letter to the IPSASB on ED 60 Public Sector Combinations; and

A comment letter from the XRB to the IVSC on ED IVS 104 Bases of Value.

The Board NOTED that the IPSASB plans to have an IVSC representative on the task force of the

IPSASB measurement project.

2.5 Communications from the NZASB

The Board NOTED the communications from the NZASB since the last NZASB Meeting and

current date.

2.6 Speaking Register

The Board NOTED the Speaking Register.

The Board RECEIVED an update on the joint webinars held with Charities Services on the New

Financial Reporting for Accountants of Small Charities. Over 1,400 participants signed into the

webinars.

The Board NOTED that the purpose of the Chair’s panel session on IFRS 16 Leases at the AFAANZ

Accounting Standards Special Interest Group was to give the standard setter’s perspective on

the standard rather than to receive feedback on the requirements in the standard.

The Board NOTED that Warren Allen was a commentator, rather than a speaker, at the

Comparative International Governmental Accounting Research Workshop and PhD Colloquium’s

session on The Value of Public Audit: Literature and History (New Zealand).

Agenda Item 2.2

3 190332.1

2.7 Update from June 2016 Board Only Session

The Board NOTED that the suggestions made by the Board will be rolled out progressively in a

cohesive way, and the Board only session will be held annually, probably in June.

PUBLIC SESSION – AGENDA ITEMS 3 – 9

The Board moved into public session.

3. 2016 OMNIBUS AMENDMENTS TO PBE STANDARDS

3.1 and 3.2 Draft ITC and ED

The Board:

(a) AGREED with the application of the PBE Policy Approach to the IPSASB’s Improvements to

IPSASs 2015, the IASB’s Recognition of Deferred Tax Assets for Unrealised Losses

(Amendments to IAS 12) and the IASB’s editorial correction to IFRS 5 Non-current Assets

Held for Sale and Discontinued Operations set out in Appendix A of the memo;

(b) AGREED to insert the examples from paragraph 15 of IPSAS 3 Accounting Policies,

Changes in Accounting Estimates and Errors into paragraph 15 of PBE IPSAS 3 Accounting

Policies, Changes in Accounting Estimates and Errors;

(c) AGREED to reinstate the last sentence of paragraph 33 of PBE IAS 34 Interim Financial

Reporting and add a footnote explaining that the PBE Conceptual Framework allows for

the possibility of other resources and other obligations;

(d) AGREED to remove the proposed amendments to the Tier 3 simple format reporting

standards: PBE SFR-A (NFP) Public Benefit Simple Format Reporting Accrual (Not-For-

Profit) and PBE SFR-A (PS) Public Benefit Simple Format Reporting Accrual (Public Sector)

from the ED as these will be dealt with at a later stage;

(e) AGREED that the proposed amendments to update references to the PBE Conceptual

Framework and Bases for Conclusions in the rubric are editorial corrections;

(f) AGREED to remove the proposed amendment for Approved Budget: PBE IPSAS 1

Presentation of Financial Statements from the ED as this matter will be discussed at a

future meeting;

(g) AGREED that the proposed amendments to PBE IPSAS 29 Financial Instruments:

Recognition and Measurement are editorial corrections;

(h) AGREED with the proposed effective date of periods beginning on or after 1 January 2017

with earlier application permitted for all of the proposed amendments except for the

proposed amendments to PBE IPSAS 17 Property, Plant and Equipment and PBE IPSAS 27

Agriculture;

(i) AGREED with the proposed effective date of periods beginning on or after 1 January 2018

with earlier application permitted for the proposed amendments to PBE IPSAS 17

Agenda Item 2.2

4 190332.1

Property, Plant and Equipment and PBE IPSAS 27 Agriculture to reflect the IASB’s

amendments for Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41);

(j) APPROVED for issue ED NZASB 2016-X 2016 Omnibus Amendments to PBE Standards and

the accompanying ITC with a comment period of 90 days, subject to the changes

discussed at the meeting; and

(k) AGREED for the ED and ITC to be finalised by the Chair.

The Board noted that there is no explicit policy in regard to how often amendments to the Tier 3

and Tier 4 simple format reporting standards should be made. The Board AGREED that there

should be a rebuttable presumption that amendments are not made to these standards on an

ad hoc basis. Instead amendments to these standards will be issued in a future omnibus, after

allowing a period of time for the Tier 3 and Tier 4 simple format reporting standards to be

implemented for the first time by PBEs.

3.3 IPSASB Bases for Conclusions

The Board considered options for where the IPSASB’s BCs should be kept within the PBE

Standards.

The Board AGREED with option 2, whereby all of the IPSASB’s BCs are removed from the existing

PBE Standards and the IPSASB’s BCs and IASB’s BCs (in relation to where IFRS Standards are

used as the basis for particular PBE Standards) will continue to be provided as additional

material on the XRB’s website.

4. AMENDMENTS TO EXPLANATORY GUIDES

The Board:

(a) APPROVED the proposed amendments to the EGs arising from the PBE Conceptual

Framework, subject to the changes agreed by the Board; and

(b) AGREED to reissue the EGs later this year or early in 2017 once amendments from other

active projects have been considered and approved.

5. PBE IFRS 16 LEASES

The Board CONSIDERED the options for developing a PBE Standard based on IFRS 16 Leases.

The Board:

(a) AGREED to defer making a decision about whether to develop a PBE Standard based on

IFRS 16 ahead of the IPSASB until after considering the outcomes of the September 2016

IPSASB meeting; and

(b) AGREED to conduct outreach to assist in further consideration of whether to develop a

PBE IFRS 16 Leases Standard, particularly with mixed groups and PBEs with users that may

be concerned about different lease accounting requirements between the PBE sector and

for-profit sector.

The Board will continue to keep a watching brief on the IPSASB’s Leases Project.

Agenda Item 2.2

5 190332.1

6. ED PBE IPSASs 34-38 INTERESTS IN OTHER ENTITIES

The Board:

(a) RECEIVED a high-level overview of the submissions received; and

(b) NOTED that a full analysis of the submissions and project plan will be presented at the

next meeting.

7. FOR-PROFIT RDR

The Board CONSIDERED the memo and AGREED to include in each standard, where relevant, a

paragraph to clarify which disclosures Tier 2 entities are required to provide. This paragraph

would be based on paragraph RDR 63.1 of NZ IFRS 3 Business Combinations.

The Board CONSIDERED the draft Invitation to Comment (ITC) and Exposure Draft (ED) and

PROVIDED FEEDBACK on the documents.

The ITC and ED will be approved for issue at a future meeting.

8. CLARIFICATION OF CLASSIFICATION AND MEASUREMENT OF SHARE-BASED PAYMENT

TRANSACTIONS (AMENDMENTS TO NZ IFRS 2)

The Board:

(a) APPROVED for issue Classification and Measurement of Share-based Payment

Transactions (Amendments to NZ IFRS 2); and

(b) APPROVED the signing memorandum from the Chair of the NZASB to the Chair of the XRB

Board requesting approval to issue the Standard, subject to minor changes agreed at the

meeting.

9. IVSC EXPOSURE DRAFTS

The Board:

(a) NOTED the Exposure Drafts issued by the IVSC Standards Board; and

(b) AGREED not to comment on the IVSC Standards Board’s Exposure Drafts.

NON-PUBLIC SESSION – AGENDA ITEMS 10 – 11

10. IPSASB REVENUE PROJECT

The Board RECEIVED an education presentation on the IPSASB revenue project from the Acting

Director, Accounting Standards.

11. INTERNATIONAL AND DOMESTIC UPDATE

11.1 Environment Update

The Board NOTED the Environment Update.

Agenda Item 2.2

6 190332.1

11.2 Current Financial Reporting Issues

Accounting for grant expenditure

The Board noted that there is diverse accounting for grant expenditure as a result of there being

no specific guidance on this topic. Although the IPSASB is dealing with this issue as part of its

Revenue and Non-exchange Expenses projects, it is unlikely to result in a standard in the short

term. The Board REQUESTED that an issues paper be brought to a future meeting.

Calculation of policyholder liabilities gross or net of tax

The Board noted that this issue is likely to be addressed as the New Zealand Society of Actuaries

is planning to update its standards.

11.2.1 Charities Services June 2016 Newsletter Article

The Board received an update from the Chief Executive on a recent meeting with Charities

Services. The purpose of the meeting was to discuss an article published in the Charities Services

June 2016 Newsletter, Disclosing salary details in performance reports/financial statements. The

Board AGREED to keep a watching brief of concerns that arise from Charity Services restricting

access to information within general purpose financial statements filed on their register. The

Board REQUESTED this matter also be referred to the XRB Board.

11.2.2 New Zealand Trustees Association June 2016 Article

The Board noted that the Chief Executive has contacted the president of the New Zealand

Trustees Association (NZTA) regarding the article in its June 2016 newsletter. The Board AGREED

to take no further action on this matter.

11.2.3 BNZ July 2016 Article – Reporting changes bring opportunities to non-profits

The Board NOTED the article from the BNZ’s non-profit series.

11.3 Documents Open for Comment

The Board:

(a) NOTED the documents open for comment;

(b) AGREED not to comment on IASB ED/2016/1 Definition of a Business and Accounting for

Previously Held Interests (Proposed Amendments to IFRS 3 and IFRS 11);

(c) AGREED not to comment on the IPSASB Consultation Paper Public Sector Specific Financial

Instruments; and

(d) RECEIVED a high-level update on the submissions received on ED NZASB 2016-6 Service

Performance Reporting.

11.4 Update on IPSASB June Meeting

The Deputy Chair provided an update on the IPSASB June meeting.

Agenda Item 2.2

7 190332.1

11.5 Update on ASAF Meeting

The Chair provided an update on the ASAF meeting.

11.6 Update on the TRG Meeting

The Board NOTED the TRG meeting held in June 2016.

11.7 Initial Changes Introduced to Board Paper Preparation and Presentation

The Board SUPPORTED the initiative of the supporting papers being in a separate PDF

document.

Next meeting

The next meeting will be held on 15 September 2016.

The meeting closed at 4.35 pm.

CONFIRMED as a true record

...........................................

Kimberley Crook

Chair

Agenda Item 2.3

1 189756.1

Memorandum

Date: 1 September 2016

To: NZASB members

From: Aimy Luu Huynh

Subject: Correspondence

Action

NOTE the inwards and outwards correspondence of the NZASB since the August 2016

meeting.

Correspondence Register

Inwards Correspondence1

18 submission letters on ED NZASB 2016-6 Service Performance Reporting Supp Paper

7.3

Six submission letters on ED NZASB 2016-1 to 5 Interests in Other Entities Supp Paper

8.3

Outwards Correspondence

Nil

1 Where there is an agenda item on a topic, submissions received on the topic are included in that agenda

item, unless there has been a request for the submission to be kept confidential.

Agenda Item 2.4

1 189755.1

Memorandum


To: NZASB members


Subject: Communications from the NZASB

Action

NOTE the NZASB’s communications to constituents since the August 2016 NZASB Meeting.

Copies of the communiqués are available on the website.

Communications Register

NZASB

NZASB Communiqué 2016/21 — IPSASB Consultation Paper: Public Sector Specific Financial Instruments

NZASB Communiqué 2016/22 — Exposure Draft on 2016 Omnibus Amendments to PBE Standards

NZASB Communiqué 2016/23 — NZASB Meeting 4 August 2016

NZASB Communiqué 2016/24 — For-profit amendments to Share-based Payment standard

https://www.xrb.govt.nz/Site/News/NZASB_Communique/NZASB_Communique_0166_21_08_Aug_2016.aspx




Agenda Item 2.5

Page 1 of 1

189754.1

Memorandum


To: NZASB members


Subject: Speaking Register

Presenter Date Presenting to Topic

Anthony Heffernan 30 August 2016 AASB Board Update on the IPSASB’s

revenue and non-exchange

expenses projects

Anthony Heffernan

Misha Pieters

6 September 2016 CAANZ Audit and reporting update

Kimberley Crook 29 September 2016 ASAF Research Report on

Information Needs of Users of

New Zealand Capital Markets

Entity Reports

Anthony Heffernan

David Bassett

12 October 2016 Conferenz: IFRS

Masterclass – large

for-profit entities

Building confidence in NZ-

issued financial statements

Warren Allen 18 October 2016 CPA Congress Panel discussion on Integrated

Reporting: Changing the

corporate mindset from one

of compliance to it becoming a

business imperative

Warren Allen 11 November 2016 CAANZ Wellington

Regional Conference

Moving New Zealand to

integrated reporting

Warren Allen

Anthony Heffernan

22 November 2016 Auckland Regional

Accounting

Conference 2016

Financial Reporting Update

Anthony Heffernan 1 December 2016 CAANZ Audit

Conference

Panel discussion on the

changing face of charity

financial reports

Agenda Item 2.6

Page 1 of 1

190397.1

Memorandum


To: NZASB Members

From: Anthony Heffernan

Subject: NZASB Summary Work Plan

Action required

1. To NOTE the NZASB Summary Work Plan from September 2016 to May 2017 (the Work Plan).

Background

2. The Work Plan (Agenda Item 2.6.1) provides a summary of significant project milestones for

current domestic and international standard setting projects. All dates are indicative based on

the current information available. They are subject to change due to factors outside the NZASB’s

control. Some active projects do not have any significant milestones in the period covered by

the Work Plan.

4. The Work Plan is not intended to detail all the activities of the NZASB. For example, activities in

relation to outreach and working with international standard bodies are not fully represented in

the Work Plan.

Current significant projects

Project Activities

PBE IFRS 9 Financial Instruments Analysis of ED submissions and developing final Standard

PBE IFRS 16 Leases Outreach to confirm if a New Zealand Standard should be developed ahead of the IPSASB

Service Performance Reporting Analysis of ED submissions and developing final Standard

Service Performance Reporting Guidance

Development of guidance to support Standard when issued

PBE Interests in Other Entities Analysis of ED submissions and developing final Standard

IPSASB Revenue and Non-Exchange Expense Project

Continue to monitor developments and support IPSASB staff

PBE IPSAS 39 Employee Benefits Develop ED based on IPSAS 39

Recommendation

5. We recommend that the Board NOTE the NZASB Summary Work Plan.

1

NZASB Summary Work Plan (August 2016)

Project

Project milestone to be considered at NZASB Meeting

15 Sep 2016 3 Nov 2016 15 Dec 2016 8 Feb 2017 22 Mar 2017 4 May 2017

DOMESTIC

Strategic Action Plan

Update of NZASB’s achievements against the Strategic Action Plan

Note Note

For-profit Sector

For-profit RDR (jointly with AASB staff) ED for approval Analysis of submissions

NZ IFRS 4 – Reserve Bank solvency disclosures Issues Paper

Review scope FRS-42 Outreach Issues Paper ED for approval Analysis of submissions

PBE Sector

PBE Interests in Other Entities Analysis of submissions

Discussion of issues


Approve standards

Update EG A8 and EG A9 for new standards on interests in other entities

Board discussion Approve updated guidance

Service Performance Reporting Analysis of submissions



Approve standard

Develop guidance for Service Performance Reporting

Report back on progress

Revenue (on behalf of the IPSASB) CP expected Consider response to CP

Consider response to CP

Review scope PBE FRS 42 Memo re outreach Issues Paper ED for approval Analysis of submissions

<iAnnotate iPad User>

Pencil

2

Project



Omnibus Amendments to PBE Standards Analysis of submissions

received

Approve Standard

Approved Budget (Proposed amendments to PBE IPSAS 1)

Issues Paper ED for approval

PBE Standard based on IFRS 9 Analysis of submissions

received

Approve standard

PBE Standard based on IFRS 16 Report back on outreach

PBE IPSAS 39 Employee Benefits PBE Policy Approach

ED for approval

Impairment of Revalued Assets (Amendments to IPSAS 21 and IPSAS

PBE Policy Approach

ED for approval

Accounting for multi-year grants

Issues paper

IASB PROJECTS1

IASB research projects

Disclosure Initiative2: Principles of Disclosure Consider whether to comment /

Education session

Discussion of issues Approve comment letter

Primary Financial Statements Update on Project Scope

1 Based on IASB Work Plan at 20 July 2016 2 The Disclosure Initiative is a portfolio of Implementation and Research projects


Pencil

3

Project



Business Combinations under Common Control Education session Consider whether to comment

Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging

Consider whether to comment

Financial Instruments with Characteristics of Equity

Education session Consider whether to comment

Goodwill and Impairment

Discount Rates

Share-based Payment

IASB standard setting and related projects

Conceptual Framework

Updating References to the Conceptual Framework

Update for NZASB Approve CF in NZ

Disclosure Initiative3: Materiality Practice Statement

Insurance Contracts Approve standard

Approve standard

Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

Approve amending standard

Rate-regulated Activities Consider whether to comment

3 The Disclosure Initiative is a portfolio of Implementation and Research projects.


Pencil

4

Project



IASB narrow-scope amendments and IFRIC Interpretations

Disclosure Initiative4: Changes in accounting policies and estimates


Clarifications Arising from Post-implementation Review IFRS 8


Classification of Liabilities (Proposed amendment to IAS 1)


Definition of a Business and Accounting for Previously Held Interests (Proposed amendments to IFRS 3 and IFRS 11)

Draft IFRIC Interpretation – Foreign Currency Transactions and Advance Consideration

Approve IFRIC

Remeasurement at a Plan Amendment or Curtailment


Transfers of Investment Property (Proposed amendments to IAS 40)


Draft IFRIC Interpretation –Uncertainty over Income Tax Treatments

Annual Improvements 2014–2016 Approve amending standard

Annual Improvements 2015–2017 Consider whether to comment

4 The Disclosure Initiative is a portfolio of Implementation and Research projects.

5

Project



IPSASB projects5

Public Sector Combinations

Approve standard

Public Sector Specific Financial Instruments Decide whether to comment on ED

Update to IPSASs 28-30, Financial Instruments (IFRS 9 review)

Decide whether to comment on ED

Social Benefits Update for NZASB (Education session)

Leases Update for NZASB (Education session)

Revenue (both exchange and non-exchange) and Non-Exchange Expenses

Consider whether to comment on CP

Heritage Assets Education session Consider whether to comment on CP

Public Sector Measurement Update on project brief and issues

Infrastructure Assets Update on project brief and issues

Emissions Trading Schemes

Project paused

5 Based on IPSASB Work plan June 2016

Agenda Item 2.7

Page 1 of 2

190319.1

Memorandum


To: NZASB Members


Subject: Documents Open for Comment

Action required

1. To NOTE the documents open for comment.

Background

2. The purpose of this paper is to inform the Board about documents open for comment.

Documents open for comment

3. Table 1 notes the documents issued by the Board for which the comment period is still open.

Table 2 summarises documents issued by other organisations that are open for comment.

Table 1: Documents issued by the NZASB

Document NZASB Due Date

Expected meeting for analysis of the ED to be presented

ED NZASB 2016-7 PBE IFRS 9 Financial Instruments

30 September 2016

November 2016

ED NZASB 2016-8 2016 Omnibus Amendments to PBE Standards

11 November 2016

December 2016

Agenda Item 2.7

Page 2 of 2

Table 2: Documents issued by other organisations

No. Originating Organisation

Document NZASB Due Date

Other Organisation Due Date

Comment letter

1. IASB® ED/2016/1 Definition of a Business and Accounting for Previously Held Interests (Proposed Amendments to IFRS 3 and IFRS 11)

30 September 2016

31 October 2016

The Board agreed at the August 2016 meeting not to comment.

2. IPSASB Consultation Paper, Public Sector Specific Financial Instruments

2 December 2016

31 December 2016

The Board agreed at the August 2016 meeting not to comment.

Recommendation

4. We recommend that the Board NOTE the documents open for comment.

Agenda Item 3.1

Page 1 of 4 189757.1

Memorandum


To: NZASB Members


Subject: Approved Budget (Proposed Amendments to PBE IPSAS 1)

Action required

1. To CONSIDER and APPROVE the appropriate option for removing the reference to approved

budget in PBE IPSAS 1 Presentation of Financial Statements.

Background

2. The Board has previously noted that the reference to approved budget in paragraph 21(e) of

PBE IPSAS 1 has caused confusion. PBE IPSAS 1 does not define an approved budget. Approved

budget is defined in IPSAS 24 Presentation of Budget Information in Financial Statements, but

there is no PBE Standard based on IPSAS 24.

3. The use of the term approved budget has led to some confusion about what an approved

budget is, and whether entities should be using the definition in IPSAS 24, even though there

is no PBE Standard based on IPSAS 24. Application of the definition of an approved budget

might lead to more entities being required to include budget versus actual comparisons in

their financial statements than originally intended by the Board.

4. At the NZASB’s August 2016 meeting, staff proposed amending paragraph 21(e) by removing

the reference to approved budget and inserting a reference to paragraph 148.1 which

requires comparisons of prospective and historic information in some circumstances.

5. The Board expressed some concern in August that the amendments proposed could be read

as requiring the comparison of the approved budget with actual amounts in the primary

financial statements rather than providing entities with the option of presenting this

information either on the face of the financial statements or in the notes.

6. This memo sets out further options for removing the reference to approved budget in

PBE IPSAS 1. For ease of reference, Appendix A of this memo reproduces the current text of

PBE IPSAS 1 paragraphs 21 and 148.1 to 148.3.

Agenda Item 3.1

Page 2 of 4 189757.1

Options for removing the reference to approved budget

7. We have identified three options for removing the reference to approved budget.

8. On balance, staff support option 2 as it removes the reference to approved budget and gives

the option for the comparison to be presented either in the notes or on the face of the

financial statements.

Option 1

9. This option was staff’s original proposal, as set out in the August agenda papers. It proposes to

amend paragraph 21(e) by removing the reference to approved budget and inserting a

reference to the disclosures required in paragraph 148.1.

Components of Financial Statements

21. A complete set of financial statements comprises:

(a) …

(e) When the entity has published general purpose prospective financial statements, the

information as specified in paragraph 148.1 makes publicly available its approved

budget, a comparison of budget and actual amounts either as a separate additional

financial statement or as a budget column in the financial statements;

10. This option could be read as leaving it open to the preparer where they present the

comparison of budget and actual amounts. However, as noted in paragraph 5, the Board has

expressed some concern that it could be read as suggesting that the comparison of budget

with actual amounts is required as part of the primary financial statements rather than having

the option of presenting it in the notes. This is because the lead in sentence to paragraph 21

states “A complete set of financial statements comprises”.

Option 2

11. This option is similar to the staff’s original proposal. It is intended to clarify that the preparer

has a choice about where to present the comparison of budget and actual amounts.



(a) …

(e) When the entity has published general purpose prospective financial statements, the

information as specified in paragraph 148.1 makes publicly available its approved

budget, a comparison of budget and actual amounts either in the notes as a separate

additional financial statement or as a budget column in the financial statements;

12. This option makes it clear that the comparison can be presented either in the notes or on the

face of the financial statements.

Agenda Item 3.1

Page 3 of 4 189757.1

Option 3

13. Under this option, paragraph 21(e) would be deleted and reliance would be placed on

paragraph 148.1 for disclosure of the comparison of prospective financial statements with

historical financial statements.



(a) A statement of financial position;

(b) A statement of comprehensive revenue and expense;

(c) A statement of changes in net assets/equity;

(d) A cash flow statement;

(e) [Deleted]When the entity makes publicly available its approved budget, a comparison

of budget and actual amounts either as a separate additional financial statement or as

a budget column in the financial statements;

(f) Notes, comprising significant accounting policies and other explanatory notes; and

(g) Comparative information in respect of the preceding period as specified in

paragraphs 53 and 53A.

Prospective Financial Statements

148.1 Where an entity has published general purpose prospective financial statements for the

period of the financial statements, the entity shall present a comparison of the prospective

financial statements with the historical financial statements being reported. Explanations

for major variances shall be given.

22. Staff does not support this option because keeping paragraph 21(e) acts as a reminder that in

certain circumstances there is a requirement for the comparison with general purpose

prospective financial statements as a component of the financial statements.

Next steps

21. Based on the Board’s preferred option, staff will draft the ITC and exposure draft for

consideration and approval at the November meeting.

Recommendations

22. We recommend that the Board AGREE with option 2.


FreeText

by NZASB

Agenda Item 3.1

Page 4 of 4 189757.1

Appendix A Extracts from PBE IPSAS 1 Presentation of Financial Statements



(a) A statement of financial position;

(b) A statement of comprehensive revenue and expense;

(c) A statement of changes in net assets/equity;

(d) A cash flow statement;

(e) When the entity makes publicly available its approved budget, a comparison of budget and

actual amounts either as a separate additional financial statement or as a budget column in

the financial statements;

(f) Notes, comprising significant accounting policies and other explanatory notes; and

(g) Comparative information in respect of the preceding period as specified in paragraphs 53

and 53A.

Prospective Financial Statements

148.1 Where an entity has published general purpose prospective financial statements for the period of

the financial statements, the entity shall present a comparison of the prospective financial

statements with the historical financial statements being reported. Explanations for major

variances shall be given.

148.2 PBE FRS 42 Prospective Financial Statements defines general purpose prospective financial statements.

Legislative or other requirements may require a comparison with originally published information, the

most recently published information, or both.

148.3 Comparison of prospective financial statements with actual financial results is an essential element of

accountability. In the case of issuers a comparison of actual financial results against the originally

published statements is important because it provides users with a comparison of actual performance

with the projected performance at the time the entity raised funds. In the case of other entities,

comparisons between projected performance and actual performance for a period are a means of

demonstrating accountability for the resources used and the financial management of assets and

liabilities. Some entities provide long-term prospective financial statements which are updated annually,

prior to the beginning of the year. In such cases a comparison of actual financial results with the most

recent prospective financial statements published prior to the beginning of the period is generally

relevant. Where information is revised during the course of a year, the reasons for revising the

information and an explanation of the differences between the originally published prospective financial

statements and the historical financial statements should be given.

Agenda Item 4.1

Page 1 of 1 190228.1

Memorandum


To: NZASB Members

From: Judith Pinny and Vanessa Sealy-Fisher

Subject: Application of the PBE Policy Approach

Action

1. CONSIDER the application of the Policy Approach to Developing the Suite of PBE Standards1

(the PBE Policy Approach) in relation to two pronouncements recently issued by the

International Public Sector Accounting Standards Board (IPSASB) and DECIDE whether to

adopt those standards into the PBE Standards.

Background

2. Periodically the Board reviews the application of the PBE Policy Approach to new and

amending standards issued by the IASB and the IPSASB, and considers whether to incorporate

these changes to IFRSs and IPSASs in PBE Standards.

3. The IPSASB has recently issued IPSAS 39 Employee Benefits and Impairment of Revalued Assets

(Amendments to IPSASs 21 and 26).

4. The PBE Policy Approach has been applied to IPSAS 39 (see agenda item 4.2) and Impairment

of Revalued Assets (see agenda item 4.3).

Recommendation

5. It is recommended that the Board:

(a) CONSIDER the memo on IPSAS 39 Employee Benefits; and

(b) CONSIDER the memo on Impairment of Revalued Assets (Amendments to IPSASs 21

and 26).

Attachments

Agenda Item 4.2: Memo on IPSAS 39 Employee Benefits

Agenda Item 4.3: Memo on Impairment of Revalued Assets (Amendments to IPSASs 21 and 26)

Agenda Item 4.4: Impairment of Revalued Assets (Amendments to IPSASs 21 and 26) (in separate

pdf file)

Agenda Item 4.5: NZASB’s comment letter to IPSASB on ED 57 Impairment of Revalued Assets (in

supporting documents)

1 Available at https://www.xrb.govt.nz/Site/Financial_Reporting_Strategy/Accounting_Standards_Framework.aspx

https://www.xrb.govt.nz/Site/Financial_Reporting_Strategy/Accounting_Standards_Framework.aspx

Agenda Item 4.2

Page 1 of 2 190251.1

Memorandum


To: NZASB Members

From: Judith Pinny

Subject: PBE Policy Approach: Application to IPSAS 39 Employee Benefits

Action required

1. To DECIDE whether IPSAS 39 Employee Benefits should be adopted into the PBE suite of

standards (replacing PBE IPSAS 25 Employee Benefits).

Background

2. PBE IPSAS 25 Employee Benefits is based on IAS 19 Employee Benefits, issued by the

International Accounting Standards Board (IASB) in 2004 and updated in 2008.

3. IPSAS 39 Employee Benefits reflects changes made by the IASB to IAS 19 Employee Benefits, up

to December 2015.

4. In July 2016 the IPSASB issued IPSAS 39. When adopted, IPSAS 39 supersedes IPSAS 25.

5. This memo sets out the application of the Policy Approach to Developing the Suite of PBE

Standards (PBE Policy Approach) to IPSAS 39 Employee Benefits in order for the NZASB to

consider whether or not it agrees that IPSAS 39 should be adopted as a PBE Standard.

Application of the PBE Policy Approach

6. The PBE Policy Approach contains a rebuttable presumption that the NZASB will adopt a new

or amended IPSAS (paragraph 22 of the PBE Policy Approach).

Policy

There is a rebuttable presumption that the NZASB will adopt a new or amended IPSAS. It is

expected that such changes will lead to higher quality financial reporting by PBEs in New Zealand

and the factors in the development principle are presumed to be met. (paragraph 22)

This rebuttable presumption is based on the expectation that the IPSASB has considered the needs

of the wide range of users of public sector financial statements in developing and enhancing the

suite of IPSAS. (paragraph 23)

Depending on the circumstances, it may be appropriate to amend a recently issued or newly

amended IPSAS in the process of adoption in New Zealand. (paragraph 24)

Agenda Item 4.2

Page 2 of 2 190251.1

Factors to consider in rebutting the presumption and/or deciding whether to make NZ amendments

Comments/Conclusion

Does the scope of the new or amended IPSAS conflict with a legislative requirement? (paragraph 24(d))

No. We are not aware of any conflicts with legislation.

Is the topic/issue addressed by a legislative requirement for public sector entities? (paragraph 24(d))

No. We are not aware of a legislative requirement for public sector entities.

Are all the options relevant in New Zealand? (paragraph 24(c))

IPSAS 39 removes the corridor approach, a change which was considered but not adopted, when the PBE Standards were first developed.

Is additional guidance needed for consistent application of the requirements by:

All PBEs?

No.

NFP entities?

(paragraph 24(a))

Is the coherence of the suite of PBE Standards maintained? (paragraph 24(b))

Yes. We recommend adoption of the new IPSAS 39.

RDR

7. We recommend that RDR concessions for Tier 2 PBEs be based on the RDR concessions

currently in NZ IAS 19 Employee Benefits. This is consistent with the RDR concessions in other

PBE Standards.

Recommendations

8. We recommend that the Board:

(a) AGREE to develop a PBE Standard based on IPSAS 39 Employee Benefits; and

(b) AGREE to include RDR concessions in the ED based on the concessions in NZ IAS 19.

Agenda Item 4.3

Page 1 of 7 190229.1

Memorandum


To: Members of the NZASB

From: Vanessa Sealy-Fisher

Subject: PBE Policy Approach: Application to Impairment of Revalued Assets (Amendments to IPSASs 21 and 26)

Action required

1. DECIDE whether to adopt the amendments in the International Public Sector Accounting

Standards Board’s (IPSASB’s) Impairment of Revalued Assets (Amendments to IPSASs 21

and 26) in PBE Standards.

Introduction

2. In July 2016 the IPSASB issued Impairment of Revalued Assets, with an effective date of annual

financial statements covering periods beginning on or after 1 January 2018. This Standard is

based on the proposals contained in IPSASB ED 57 Impairment of Revalued Assets, which was

issued in October 2015 with a comment period ending on 15 January 2016.

3. The IPSASB’s amendments respond to a request from the NZASB (the Board) for the IPSASB to

amend IPSAS 17 Property, Plant and Equipment to clarify that when an impairment loss is

recognised in respect of an item of revalued property, plant and equipment, there is no

requirement to revalue the entire class of property, plant and equipment to which that

impaired item belongs.

4. This issue arose because the IPSASB originally excluded assets measured at revalued amounts

from the scope of its two impairment standards. Entities wanting to impair such assets

therefore looked to the requirements in the relevant asset standards such as IPSAS 17

Property, Plant and Equipment. IPSAS 17 required that if an item of property, plant and

equipment is revalued, the entire class of assets be revalued. An entity wanting to impair a

single revalued asset in accordance with IPSAS 17 had to revalue the entire class of assets.

5. Impairment of Revalued Assets:

(a) amends the scopes of the two IPSASs dealing with impairment to include assets

measured at revalued amounts;

(b) explains the accounting for recognising or reversing an impairment loss;

(c) requires disclosures about impairment losses recognised or reversed; and

Agenda Item 4.3

Page 2 of 7 190229.1

(d) includes consequential amendments to IPSAS 17 Property, Plant and Equipment to

clarify that impairment losses recognised or reversed under IPSASs 21 and 26 do not

necessarily give rise to the need to revalue the class of assets to which that asset, or

group of assets, belongs.

The Board’s response to the proposals in IPSASB ED 57

6. The final amendments issued by the IPSASB are closely based on the proposals in ED 57 and

were supported by the majority of the IPSASB’s constituents. However, in the Board’s

comment letter on ED 57, the Board did not support the IPSASB’s proposed amendments (see

the Board’s comment letter at agenda item 4.5 in the supporting documents).

7. The Board’s reasons for not supporting the proposals in ED 57 and any relevant comments or

decisions by the IPSASB are set out in the following table.

Board’s reasons for not supporting ED 57 IPSASB’s comments or decisions

The original rationale for excluding revalued assets from the scope of the impairment standards is sound.

The IPSASB has kept the original rationale for excluding revalued assets from the scope of the impairment standards in the Bases for Conclusions but amended the introduction to the rationale to read “At the time this Standard was issued…”.

The Board disagreed with the IPSASB’s proposal to assert in the Bases for Conclusions on IPSASs 21 and 26 that “impairments are conceptually different from revaluations”.

This statement, which was included in ED 57, is not included in the Bases for Conclusions on IPSASs 21 and 26.

The difficulty of distinguishing between impairments and revaluations. This distinction would have been required to meet the additional disclosure requirements proposed in IPSASs 21 and 26.

The additional disclosures proposed in IPSASs 21 and 26 are still in the final amending standard (see paragraphs 73(c) and (d) of IPSAS 21 and paragraphs 115(c) and (d) or IPSAS 26 in agenda item 4.4). The IPSASB is of the view that the additional information required by IPSASs 21 and 26 on impairments is useful to the users of the financial statements for accountability and decision-making purposes.

The proposed amendments create a risk of pre-judging the outcome of the IPSASB project on Public Sector Measurement.

The impairment of revalued assets was decoupled from the project on Public Sector Measurement because that project is not expected to lead to changes to IPSASs until 2019.

8. Rather than amending IPSASs 21 and 26, the Board recommended that the IPSASB add

paragraph 51A to IPSAS 17 as follows (paragraph 51 is shown for context).

51. If an item of property, plant and equipment is revalued, the entire class of property,

plant and equipment to which that asset belongs shall be revalued.

51A. Notwithstanding paragraph 51, if:

(a) A specific event or circumstance (such as a fire, flood or earthquake) that

adversely affects the value of an individual asset (or group of assets), but not the entire class of assets, occurs outside the usual frequency of revaluations; and

Agenda Item 4.3

Page 3 of 7 190229.1

(b) The adverse event indicates that the carrying amount of that asset (or group of

assets) may differ materially from that which would be determined if the asset were revalued at the reporting date

the entity shall revalue the affected asset (or group of assets) but need not revalue the

entire class of assets to which that asset (or group of assets) belongs.

9. Although the IPSASB staff found the Board’s proposals persuasive, they proposed that the

IPSASB proceed with the proposals to extend the scopes of IPSASs 21 and 26 as set out in

ED 57 (see Appendix A to this memo for an extract from agenda item 7.1 of the IPSASB March

2016 meeting). The IPSASB agreed with the recommendation from its staff and Impairment of

Revalued Assets was issued in July 2016.

10. A consequential amendment has been made to IPSAS 17 to explicitly state that impairment

losses and reversals of impairment losses of an asset do not necessarily give rise to the need

to revalue the class of assets to which that asset, or group of assets, belongs.

Application of the PBE Policy Approach

11. Now that the IPSASB has issued an amending standard we need to consider the application of

the Policy Approach to Developing the Suite of PBE Standards (PBE Policy Approach). The PBE

Policy Approach contains a rebuttable presumption that the NZASB will adopt a new or

amended IPSAS (paragraph 22).

Policy

There is a rebuttable presumption that the NZASB will adopt a new or amended IPSAS. It is

expected that such changes will lead to higher quality financial reporting by PBEs in New

Zealand and the factors in the development principle are presumed to be met.

(paragraph 22)

This rebuttable presumption is based on the expectation that the IPSASB has considered the

needs of the wide range of users of public sector financial statements in developing and

enhancing the suite of IPSAS. (paragraph 23)

Depending on the circumstances, it may be appropriate to amend a recently issued or newly

amended IPSAS in the process of adoption in New Zealand. (paragraph 24)


Comments/Conclusion

Does the scope of the new or amended IPSAS conflict with a legislative requirement? (paragraph 24(d))

No.

Is the topic/issue addressed by a legislative requirement for public sector entities? (paragraph 24(d))

No.

Are all the options relevant in New Zealand? (paragraph 24(c))

Impairment of Revalued Assets contains no options.

Agenda Item 4.3

Page 4 of 7 190229.1


Comments/Conclusion

Is additional guidance needed for consistent application of the requirements by:

All PBEs? NFP entities?

(paragraph 24(a))

No.

Is the coherence of the suite of PBE Standards maintained? (paragraph 24(b))

Yes. We recommend that Impairment of Revalued Assets be adopted in the suite of PBE Standards.

Analysis and Recommendation

12. Based on the rebuttable presumption in the PBE Policy Approach, the amendments set out in

Impairment of Revalued Assets should be adopted in PBE Standards because this will lead to

higher quality reporting by PBEs in New Zealand and the factors in the development principle

are met (see Appendix B to this memo for the development principle). In particular, the

adoption of Impairment of Revalued Assets would have a positive impact on mixed groups

because the amendments more closely align the scope and accounting requirements of

IPSASs 21 and 26 with the scope and accounting requirements of IAS 36 Impairment of Assets.

13. Although the Board did not support the amendments as proposed in ED 57, the IPSASB has

now issued Impairment of Revalued Assets and there is no New Zealand-specific reason why

the final pronouncement should not be adopted.

RDR

14. There are no disclosure concessions in NZ IAS 36 Impairment of Assets for the new disclosures

in Impairment of Revalued Assets.

Recommendation

15. We recommend that the Board AGREE to develop an amending PBE Standard based on the

IPSASB Standard Impairment of Assets (Amendments to IPSASs 21 and 26).

Agenda Item 4.3

Page 5 of 7 190229.1

Appendix A

Extract from Agenda Item 7.1 from the March 2016 IPSASB meeting

Respondent Disagreeing

17. Respondent 03 disagreed with the proposals on four main grounds:

• The original rationale for excluding revalued assets from the scope of the impairment standards is sound;

• Disagreement with the statement in the proposed Basis for Conclusions on IPSAS 21 and IPSAS 26 that “impairments are conceptually different from revaluations”;

• The difficulty of distinguishing revaluations and impairments to meet the additional disclosure requirements proposed in IPSASs 21 and 26; and

• The proposed amendments create a risk of pre-judging the outcome of the project on Public Sector Measurement.

18. On the scope exclusion R03 contends that IPSAS 17 does require that the impact of adverse events on revalued assets be addressed if the carrying amount is materially different from fair value.

19. Like R15, R03 challenged the IPSASB’s statement in BC20D that impairments are conceptually different from revaluations. R03 considered that the same sort of adverse event could cause an impairment or a devaluation, because it would affect both the asset’s fair value and its recoverable amount. RO3 also highlighted implementation guidance in IPSAS 17 that it considers is consistent with IPSAS 21 and IPSAS 26.

20. ED 57 proposes additional disclosure requirements relating to the amount of impairment losses recognised on revalued assets and the reversals of impairment losses on revalued assets. R03 notes that an entity would have to distinguish between an impairment and a revaluation in order to comply with the proposed additional disclosure requirements in IPSAS 21 and 26. In R03’s view the benefit of distinguishing between revaluations and impairments is unlikely to exceed the costs of making that distinction.

21. As noted R03 also suggests that finalizing amendments to IPSAS 21 and IPSAS 26 based on ED 57 risks pre-judging the outcome of the IPSASB project on Public Sector Measurement. The impairment of revalued assets was in the original draft project brief for Public Sector Measurement.

22. Pending work on the Public Sector Measurement project, R03 suggests that the IPSASB amends IPSAS 17 by inserting an additional paragraph 51A to IPSAS 17:

51. If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.

51A. Notwithstanding paragraph 51, if:

(a) A specific event or circumstance (such as a fire, flood or earthquake) that adversely affects the value of an individual asset (or group of assets), but not the entire class of assets, occurs outside the usual frequency of revaluations; and

(b) The adverse event indicates that the carrying amount of that asset (or group of assets) may differ materially from that which would be determined if the asset were revalued at the reporting date.

The entity shall revalue the affected asset (or group of assets) but need not revalue the entire class of assets to which that asset (or group of assets) belongs.

Agenda Item 4.3

Page 6 of 7 190229.1

Staff View and Recommendation

23. Staff finds many of R03’s proposals persuasive. Undoubtedly inserting an additional paragraph to IPSAS 17, rather than extending the scope of IPSAS 21 and IPSAS 26, is the most economical method of dealing with the issue of ensuring that impairment of an item (or group of items of property, plant and equipment), does not necessitate the revaluation of the entire class of property, plant and equipment to which that asset or (group of assets) belong.

24. Staff agrees with those respondents who challenge the assertion in paragraph BC20D that there is a conceptual difference between impairments and revaluations. The assertion is not explained and in the view of staff is incorrect. Both impairment losses and revaluation decreases lead to a diminution of service potential and the ability of an asset to generate economic benefits. In the view of staff this assertion in paragraph BC20D should be deleted.

25. Staff considers that a modification of R03’s wording in proposed paragraph 51A provides a good working description of impairment: A specific event or circumstance (such as a fire, flood or earthquake) that adversely affects the value of an individual asset (or group of assets), but not necessarily the entire class of assets, outside a regular revaluation. In the view of staff this addresses R03’s point about the difficulty of distinguishing revaluations and impairments to meet the additional disclosure requirements of IPSASs 21 and 26.

26. The coverage of impairment in the project brief for Public Sector Measurement project was focused on the scope exclusion of revalued assets from IPSAS 21 and IPSAS 26. Consequently, staff is not persuaded that the proposed amendments create a risk of pre-judging the outcome of the project on Public Sector Measurement. The consideration of the issue of the impairment of revalued assets was decoupled from the Public Sector Measurement project, because that project is not expected to lead to changes to IPSASs until 2019–see agenda item 7.2.

27. IPSAS 21.73-78 and IPSAS 26.115, 26.119-121, 26.123-124 require a number of disclosures of quantitative and qualitative information. The scope exclusion of assets on the revaluation model in IPSAS 21 and IPSAS 26 means that the information in these disclosures is not available to the users of financial statements of entities that adopt an accounting policy of measuring property, plant and equipment and intangible assets on the revaluation model subsequent to initial recognition.

28. In Staff’s view the issue comes down to whether (a) the additional information required by IPSAS 21 and 26 on impairments is useful to the users of financial statements for accountability and decision-making purposes and (b) the costs to preparers exceed the benefits of the additional information (and guidance to preparers on impairments).

29. Based on the benefits to users of the information in IPSAS 21 and 26 staff proposes that the approach in ED 57 that the extension of the scope of IPSAS 21 and 26 to revalued assets is confirmed. Staff acknowledges the debate about “disclosure overload” and the view that the disclosures required by IPSAS 21 and IPSAS 26 will impose an expense on preparers, but considers that adoption of this approach will not be unduly onerous, as indicated by R07 and R15.

Agenda Item 4.3

Page 7 of 7 190229.1

APPENDIX B

Extract – Policy Approach to Developing the Suite of PBE Standards

3. The Development Principle

19. In accordance with the Accounting Standards Framework, the primary purpose of developing the

suite of PBE Standards is to better meet the needs of PBE user groups (as a whole). In considering

whether to initiate a development, the NZASB shall consider the following factors:

(a) Whether the potential development will lead to higher quality financial reporting by public

sector PBEs and not-for-profit entities, including public sector PBE groups and not-for-profit

groups, than would be the case if the development was not made; and

(b) Whether the benefits of a potential development will outweigh the costs, considering as a

minimum:

(i) relevance to the PBE sector as a whole: for example, where the potential development

arises from the issue of a new or amended IFRS, whether the type and incidence of the

affected transactions in the PBE sector are similar to the type and incidence of the

transactions addressed in the change to the NZ IFRS;

(ii) relevance to the not-for-profit or public sector sub-sectors: whether there are specific

user needs in either of the sub-sectors, noting that IPSAS are developed to meet the

needs of users of the financial reports of public sector entities;

(iii) coherence: the impact on the entire suite of PBE Standards (e.g. can the change be

adopted without destroying the coherence of the suite);

(iv) the impact on mixed groups; and

(c) In the case of a potential development arising from the issue of a new or amended IFRS, the

IPSASB’s likely response to the change (e.g. whether the IPSASB is developing an IPSAS on the

topic).

20. The NZASB will need to exercise its judgement in balancing the factors in the development principle

because, in many cases, there will need to be a trade-off between these factors. This policy provides a

basis for making such a trade-off decision: it cannot replace the application of judgement by the NZASB

with a series of bright-line rules.

Agenda Item 5.1

1 190329.1

Memorandum


To: NZASB Members

From: Vanessa Sealy-Fisher

Subject: Insurance: Reserve Bank Solvency Disclosures

Action required

1. DECIDE whether to amend Appendix C Life Insurance Entities and Appendix D Financial

Reporting of Insurance Activities of NZ IFRS 4 Insurance Contracts and PBE IFRS 4 Insurance

Contracts as a consequence of the increased solvency disclosure requirements for licensed

insurers contained in the solvency standards that were reissued by the Reserve Bank of New

Zealand (the Reserve Bank).

Introduction

2. In December 2014 the Reserve Bank reissued the solvency standards for licensed life insurers

and licensed non-life insurers. The solvency standards are regulations issued by the Reserve

Bank under the Insurance (Prudential Supervision) Act 2010. The reissued solvency standards

are effective from 1 January 2015, and require more detailed solvency disclosures than the

previous versions for licensed life insurers and licensed non-life insurers.

3. Licensed insurers can be either for-profit entities or public benefit entities (PBEs). Based on

discussions with staff from the Reserve Bank, we are aware that a few not-for-profit entities

are licensed insurers and, therefore, subject to the solvency standards. We are not aware of

any public sector entities that are licensed insurers.

4. Appendices C and D of NZ IFRS 4 and PBE IFRS 4 provide general purpose financial reporting

disclosure requirements for (i) life insurers, and (ii) entities that issue general insurance

contracts, other than life insurers respectively.

5. Appendices C and D of NZ IFRS 4 are harmonised as much as possible with the Australian

equivalent accounting standards, AASB 1038 Life Insurance Contracts and AASB 1023 General

Insurance Contracts respectively. Differences between the standards are predominantly the

result of regulatory differences.

Issue

6. The issue to be considered is whether to amend Appendices C and D of NZ IFRS 4 and

PBE IFRS 4 as a consequence of the increased disclosure requirements for licensed insurers

Agenda Item 5.1

2 190329.1

under the reissued solvency standards. (Refer to Appendix A to this memo for the solvency

disclosures under the reissued solvency standards.)

7. Appendix B to this memo provides background information on the solvency disclosures in

Appendices C and D of NZ IFRS 4.

Matters for consideration

8. The following matters have been taken into consideration when deciding whether to amend

Appendices C and D of NZ IFRS 4.

(a) A new IFRS® Standard dealing with insurance is expected in 2017. Field-testing is

currently being undertaken on the new proposals). This new Standard will replace IFRS

4 when issued. The appropriateness of the disclosure requirements in the new IFRS will

need to be considered when the Standard is adopted in New Zealand.

(b) The Reserve Bank has indicated that the solvency standards will likely be reviewed once

the new insurance Standard is issued.

(c) It is likely that the new Insurance Standard would be available for early adoption by the

time (or shortly after) any due process had been undertaken to amend NZ IFRS 4 for the

reissued solvency standards.

(d) When Appendix C was aligned with the previous versions of the solvency standards in

early 2014, no changes were made to Appendix D of NZ IFRS 4. Appendix D contains a

more general disclosure requirement of the amount of equity retained for the purpose

of financial soundness. This more general disclosure reflects that not all entities within

the scope of Appendix D would be licensed insurers and, therefore, required to comply

with the solvency standards.

(e) If the Board decides to amend Appendices C and D, what form those amendments

should take. The options are:

(i) to replicate the disclosures required under the solvency standards, which would

result in further changes being needed if the solvency standards were to be

updated at a future date; or

(ii) to refer in general terms to the disclosure requirements in legislation and/or

regulations. Paragraph 17.8 of Appendix C currently refers to the relevant

regulations (that is, the solvency standards issued under the Insurance

(Prudential Supervision) Act 2010) for determining and disclosing the solvency

margin for life funds. This approach is also consistent with the approach in

AASB 1038. Consideration would also be needed as to whether this approach

would remove solvency disclosures for an entity within the scope of Appendix C

or D of NZ IFRS 4 but not required to comply with the solvency standards, and

whether the Board is comfortable with this.

9. Appendix C of PBE IFRS 4 was not amended when Appendix C of NZIFRS 4 was amended in

early 2014 to refer to the solvency standards. At that time, the Board (i) was not aware that

Agenda Item 5.1

3 190329.1

there were any PBE life insurers, and (ii) was committed to considering the requirements of

PBE IFRS 4 as part of its longer term work programme.

10. Friendly Societies and Credit Unions are generally required to comply with the life insurance

solvency standards where these entities issue life insurance contracts.

Staff recommendation

11. Staff recommend that no changes be made to Appendices C and D of NZ IFRS 4 and PBE IFRS 4

at this time for the following reasons:

(a) The reissued solvency standards have been effective for more than 18 months. Based

on limited outreach undertaken, no issues have been raised with us about the non-

alignment of the disclosure requirements in Appendix C with the disclosure

requirements in the solvency standards.

(b) The Reserve Bank is likely to reconsider the solvency disclosures in the solvency

standards when the new IFRS Standard on insurance is issued.

(c) The Board will need to consider the appropriateness of the disclosures for New Zealand

(and any changes to the solvency standards) when the new IFRS Standard on Insurance

is adopted in New Zealand.

(d) The Board promulgates standards for general purpose financial reporting, and there is

no requirement for NZ IFRS to replicate regulatory requirements,. It is a regulator’s

prerogative to require additional disclosures if the regulator deems that to be

necessary.

Recommendation

12. We recommend that the Board AGREES not to amend Appendices C and D of NZ IFRS 4 and

PBE IFRS 4 at this time.

Agenda Item 5.1

4 190329.1

APPENDIX A

Disclosures required under the solvency standards issued by the Reserve Bank

This extract is from the life insurance solvency standards

5.5. Disclosure of Solvency Calculations

132. A licensed insurer must disclose the information set out in paragraphs 135 and 136 in its financial statements or group financial statements. This disclosure must be as at the balance date to which the financial statements or group financial statements relate along with a comparative for the immediately preceding financial year.

133. For an overseas insurer subject to this solvency standard, the disclosure under paragraph 132 need only be made within the financial statements or group financial statements prepared for the New Zealand Branch.

134. A licensed insurer must disclose the information set out in paragraphs 135 and 136 on its website (if any). This disclosure must be updated within 10 working days following the required date for submission of each of the Annual and Half-yearly Solvency Returns to the Reserve Bank to reflect the information in those returns.

135. The information, for each Life Fund of the licensed insurer based on the solo solvency calculations of the licensed insurer, is the:

(a) Actual Solvency Capital;

(b) Minimum Solvency Capital;

(c) Solvency Margin; and

(d) Solvency Ratio.

136. The information, in respect of the aggregate Solvency Margin requirements of the licensed insurer, is the:

(a) Aggregate Actual Solvency Capital;

(b) Aggregate Minimum Solvency Capital, adjusted to take account of the Fixed Capital requirement;

(c) Aggregate Solvency Margin, being the Aggregate Actual Solvency Capital less the Aggregate Minimum Solvency Capital; and

(d) The Aggregate Solvency Ratio, being the ratio of the Aggregate Actual Solvency Capital to Aggregate Minimum Solvency Capital.

Agenda Item 5.1

5 190329.1

APPENDIX B

Background information on solvency disclosures in Appendices C and D of NZ IFRS 4

Appendix C of NZ IFRS 4

1. When NZ IFRS 4 was issued in 2005, Appendix C included the following disclosure

requirement:

Solvency information

17.8 A life insurer shall disclose the amount of equity retained as solvency reserves and the

basis of establishing the amount. A group shall disclose the solvency position of each life

insurer in the group.

2. At that time, there was no regulatory requirement for licensed insurers to disclose solvency

information.

3. The solvency standards for licensed life insurers were initially issued by the Reserve Bank in

2011, and contained no specific disclosure requirements. In 2013 the Reserve Bank updated

the solvency standards to require disclosure of the solvency margin for licensed insurers.

Paragraph 17.8 of Appendix C of NZ IFRS 4 was subsequently amended1 to require disclosure

of the solvency margin by life insurers:

17.8 A life insurer shall disclose the solvency margin (determined in accordance with the

solvency standards made under the Insurance (Prudential Supervision) Act 2010) of each

life fund (as defined in the solvency standards made under the Insurance (Prudential

Supervision) Act 2010) and the aggregate solvency margin for all life funds of the life

insurer. A group shall disclose the solvency margin of each life insurer in the group.

4. In December 2014 the Reserve Bank reissued its solvency standards, which now contain more

disclosure requirements than only the solvency margin (see Appendix A to this memo for the

required disclosures). Those disclosures are effective from 1 January 2015.

5. As a consequence of the reissued solvency standards, paragraph 17.8 of Appendix C is no

longer aligned with the disclosure requirements under the solvency standards.

Appendix D of NZ IFRS 4

6. Appendix D of NZ IFRS 4 requires the following disclosure:

Other disclosures

…

17.8E The amount of equity retained for the purpose of financial soundness and the basis of

establishing that amount must be disclosed. A group must make this disclosure for each

insurer in the group.

7. Paragraph 17.8E was not amended in 2014 when Appendix C was amended for alignment with

the solvency standards.

1 Extract from the August 2013 NZASB Minutes: “The Board considered it necessary to maintain alignment between the accounting

standards and legislative requirements. Therefore, the Board CONFIRMED its earlier tentative decision to proceed with the proposals to amend Appendix C of NZ IFRS 4 to correspond with new legislative requirements for life insurers to maintain statutory funds.”

Improving the

Communication

Effectiveness of Financial

Statements15 September 2016

Recent NZ research - 2015

Research focused on the information needs of users of the financial statements of for-profit entities operating in NZ capital markets

The aim of the research is to:

Determine if user information needs are the same or different for domestic entities vs international entities

Understand if financial statements are meeting user information needs

Online survey of 145 respondents, and 10 in-depth interviews

2

Research findings

Users interested in domestic market entities are not significantly different from those interested in international market entities

Generally users appear satisfied with financial statements

More than 74% of respondents in each user group do use financial statements

However, some respondents commented on information in financial statements that is ‘not useful’

3

Suggestions for improving financial statements

Greater consistency in the format/presentation of financial statements;

Simplifying and standardising reporting and the language used;

Improving disclosures on contingencies, guarantees, obligations and related party transactions;

Providing 5-year summaries, key performance indicators and forecasts;

Providing more non-financial and sustainability information; and

Improving timeliness of reporting.

4

Principles of disclosure

The IASB plans to publish a Discussion Paper on the Principles of Disclosure later this year

Focus of the project:

Review the general disclosure guidance currently contained in:

IAS 1 Presentation of Financial Statements

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Aim to develop a general disclosure standard, which improves the principles for determining the content of financial statements, especially the notes

NZASB staff assisted the IASB with the project, by developing proposals for a new approach to drafting disclosure requirements in standards

More principles-based, less prescriptive requirements

Drafting disclosure requirements:Main features of proposed approach

Inclusion of an overall disclosure objective for each standard and more specific objectives for groups of disclosures

Greater emphasis on the need to exercise judgement to determining appropriate extent and mix of disclosures

Two tiers of disclosure requirements in each standard:

– Summary information: entities would be required to disclose summarised/key information, to give an overall picture (unless immaterial)

– Additional information: entities would be required to consider if more detailed information is necessary to meet the disclosure objectives, with non-mandatory examples provided

Primary financial statements

The IASB’s 2015 Agenda Consultation identified Primary Financial Statements as a priority project

Direction of the project:

Structure and content of statement(s) of financial performance, including:

Whether to define additional line items or subtotals

Examining the use of alternative performance measures

Whether there is demand for changes to statement of financial position and statement of cash flows

The statement of changes in equity will be considered as part of a separate project on Financial Instruments with Characteristics of Equity.

Implications of digital reporting for the structure and content of financial statements

Some of the concerns identified: Statement of profit or loss

Inconsistent structure/ presentation between entities

Inconsistent calculation of alternative performance measures (EBIT, EBITDA etc.)

No definition of operating profit subtotal

Some of the concerns identified: Statement of cash flows

Interaction between items reported in different primary financial statements is unclear

particularly between statement of profit or loss and OCI and statement of cash flows

Options for presenting items in statement of cash flows causes confusion

eg interest and dividends

More disaggregation of line items is needed

eg ‘other’ line items

Discussion Questions

Would it help for disclosure requirements to be more principles-based?

Would it help to divide disclosure requirements in standards into two tiers:

summary information that must be disclosed (if material); and

additional information that the entity considers whether to disclose to meet the disclosure objective?

Would it be helpful to define and/or provide guidance on alternative performance measures contained in the financial statements?

What other problems can you identify with the structure and content of the financial statements?

Agenda Item 7.1

Page 1 of 31 190348.1

Memorandum


To: NZASB Members

From: Joanne Scott and Lisa Kelsey

Subject: Service Performance Reporting – Analysis of Submissions Received

Action

1. The Board is asked to CONSIDER the key matters raised in submissions on ED NZASB 2016-6

Service Performance Reporting (the ED) and how to move forward with this project.

Background

2. The Board issued ED NZASB 2016-6 Service Performance Reporting in February 2016.

Comments were due by 29 July 2016. The proposed new PBE Standard would replace the non-

integral guidance on service performance reporting that is currently located in Appendix C of

PBE IPSAS 1 Presentation of Financial Statements.

3. Staff conducted the following outreach on the ED:

(a) XRB seminars in Auckland, Wellington and Christchurch followed by a webinar;

(b) presentations to Chartered Accountants Australia and New Zealand (CA ANZ) special

interest groups in Auckland and Wellington; and

(c) a presentation to a public sector planning and performance network meeting in

Wellington.

4. Other organisations including Charities Services helped to raise awareness of the proposals in

the ED and the closing date for submissions.

5. A number of NZASB and NZAuASB members met to discuss aspects of the ED at a joint

subcommittee meeting on 26 August 2016. This memo includes feedback from that meeting.

Feedback from XRAP members at a meeting in May 2016 is included as an Appendix to this

memo.

AASB project

6. The AASB also has a project on service performance reporting. The AASB issued ED 270

Reporting Service Performance Information in August 2015. Comments were originally due by

12 February 2016. This was extended to 29 April 2016 to allow more time for not-for-profit

entities to comment. The AASB has yet to formally consider comments on its ED.

Agenda Item 7.1

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7. Many aspects of the AASB’s ED are similar to the NZASB’s ED. Staff from both Boards worked

closely in the early stages of developing the respective EDs to align them as much as possible.

However, the differences in legislative requirements between Australia and New Zealand and

differing views on what was regarded as appropriate in an Australian versus a New Zealand

context led to some differences in the EDs.

Structure of this memo

8. The remainder of this memo is set out as follows:

(a) submissions received;

(b) overview of the feedback received;

(c) a summary of responses by question and suggestions for moving forward;

(d) feedback from a meeting of the joint NZAuASB and NZASB subcommittees;

(e) feedback from XRAP;

(f) recommendations; and

(g) next steps.

9. The comments from respondents shown in this memo are prompts for discussion. Some have

been paraphrased or combined. In order to gain a full understanding of respondents’

comments it is necessary to read the complete submissions. Responses, collated by question,

are set out in agenda item 7.2. The submissions are available in the supporting Board papers

(agenda items 7.3.1 to 7.3.18).

10. The suggestions for moving forward are intended to provide a focus for discussion.

Submissions received

11. We received 18 submissions, as listed below. One submission, R18, was a general letter of

support for another submission (R17).

R# Respondent Name Type Agenda item

R1 Habitat for Humanity NZ Registered Charity 7.3.1.

R2 The Treasury Public Sector 7.3.2.

R3 Parliamentary Service Public Sector 7.3.3

R4 Ministry for the Environment Public Sector 7.3.4

R5 BDO CA Firm 7.3.5

R6 Institute of Directors Member Body 7.3.6

R7 CA ANZ Member Body 7.3.7

R8 Dr Rodney Dormer Academic 7.3.8

Agenda Item 7.1

Page 3 of 31 190348.1


R9 Cherrie Yang and Rowena Sinclair Academic (Not-for-

profit)

7.3.9

R10 Commerce Commission and Electricity

Authority (joint submission)

Public Sector 7.3.10

R11 OAG and Audit NZ (joint submission) Public Sector 7.3.11

R12 RSM CA Firm 7.3.12

R13 EY CA Firm 7.3.13

R14 The Salvation Army Registered Charity 7.3.14

R15 Auckland Council Public Sector 7.3.15

R16 Foundation North Registered Charity 7.3.16

R17 Megan Thomas Not-for-profit 7.3.17

R18 HuiE! Community Aotearoa Not-for-profit 7.3.18

Overview of the feedback received

12. The responses indicate considerable support for the Board developing a standard on service

performance reporting. However, a lot more work is likely to be required to address the

issues raised by respondents. In our opinion the most important matters that need to be

addressed are the dimensions of service reporting (Question 1) and the information to be

reported in respect of those dimensions (Question 4). We have therefore looked at these

questions first.

Question 1: Dimensions of service performance

13. The ED referred to three dimensions of service performance and, subject to the application of

the qualitative characteristics and the pervasive constraints on information, required

information on all three dimensions. The three dimensions were:

(a) What did the entity do?: What goods and services (referred to as outputs) did the entity

provide during the period?;

(b) Why did the entity do it?: What outcomes did the entity seek to influence?; and

(c) What impact did the entity have?

14. Although the ED required information on all three dimensions, the ED stressed that the

information provided would depend on what an entity was accountable for and what

information it had available. The ED tried to acknowledge that there is a range of PBEs and

that their objectives and the environments in which they operate can be quite different.

Agenda Item 7.1

Page 4 of 31 190348.1

15. Question 1 from the ITC is shown below.

Q1. Do you agree that the dimensions of service performance in the ED are a useful way of

identifying the information to be reported by public benefit entities? If not, why not?

16. 17 respondents answered Question 1. We have classified the responses as:1

Agree (R1, R3, R5, R6, R8, R12, R13, R14, R15, R16) 10

Partially agree (R2, R7) 2

Disagree (R9, R10, R11, R17, R18) 5

17. Comments from respondents classified as “Agree” and “Partially agree” included:

(a) The difficulty comes in measuring impact that may not be quantitative, or may occur

over significantly longer than one reporting period (R1, R6).

(b) Attribution for impact will be difficult for example, when a number of different social

service agencies may be involved in addressing a particular social service need (R12).

(c) Impact is a key concept – yet it is not defined. Outcome definition includes the word

impact which has potential to be confusing (R12).

(d) The terminology differs to that in legislation. Develop guidance to link the terminology

used with different legislation (R15).

(e) Support for using a few critical questions (such as “what did the entity do” and “why”).

Need to retain flexibility for entities to determine how best to answer these questions

(R2, R6, R7).

(f) Consider amending the third dimension. Expand to “What impact did the entity have

and how does the entity know it has had an impact?” (R2). Replace “what impact did

the entity have?” with “how did the entity know it has had an impact?” (R7).

18. Comments from respondents classified as “Disagree” included:

(a) The nature of entities’ performance differs. In many cases the entity’s story may be

more usefully told through the entity’s objectives or priorities for the year (R10).

(b) R11 recommended that rather than the three dimensions, the standard should require

(i) information for understanding the entity and (ii) performance indicators for

assessment.

(c) The standard should not require information on outcome, impact and output. The

terms could be used in explanations and examples (R10).

(d) Performance reporting is broader than outputs and outcomes/impacts (R11).

1 There is judgement involved in classifying responses, particularly classifying a response as “Agree” or “Partially agree”.

The classifications that we have applied are shown in agenda item 7.2.

Agenda Item 7.1

Page 5 of 31 190348.1

(e) The three dimensions do not represent three different elements of performance –

impacts are not a separate dimension (R11).

(f) Don’t use the term “dimensions”. Consider “framework” would better reflect the need

for PBEs to develop a framework based on their mission and objectives (R9).

(g) The reporting standard needs to require reporting entities to provide a sufficient

amount of information to explain or illustrate their performance frameworks (R11).

(h) The terminology differs to that in legislation. The Crown Entities Act 2004 now requires

information on “what is intended to be achieved” and “How performance will be

assessed” (R10).

(i) The language in the ED is inconsistent with many outcome frameworks. Area of

particular concern is the term impact (is this not the ultimate outcome?) (R17, R18).

(j) The ED suggests attribution (that is, how outputs have influenced outcomes) is required

to report on outcomes (R17, R18).

(k) Important for not-for-profit PBEs to understand the difference between the efficiency

and effectiveness of their service performance, so they can report appropriately (R9).

19. We also received feedback during the consultation process that people were confused about

what the Board meant by impact and when an entity was required to report on impacts.

Similar concerns or a desire for clarification were noted at the joint subcommittee meeting.

Some respondents were concerned about the difficulty of providing information about

impact, whereas others wanted to focus on impacts and outcomes rather than outputs.

Question 4: Information to be reported

20. The ED proposed that an entity’s service performance information include the following:

(a) outputs and performance indicators for outputs;

(b) outcomes that the entity is seeking to influence and the links between the entity’s

outputs and those outcomes; and

(c) a description of the impact that the entity has had on the outcomes that it is seeking to

influence and performance indicators to support that description.

21. Paragraphs 34 to 44 of the ED discussed these requirements in more detail. Paragraph 43(b)

explained that “An explanation of the entity’s understanding of how it influences outcomes

including the logic and evidence that links key outputs with outcomes” is a key aspect of

information on outcomes and the entity’s influence on outcomes. So, the ED did require

information on causality – but it referred to the entity’s understanding of this.

22. The terms outputs and outcomes have been used in a number of accounting pronouncements

over the years. They are currently used in the Tier 3 and Tier 4 simple format reporting

standards, IPSASB’s Recommended Practice Guide RPG 3 Reporting Service Performance

Information, AASB’s ED 270 Reporting Service Performance Information, Appendix C Service

Agenda Item 7.1

Page 6 of 31 190348.1

Performance Reporting of PBE IPSAS 1 Presentation of Financial Statements and the

PBE Conceptual Framework.

23. The word impact has long been part of the definitions of outcomes, but has not previously

been identified as a separate dimension of service performance reporting. The Board

deliberated extensively on whether or not all entities should be required to report on impacts.

The Board felt it was best practice to require the reporting of the impact the entity has had on

outcomes while acknowledging that some entities may be unable to provide impact

information that satisfies all the requirements in the ED and that meets the qualitative

characteristics and constraints. This was noted in paragraph BC20 of the ED. Question 4

sought feedback on the proposed information to be reported.


Q4 Do you agree with the proposed information to be reported? If not, please explain why

not and identify any alternative proposals.

25. 17 respondents answered Question 4. We have classified the responses as:

Agree (R5, R6, R8, R12, R13, R14) 6


Disagree (R1, R2, R4, R7, R9, R10, R11, R17, R18) 9


(a) Agree that service performance information should be provided for the same reporting

entity and period as financial statements (R6).

(b) The requirement on when an entity does not need to report impacts needs to be

clear (R12).

(c) Should there be an allowance for the inclusion of inputs on occasion (especially if the

funder chooses to fund on that basis?) (R16).

(d) Not being prescriptive will allow the entity ability to use judgement around what

disclosures are useful to the users of the financial statements (R13).

(e) Not enough specificity in the standard as regards the requirements for a preparer to

explain the basis of their chosen measures etc. (R12).

(f) Providing concise and useful information may be challenging for those organisations

that have multiple and diverse service offerings (R5).

(g) Not all terms used are defined in the definitions section (R12).

(h) Should include information to allow assessment of efficiency and effectiveness (R8).

Agenda Item 7.1

Page 7 of 31 190348.1


(a) Don’t agree with the specific requirements in relation to outputs, outcomes and

impacts. Would prefer requirements to refer to the questions in the dimensions (R2, R7,

R10, R11).

(b) Particular concerns around reporting and evidencing links between outputs and

outcomes as this suggests attribution (R17).

(c) Impacts and intermediate outcomes and other key terms are not defined (R4, R7, R9).

Lack of definitions leads to confusion around meaning of the terms (R9).

(d) The terms ‘outcomes’, ‘impacts’ and ‘outputs’ were removed from the Public Finance

Act in 2013 (R2, R4).

(e) Limiting the information to the reporting period does not take into account complex

models where outcomes are not matched with financial reporting periods (R1).

28. If we keep all the terms currently used in the ED some respondents wanted everything

defined. Some, such as R9, had a number of suggestions for terms that should be defined and

terms that should be used differently.

29. Respondents had differing views on whether entities should be required to provide

information on causal relationships. For example:

(a) In order to understand the impacts of a not-for-profit PBE, the causal relationships

between the inputs, processes, outputs, and outcomes must be provided (R9, overall

comments). R9 suggested that an entity should be required to explain the causal

relationships between inputs, processes and outputs in reporting on “What did the

entity do?”.

(b) Many traditional evaluation systems have struggled with establishing attribution. It can

be a costly and lengthy process. As a result, we are seeing a move towards

understanding, adapting and improving outcomes rather than focusing on measuring

and attributing outcomes (R17, overall comments). Removing the suggestion that

proven and evidenced causal links need to be in place will offer more, rather than less,

to the report (R17, Question 1).

(c) Any impacts for Tier 2 entities are likely to be difficult to identify or are likely to lack a

clear causal link (R13, overall comments).

Moving forward Questions 1 and 4

30. Some respondents suggested that the information to be reported should be built around the

dimensions of service performance (expressed as questions), rather than outputs, impacts and

outcomes. Respondents had a variety of reasons for suggesting this change. The fact that the

Public Finance Act and the Crown Entities Act no longer require reporting on outputs and

outcomes was one reason. The fact that PBEs operate in different environments and are

Agenda Item 7.1

Page 8 of 31 190348.1

subject to a range of other reporting requirements also led some respondents to suggest that

the proposals needed to be even less detailed than in the ED.

31. The proposal to require reporting about impacts drew a lot of comment. Respondents were

not necessarily against the idea of providing information about what influence an entity has

had on outcomes and how the entity knows this, but they disagreed with aspects of the

proposals and thought that the proposed requirements should be more clearly expressed.

There were concerns about the difficulty of attributing changes to an entity’s actions. These

difficulties were acknowledged in the ED but we obviously still need to do more work on

drafting appropriate and clear requirements.

32. Many respondents did not agree with the way the terms impacts and outcomes were used in

the ED. It has become apparent that some terms, particularly “impact”, are used differently in

the public sector (first-order outcomes) and not-for-profit sector (ultimate outcomes).

33. The responses have highlighted the difficulties of developing a single standard for a range of

entities that may be subject to specific service performance reporting requirements or, as a

group, have their own views about service performance reporting. Some of the differing

requirements or views about service performance reporting referred to by respondents are:

(a) The Public Finance Act 1989 and the Crown Entities Act 2004 focus on “what is intended

to be achieved” and “how performance will be assessed”. Departments still have a

requirement to report against appropriations, including appropriations for outputs (R2,

R10).

(b) The Results Based Accountability (RBA) framework (R2, R17) is an outcomes

management framework that can be used by government agencies and providers

(including many not-for-profit entities) to identify and work towards achieving

results/outcomes for communities, whānau and clients. In New Zealand it is

incorporated within the Government’s Contracting Framework and many not-for-profit

entities will be required to apply RBA in seeking funding and reporting on results. An

overview of RBA is set out below.

Overview of Results Based Accountability Framework2

Population Accountability: is about improving conditions of wellbeing for whole populations. It emphasises how multiple stakeholders can share accountability to achieve results for whole populations. Success is measured by a range of indicators linked to the results.

Performance Accountability: is about a provider, agency or service system holding accountability to deliver outcomes to client populations.

Three types of performance measures are used to measure success: How much did we do? How well did we do it? And most importantly, is anyone better off? The reference to ‘anyone’ relates to the client or clients of the programme, service or initiative.

2 http://www.business.govt.nz/procurement/for-agencies/buying-social-services/results-based-accountabilitytm-rba

http://www.business.govt.nz/procurement/for-agencies/buying-social-services/results-based-accountabilitytm-rba

Agenda Item 7.1

Page 9 of 31 190348.1

(c) Non-government funders are also likely to have their own performance reporting

requirements.

(d) One response with a not-for-profit focus (R9) suggested that an entity’s mission and

objectives should be given more prominence. A Service Performance Framework will act

as the structure and foundation to support the measurement and disclosure of an

organisation’s mission and objectives, outputs, outcomes and impacts.

(e) The Local Government Act 2002 (LGA 2002) establishes detailed requirements for local

authorities. It uses terminology such as community outcomes, groups of activities and

statement of service provision. It requires performance measures for groups of

activities.

34. The Board was aware of many of these differences and tried to develop a high-level,

principles-based standard. The feedback from respondents is that it needs to be even higher

level for different types of PBEs to comply with it.

35. Some respondents have suggested that the Board generalise language, use fewer defined

terms and stick to very high level requirements. For example, R11 said “Although we broadly

support the exposure draft, we consider that it is overly prescriptive by focusing on an

outputs, outcomes, and impacts framework. In our view, it should focus on the principles

underpinning service performance reporting, and recognise that there are a number of

different frameworks.” Although not-for-profit responses were generally supportive of the

terms outputs and outcomes, they did have differing views about the meaning of impacts.

36. Being less prescriptive and referring to outputs and outcomes as examples of how entities

might report, rather than as requirements, would address the concerns expressed by a

number of respondents and merits serious consideration. However, such an approach could

create other issues. These issues would not preclude the Board from making the types of

changes suggested by respondents, but they are complicating factors.

(a) If the Board generalises the requirements in the ED it will need to be careful that it still

retains a focus on service performance reporting. If the scope was broadened it would

effectively be a new project.

(b) Dropping the terms outputs and outcomes from the proposed standard would be

inconsistent with the simple format reporting standards. The simple format reporting

standards use the terms outputs and outcomes. Although the simple format reporting

standards were not a key driver for this project, the Board wanted the service

performance requirements across standards to be broadly consistent.

(c) Dropping the terms outputs and outcomes from the proposed standard would be

inconsistent with the PBE Conceptual Framework. The PBE Conceptual Framework

(issued earlier this year) discusses service performance reporting using the terms

outputs and outcomes. In addition, the NZASB added paragraph 5.1.1 to the

PBE Conceptual Framework which states that “The elements of service performance are

inputs, outputs and outcomes.” Inconsistencies between standards and frameworks are

Agenda Item 7.1

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not uncommon, but they do not usually occur so soon after a framework has been

issued. Frameworks are generally stable documents that are reviewed periodically.

37. We suggest that the Board note these matters as possible complications, but put them to one

side for now.

38. We suggest that the Board consider the following questions in turn.

39. Does the Board agree that it should continue to use broad questions to describe the

dimensions of service performance reporting?

40. Does the Board prefer the types of questions in the ED or some of the alternatives suggested?

Alternative 1 (based on public sector legislation): What is intended to be achieved? How will

performance be assessed?

Alternative 2 (R6): What does the entity do? Why does it do it? What difference did it make?

Alternative 3 (Results Based Accountability): How much did we do? How well did we do it? Is

anyone better off?

41. Does the Board wish to keep the third dimension about impacts?

42. Does the Board agree that the information to be reported should be completely rewritten in

more general terms, with outputs and outcomes being described as examples of how an entity

might report against the dimensions?

43. Does the Board still want a requirement for the entity to explain the links between its outputs

and the outcomes it is seeking to influence (using whatever terminology is agreed)?

44. Does the Board agree, for the reasons outlined in paragraph BC28 of the ED, not to mandate

reporting on efficiency and effectiveness?

Question 2: Qualitative characteristics

45. The ED, paragraphs 26-28, discussed the application of the qualitative characteristics to

service performance information, particularly the importance of selecting relevant

information and balancing the need to present an overall picture without providing too much

detail. It noted that materiality is a key constraint to consider. The qualitative characteristics

in the ED were consistent with the (then) forthcoming Public Benefit Entities’ Conceptual

Framework (PBE Conceptual Framework), subsequently issued in July 2016.

46. The ED contained more discussion of the qualitative characteristics than one would normally

find in a standard. This was to assist readers less familiar with service performance reporting

or the conceptual framework.

Agenda Item 7.1

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Q2 Do you agree that application of the qualitative characteristics and appropriate

balancing of the pervasive constraints on information will result in appropriate and

meaningful service performance information? If not, please explain why not and

identify any alternative proposals.


Agree (R2, R3, R5, R6, R7, R8, R9, R10, R11,

R12, R13, R14, R15, R16) 14


Disagree (R1) 1


(a) We apply these characteristics and constraints when devising appropriate performance

indicators (R3).

(b) They help provide context and meaning so that reported information is useful and

reliable (R6).

(c) More discussion required about judgements and trade-offs. This comment was

prompted by concerns that an entity or auditor might expect all the qualitative

characteristics to be met in all circumstances (R2, R7, R12).

(d) Need to acknowledge the difficulties relating to comparability (between entities and

over time) (R2 and R17). Quantitative measures may not sufficiently tell the

performance story.

(e) Need to acknowledge the difficulties relating to verifiability. Verifiability is obviously

linked to how well the outcomes can be audited. Verifiability is important but should

not be linked to the concept of attribution/causal proof (R17).

(f) Standard to be clear about expectations of meeting “verifiability” where a large number

of performance measures are included (R11).

(g) Should there be more qualitative characteristics? Consider adding influenceable and

appropriate to the audience (R15).

(h) User guidance would help people interpreting these criteria (R17).

(i) Qualitative characteristics and pervasive constraints should be consistent across all four

tiers (R9).


(a) Should the information required be linked to the Mission Statement of the entity (R1)?

Agenda Item 7.1

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Moving forward Question 2

51. There was broad support for the use of the qualitative characteristics in the PBE Conceptual

Framework and the explanation of the qualitative characteristics in the ED. We would like the

Board’s views on respondents’ suggestions and our comments as shown in the table below.

52. R1 was the least supportive of the qualitative characteristics. R1’s comment about linking the

information to be reported to the mission statement of the entity was noted in Question 4

above.

Respondents’ suggestions Staff Comments

Include more on the need for trade-offs or

balancing between the characteristics

Could repeat statement in PBE Conceptual

Framework

Include more discussion of difficulties of

comparability and verifiability

Could try to expand discussion

Add influenceable and appropriate to the

audience as qualitative characteristics

We can’t change the QCs in the PBE

Conceptual Framework. However, we could

try to incorporate these comments in the

discussion of the QCs

53. Does the Board want us to expand the discussion of the QCs as suggested by respondents?

Question 3: Appropriate and meaningful

54. The Board used the phrase “appropriate and meaningful” throughout the ED with the

intention of providing preparers of service performance information, many of whom are non-

accountants, with a useful way of thinking about whether the proposed service performance

information appropriately reflects the application of the qualitative characteristics and

constraints on information. The Board considered that an overarching phrase such as this

could facilitate discussions regarding the appropriate selection of information and the overall

volume of information presented, particularly given that some of these discussions would take

place between accountants and non-accountants.

55. The AASB considered using this phrase but did not include it in ED 270. This was due to

concerns that it might be regarded as an additional requirement and a view that requiring

entities to apply the qualitative characteristics was sufficient.

56. Question 3 from the ITC sought feedback on the use of this phrase in the NZASB’s ED and is

shown below.

Q3 Do you agree with the use of the term “appropriate and meaningful”? If not, please

explain why not and identify any alternative proposals.

Agenda Item 7.1

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Agree (R2, R3, R5, R6, R7, R8, R10, R11, R12,

R13, R14, R15, R16, R17, R18) 15

Disagree (R1, R9) 2

58. Comments from respondents classified as “Agree” included:

(a) Will help entities to step back and review the detail to ensure an appropriate selection

and volume of performance information (R2, R11, R13).

(b) This is standard practice for departments (R3).

(c) Include the word ‘balanced’ to explicitly remind non-accountants that the information

should include negative, as well as positive, service performance information (R7, R12).

(d) An “appropriate and meaningful” report does not always show direct links between the

three dimensions (outputs, outcomes and impact) (R15).

(e) Emphasise that this should be from the user’s perspective (R5, R13).


(a) Appropriate and meaningful is not a common term and it is not defined in the ED (R9).

(b) Appropriate and meaningful could be better defined by linking it directly to the mission

statement of the organisation (R1).


60. Given the level of support indicated by respondents we recommend keeping the phrase

appropriate and meaningful. Issues raised by respondents that we would like the Board to

consider are:

(a) suggestions that there should be more discussion on neutrality (need for a complete

picture, the good and the bad). This could be done by placing more emphasis on the QC

of faithful representation in the discussion of appropriate and meaningful; and

(b) suggestions that the phrase appropriate and meaningful be linked to a user perspective.

61. Does the Board agree with keeping the phrase appropriate and meaningful?

62. Does the Board want us to add more discussion on neutrality?

63. Does the Board want us to link appropriate and meaningful to a user perspective?

Question 5: Cross-referencing

64. The ED proposed to allow cross-referencing to information outside of the service performance

section of the general purpose financial report, or outside the general purpose financial

report. One reason for permitting such cross-referencing was to avoid conflict with the 2013

amendments to the Public Finance Act which provided increased flexibility around where

Agenda Item 7.1

Page 14 of 31 190348.1

service performance information could be reported and which entity could report

information. The amendments were intended to reduce duplication of information and allow

for more joint reporting.

65. The ED included some requirements about when and how cross-referencing was permitted.

This was to ensure that the entity still provided a complete picture of its service performance

to readers and to make sure all the information was accessible to users of the annual report.

The requirements in the ED were based on an IASB agenda paper (paper 11B, November

2014) on the disclosure of IFRS® information outside the financial statements.


Q5 Do you agree that cross-referencing to information outside of the service performance

section of the general purpose financial reports should be permitted? If not, why not?


Agree (R1, R2, R3, R5, R6, R7, R8, R9, R11,

R12, R13, R14, R15, R16, R17, R18) 16

Disagree (R10) 1

68. Comments from respondents classified as “Agree” included:

(a) The presentation flexibility in the ED will support efforts to report on “collective impact”

in a meaningful way (R2).

(b) This will allow departmental appropriation reporting to be used to meet the

requirements of a service reporting standard (R2).

(c) The cross-referencing proposals would be consistent with the increased flexibility for

government departments and Crown entities (R11).

(d) Will reduce duplication and enhance readability and understandability. Will provide a

complete picture for the reader (R3, R5, R9). R9’s supportive comment referred solely

to information that was still within the GPFR.

(e) This is particularly important in an increasingly digital environment where stakeholders

and consumers expect easy and timely access to further relevant information (R6).

(f) Paragraph 54 adds useful clarification (R5, R13). Agree with points raised in

paragraphs 53 to 56 (R14).

(g) Consider the inclusion of links to other information that, while useful, is not included in

the financial report (R15).

(h) Will this information be subject to audit (R17)?

Agenda Item 7.1

Page 15 of 31 190348.1

69. Comments from the respondent classified as “Disagree” included:

(a) Service performance information should not be required to be reported within the

general purpose financial report. Service performance information would lose some of

its meaning if it was included with the financial statements rather than with other non-

financial information (R10).

70. A matter that has subsequently arisen, is whether the ED should explicitly require the service

performance information to be presented in a service performance section of a GPFR (refer to

the discussion later in the memo in the section feedback from joint subcommittee meeting).


71. There was strong support for permitting cross-referencing and a number of respondents

indicated support for the detailed guidance on cross-referencing. With respect to R2’s

comment about the usefulness of the cross-referencing proposals for departments, we would

like to highlight that departments can present appropriation information (which includes

output information) separately from their other performance information. The cross-

referencing proposals would allow them to link these two sections.

72. We think R10’s concerns might have been prompted by the respondent reading the reference

to a financial report in Question 5 as a reference to financial statements.

73. Does the Board agree to retain the cross referencing requirements as set out in the ED?

Question 6: Scope

74. The ED proposed that:

(a) public sector PBEs with existing legislative requirements to report service performance

information would be required to comply with the proposed standard;

(b) public sector PBEs without existing legislative requirements to report service

performance information would be encouraged, but not required, to comply with the

proposed standard; and

(c) not-for-profit PBEs would be required to comply with the proposed standard.

75. Determining the proposed scope was a difficult issue and the Board spent a lot of time

considering this issue. The difficulties arose because different types of entities were subject to

different requirements and had different levels of experience in preparing service

performance information. We have provided a brief summary of categories of entities and

some of the issues considered by the Board in the following table. The Board’s deliberations

were covered in the Basis for Conclusions on the ED (see paragraphs BC7–BC16).

Agenda Item 7.1

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Type of Entity Factors considered

Public sector PBEs with

existing legislative

requirements

Required to prepare service performance information for

many years, previously in the form of a statement of service

performance

Recent changes to legislation allow for more flexibility in

reporting (who reports, how it is reported, where it is

reported)

Public sector PBEs without

existing legislative

requirements

These entities may not have been required to prepare the

type of service performance information previously required

in a statement of service performance, but Parliament may

have established legislative requirements for non-financial

information, tailored to that type of entity

Cost benefit concerns: the ED would impose additional costs

but might not lead to more benefits

ED requirements might conflict with legislative requirements

The Government of New Zealand (whole of government)

would not fall within the proposed scope3

Not-for-profit PBEs Service performance information (albeit simpler) is already

required from Tier 3 and 4 not-for-profit PBEs

Strong accountability arguments for the provision of service

performance information

ED would impose costs as many not-for-profit entities do not

currently provide service performance information or would

need to revise the information they provide

76. Question 6 from the ITC is shown below:

Q6 Do you agree with the proposed scope in relation to:

(a) public sector public benefit entities with existing legislative requirements to

report service performance information;

(b) public sector public benefit entities currently without existing legislative

requirements to report service performance information; and

(c) not-for-profit public benefit entities?

The NZASB would welcome information on the costs and benefits of the proposals in

relation to specific types of entities. If you do not agree with the proposed scope, please

explain why not and your views on what the scope should be.

3 AASB ED 270 proposed that it apply to a whole of government reporting entity, but readers were specifically asked to

comment on why this might not be appropriate. This reflected the fact that Australian governments have different views and practices.

Agenda Item 7.1

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Agree (R1, R3, R5, R7, R8, R10, R12, R13, R14, R17, R18) 11

Partially agree (R2, R11, R15, R16) 4

Disagree (R6, R9) 2


(a) Additional cost will come with the audit (suggested an option to opt out of having the

service performance information audited) (R1).

(b) Suspect that there may be a cost outcry from some in the not-for-profit sector given

that this will be negatively seen by some as a new compliance burden, However, don’t

see this as a reason to exempt entities or reduce requirements (R12).

(c) Expect significant costs will be incurred in developing the service performance report

and implementing systems to capture and report the appropriate information (as well

as maintaining such systems going forward) (R14).

(d) Measures will need to be put in place to streamline reporting by not-for-profit entities

to funding agencies to ensure compliance costs do not exceed the benefits (R7).

(e) In order to reduce costs, we propose a concession for Tier 2 entities to remove the

requirement to disclose impact on outcomes (i.e. paragraph 33(c)) (R13).

(f) Within central government, agencies may be legislatively required to report on service

performance but may be exempted from reporting on some of their activities; the

scope of the standard needs to be amended to make this clear (R2).

(g) Clarify scope in respect of public sector entities with a legislative requirement to

provide a statement of service performance but the legislative requirement does not

specify in accordance with GAAP (R11).

(h) The ED (paragraph 31) appears to require entities to report performance information at

a group level which may in some cases be in conflict with the legislative requirements.

The standard should set out the approach to follow in these cases (R11).

(i) Public sector for-profit entities that have to prepare performance information are

currently outside the scope of the standard. The application of different standards as

currently proposed could lead to inconsistent reporting (R11).

(j) We consider that, given the flexibility in how service performance information can be

presented, departments would use the reporting against departmental appropriations

to discharge their reporting requirements under a Service Performance Reporting

Standard (R2).

(k) Ensure the Standard does not conflict with the requirements or intent of existing

legislative requirements and guidance published by central agencies (R10).

Agenda Item 7.1

Page 18 of 31 190348.1

(l) Suggested that after the amendments to the PFA 1989 and the removal of the words

‘service performance’ from the Act, the requirement for central government agencies

to provide service performance information is no longer clear (R8).

(m) Consider how the service performance standard will align with the Auditor-General’s

Auditing Standard 4 (R10).

(n) Suggest that over time, it would be logical for the standard to apply to the whole PBE

sector (R12).

(o) Support for the scope including public sector entities with no existing legislative

requirements and not-for-profit public benefit entities (R15)4.


(a) It is not clear to us why public sector PBEs that don’t have existing legislative

requirements to report service performance information will only be encouraged to

comply when non-public sector not-for-profit PBEs will be required to comply (R6).

(b) Both of these categories do not have current legislative requirements and it seems

inconsistent to require a higher expectation (required vs encouraged) for non-public

sector entities (R6).

(c) It would be more appropriate to have consistency between all Tier 1 and Tier 2 PBEs.

Furthermore, it is concerning that new requirements for public sector PBE could conflict

with this proposed standard as this would mean inconsistent approaches between

public sector PBEs (R9).


80. Most respondents accepted the Board’s reasons for excluding public sector PBEs with existing

legislative requirements from the scope of the ED. R6 and R9 didn’t see why there should be

different requirements for these entities.

81. With respect to not-for-profit PBEs, most respondents agreed with the proposed scope

although they also expressed concerns about costs, concerns about audit implications, the

need for education and support and time to develop systems.

82. Some respondents proposed clarifying or refining the scope. Our comments on how we could

deal with these suggestions are set out in the following table.

Respondents’ comments Staff comments

Legislative requirements may apply to only

some activities. Clarify scope (R2)

Agree. Suggest adding an explanation in the

grey letter paragraphs following paragraph 2

4 We were not sure if this comment implied that the scope should be broader, hence R15 was classified as partially agree.

Agenda Item 7.1

Page 19 of 31 190348.1

Respondents’ comments Staff comments

GAAP not specified in legislative

requirements. Clarify scope (R11)

Agree we should clarify

Paragraph 21 is as close as possible to the

wording in the simple format reporting

standards. We think paragraph 21 would

capture entities with a legislative

requirement but where GAAP is not

specified

Option A: Clarify that entities are required

to comply with the standard even if GAAP is

not specified in legislative requirements.

Option B: Make it optional for such entities

Group level reporting conflicts with some

legislative requirements (R11). Clarify how

to deal with conflict between standard and

legislation

Agree we should clarify

Option A: Require both group and individual

entity information. This would impose

considerable compliance costs

Option B: Allow legislative requirements to

override the standard

Public sector for-profit entities that have to

prepare performance information are

currently outside the scope of the standard.

The application of different standards as

currently proposed could lead to

inconsistent reporting. (R11)

FRS-44 New Zealand Additional Disclosures,

paragraphs 12.1 to 12.10, requires service

performance information in some

circumstances

Review FRS-44 once the PBE project has

been completed. Separate due process

would be required

83. Subject to the suggested clarifications, does the Board agree to retain the scope in the ED?

84. What are the Board’s views on the suggested clarifications?

Question 7: Implementation period


Q7 Do you agree that a two year implementation period would be appropriate?


Agree (R1, R2, R5, R7, R8, R9, R10, R11,

R12, R16)

10


Disagree (R6, R14, R15, R17, R18) 5

Agenda Item 7.1

Page 20 of 31 190348.1


(a) Yes, if it is supported by appropriate guidance (R2).

(b) Larger not-for-profit entities can learn from Tier 3 and Tier 4 who are already reporting

service performance information (R7).

(c) Implementation period not an issue for public sector PBEs (R7, R8, R11).

(d) Strongly support allowing early adoption as many in the not-for-profit sector are

already well down the path of this type of reporting (R12).

(e) Depends on the expectation for setting performance information prior to reporting on

it (R4).

(f) Depends if a concession is given for Tier 2 entities from disclosure of impacts (R13).


(a) More time needed in not-for-profit sector (R6, R14, R15, R17).

(b) More time needed to set-up auditable systems to record, collate and report the

information (R14, R15).

(c) Sufficient time is needed to raise awareness of the new regime, build internal capacity

and allow those responsible for governance to understand the requirements (R6).

(d) Suggested a three-year implementation period (R14, R15, R17).

(e) Suggested a phased implementation period over 3 to 5 years (R6).

(f) Remove the need for comparatives in the first year (R17).

(g) More clarity needed about transitional provisions (R6).


89. Although a majority of respondents supported the proposed 2 year implementation period,

those arguing for longer based their comments on their experience. The time needed for not-

for-profit PBEs to develop systems, identify measures and collect and test data was a key

concern. Some respondents felt that 3 years would be better or that the requirement for

comparatives should be dropped for the first year. Others stressed the need for education and

support and possible phasing in of requirements.

90. One suggestion was for phased implementation. This suggestion was made in relation to the

auditing of service performance information. The Auditor-General implemented a phased

approach for AG-4 (Revised) The audit of service performance reports. This standard was

effective for audits for different periods depending on the type of public sector entity

(i.e. local authorities first, then government departments etc.). The only way we could

respond to this question would be to have different effective dates for different types of

entities.

Agenda Item 7.1

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91. Does the Board think a 3-year implementation period would be more appropriate?

92. What are the Board’s views on phased implementation?

93. Should the standard have a section on transitional provisions?

Question 8: Changes to PBE IPSAS 1

94. The ED proposed a number of amendments to PBE IPSAS 1 Presentation of Financial

Statements, including changing the title. The proposed amendments were included in the ED.

A copy of the ED is available in the supporting agenda papers, at agenda item 7.4.


Q8 Do you agree with the proposal to change the title of PBE IPSAS 1 Presentation of

Financial Statements to Presentation of Financial Reports and the proposed

amendments to that Standard? If not, please explain why not and indicate your

preferred alternative approach.


Agree (R1, R5, R9, R11, R13, R14, R15, R16, R17, R18) 10

Partially agree (R2, R3, R8, R12) 4

Disagree (R6, R7, R10) 3


(a) May be difficult for an auditor to express an opinion on some information (R1).

(b) The change in PBE IPSAS 1 to financial reports will be consistent with the

PBE Conceptual Framework’s use of GPFR (R9).

(c) Alternative titles suggested: Presentation of Financial and Performance Reports (R2);

Presentation of Financial and Service Performance Reports (R3) and Presentation of

Accounting Reports (R8).


(a) It would be more appropriate to incorporate or reference the sections of PBE IPSAS 1

that are applicable to service performance information within the proposed service

performance reporting standard (R10).

(b) The proposed title does not reflect that “non-financial” service performance

information is also being reported (R6, R7, R10). Alternative titles suggested were:

Presentation of Financial and Non-Financial Performance Reports (R6), Presentation of

Performance Reports (R6 and R7) and aligning terminology with that of Tier 3 and 4

PBEs (R7).

Agenda Item 7.1

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99. The ED, together with the proposed changes to PBE IPSAS 1, proposed that a general purpose

financial report include financial statements and, where required, service performance

information. The proposed changes were consistent with the concept of a general purpose

financial report as per the current version of PBE IPSAS 1, the previous PBE Framework, the

PBE Conceptual Framework and the IPSASB’s Conceptual Framework. One difference between

the proposed changes and the IPSASB’s view of a general purpose financial report is that the

ED proposed that service performance information should be provided in the same general

purpose financial report as the financial statements.

100. The majority of respondents supported the proposed changes. We therefore recommend that

we proceed with the proposed amendments to PBE IPSAS 1, subject to aligning them with the

final requirements in a standard. For example, paragraph 17.1 which refers to outputs and

outcomes might need to be changed.

101. Despite the substantial support for the changes proposed, the responses indicate that (i) some

constituents are not familiar with the way in which accounting standards and frameworks use

the term financial reports, and (ii) even some that understand the term would prefer a

different title.

102. Does the Board agree that there is support for the proposed amendments to PBE IPSAS 1?

103. Does the Board prefer any of the alternative titles for PBE IPSAS 1?

Question 9: Guidance


Q9 What type of guidance should the NZASB develop to support entities preparing service

performance information in accordance with the proposed standard?

105. 17 respondents answered Question 9.

106. Comments from respondents included:

(a) Guidance should include examples of good (and bad, or not so good) performance

reporting, as well as examples (even stylised) of the range of ways in which

performance information may be presented (R2, R6, R10, R11, R12, R13, R14).

(b) Guidance should include examples of qualitative measures and descriptions (R1, R2).

(c) Guidance is needed on appropriate narrative reporting. Exemplars would be helpful to

improve the appropriateness of comparative information for narratives (R9).

(d) Include examples for different types of entities (R5, R7, R13, R17). But do not take a

template model approach (R12).

(e) We suggest that you initially develop guidance for the not-for-profit sector (R11).

Agenda Item 7.1

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(f) Some of the information in the proposed Standard would be better provided as

guidance, for example, the requirement to report on outputs, impacts and outcomes

(R10).

(g) Guidance should help with reporting progress towards “Why” an entity exists.

Reporting is expected to be done annually but progress is a multi-year story (R1, R2).

(h) Service performance may be assessed against four criteria – economy, efficiency,

effectiveness and equity – provide guidance and discussion on these (R8). Include

guidance on various types of performance indicators (R8, R9, R13).

(i) The guidance should be tailored for different users, e.g. the preparer of service

performance information as well as those charged with governance (R9).

(j) Guidance must be developed well in advance of the implementation of the new

standard (R6).

(k) Work with other agencies to produce guidance for different types of public sector PBEs

(R10, R11). Provide guidance to link dimensions to terminologies used in legislation

(R15).

(l) Treasury guidance for preparation of Annual Reports and Statements of Intent may

provide useful pointers (R3).

107. On 7 June 2016, the NZASB’s service performance reporting subcommittee met to consider

the structure and content of guidance to support the proposed standard on service

performance reporting. At this meeting the subcommittee decided that the focus in the first

instance should be developing guidance for not-for-profit entities. The guidance should

include examples (looking at different types of organisations) and be focused on Tier 2 not-

for-profit entities (i.e. the smaller not-for-profit entities). The guidance should take the form

of a separate explanatory guide.


108. Feedback from respondents is consistent with the view of the subcommittee although a few

respondents are also asking for subsets of public sector guidance to be developed in

conjunction with other agencies.

109. Does the Board agree that our priority should be to develop an explanatory guide for not-for-

profit entities?

110. What role does the Board consider it has for developing guidance for public sector PBEs?

Agenda Item 7.1

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Question 10: Other comments


Q10 Do you have any other comments on ED NZASB 2016-6?

112. 12 respondents answered Question 10.

113. Comments made in response to Question 10 cover a wide range of issues. Rather than trying

to summarise them in this memo, we have identified some key themes. The full text of

comments is available in agenda item 7.2 or the submissions in agenda item 7.3.

114. One key matter that has been raised by respondents (both under this question and other

questions), was the need for entities to provide sufficient information to explain or illustrate

their intervention logic/plan (sometimes referred to as a performance framework, outcomes

framework or theory of change). Commonly a combination of activities performed by

numerous entities leads to a desired change, and entities should reflect this in their own

intervention logic/plan. Respondents commented that the standard needs to highlight the

importance of having some sort of performance framework or expectations at the start of the

year before they can successfully report ex-post. Respondents commented that users cannot

properly assess entity performance solely by examining selected performance indicators.

Those users need to understand the entity’s environment, strategy, value proposition and

business model to make sense of the performance indicators. As one not-for-profit

respondent commented, plans and strategies for achieving objectives form an invaluable

framework for service reporting. These types of comments were made by R2, R4, R11, R12,

R16 and R17.

115. Respondents commented on the need for ongoing support and education to ensure the

successful implementation of the proposed standard. These types of comments were made by

R7, R10 and R12. Some respondents made similar comments in response to Question 9.

116. Two respondents would like the standard to require cost information related to goods or

services and activities (one respondent added unless it is impractical to provide) (R8, R11).


117. Some of the responses to Question 10 will be considered as part of other questions, or in

relation to feedback from the joint NZASB/NZAuASB subcommittee. We would like to briefly

touch on the following matters:

(a) Some respondents consider that an entity needs to be explicit about its service

performance framework, either for users to understand the context or so that the

information can be audited. However, not everyone is of the view that the entity’s view

of causality should be audited. R17 did not consider that auditors should be required to

make judgements on the accuracy of the theory of change/logic model. Instead R17 was

of the view that an auditor’s judgement should be passed on whether any quantifiable

performance measurements data presented is accurately represented. In any case, we

think that we need to be careful to understand exactly what people mean when they

Agenda Item 7.1

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talk about a service performance framework. We are not sure that all people referring

to frameworks are talking about the same thing.

(b) Some respondents highlighted the need for ongoing education and support. The NZASB

will need to consider how to work with other entities that provide education and

support.

(c) A few respondents felt that the ED should have required cost information. Although the

ED emphasised the importance of cost information it did not mandate this. The ED

noted that the provision of cost information may not always be practicable or the most

appropriate way of reporting on outputs.

Audit issues raised in submissions

118. The ED did not include any questions on audit issues. We have noted some of the comments

made by respondents.

119. Respondents welcomed the development of an auditing and review standard on service

performance information (R5, R7). Respondents suggested considerable care needs to be

taken to strike an appropriate balance between requiring achievable information and not

making this so hard to produce and audit that it causes bad-will and negates the positive

intention (R12). Respondents commented that the accounting standard needs to be written

in a way that removes the need for auditors to be making judgements on the accuracy of the

theory of change/logic model; their judgement should be passed on whether any quantifiable

performance measurements data presented is accurately represented (R17, R18).

120. One respondent commented that the Auditor-General implemented a phased approach to the

auditing of service performance of public sector entities. The respondent felt that a phased

approach would be important if the reports are required to be audited (R6).

121. Respondents highlighted the cost of setting up auditable systems to record, collate and report

the information that is required for service performance information (R1, R15).

122. Respondents noted that auditors will also need sufficient time to develop their capability to

audit non-financial information (R6, R10, R12).

123. A respondent felt that there might not be enough specificity in the standard regarding the

requirements for a preparer to explain the basis of their chosen measures. The respondent

noted that the entity needs to be the one making the decisions around outputs being reported

on, and linkages to, outcomes and impacts. Auditors should be providing an independent

opinion on the work of a preparer, not trying to address gaps in the preparer’s disclosures

(R12).

Feedback from joint subcommittee meeting

124. The NZAuASB has an active project to develop an auditing standard on service performance

information.

Agenda Item 7.1

Page 26 of 31 190348.1

125. On Friday the 26th of August members of the NZASB and the NZAuASB subcommittees met to

discuss issues arising from the NZASB’s ED that would have implications for the development

of an auditing standard. Although the NZASB has yet to deliberate on responses to the ED, it

is helpful to receive feedback on these issues now so that the NZASB can consider them as it

moves forward.

126. We have included a brief summary of discussions at that meeting, using the agenda for that

meeting as the subheadings. We are happy to elaborate on any of these points.

Key issues emerging:

(a) Service performance framework – the need for transparency about what an entity has

decided to report.

The draft auditing standard is based around a “two step” approach to audit. The first

step is an evaluation of whether the entity’s selection of service performance

information (referred to as the service performance framework) is suitable. The second

step is the verification of what is reported. The need for a phrase such as “service

performance framework” to capture the specific dimensions of service performance

adopted by the entity to tell its own service performance story was discussed. One

NZASB member made the analogy to the selection of accounting policies, i.e. the

selection of the appropriate policy and then the application of the policy appropriately.

The idea was floated that the accounting standard could require the disclosure of

critical judgements by the entity in the selection of what to report. Linkages were also

made to segment reporting in the for-profit sector where disclosure is required of

factors used to identify reportable segments.

(b) Importance of targets for the planning the audit.

The accounting ED does not require a comparison to targets unless these have been

previously published. The NZAuASB members commented that in demonstrating

accountability, the most meaningful comparison of an entity’s service performance is

whether it achieved what it set out to achieve. The NZASB agreed with this (refer BC21).

However, they concluded that it was not appropriate to impose a requirement on not-

for-profit entities to publicly report on planned activities and objectives. Staff of the

NZASB commented that one of the main reasons is that planned activities and

objectives of not-for-profit entities are very much dependent on funding, and the

planned direction may need to change throughout the year. A member commented

that not-for-profit entities can regard their planned activities and availability of funding

as commercially sensitive information.

(c) Request for NZASB to develop specific guidance on materiality in the context of service

performance information, including the need for stakeholder engagement.

NZAuASB members mentioned the need for a strong materiality principle and noted

that the need for stakeholder engagement in deciding what to report is a recurring

theme in broader forms of reporting. The NZAuASB members requested that the NZASB

develop guidance to assist the preparer apply the materiality principle to service

Agenda Item 7.1

Page 27 of 31 190348.1

performance information (i.e. non-financial information). This will assist the preparer in

determining what level of detail to cover to assist in avoiding over-reporting of service

performance information as well as using materiality as an excuse not to report “the

bad news” stories. Discussion was somewhat focused on stakeholder engagement and

the balance between best practice and requirements. There was agreement that user

needs are at the forefront when selecting and reporting service performance

information, but that requiring evidence of stakeholder engagement may be onerous.

(d) Desire for strong neutrality principle.

From the auditing perspective a strong neutrality principle is necessary to address the

risk of preparers’ bias. Although neutrality is covered by the qualitative characteristic of

faithful representation, emphasis that the preparer is required to disclose the good with

the bad is important.

(e) Objective to have one auditing standard, but there are different qualitative

characteristics and terminology in the ED and the simple format reporting standards.

The QCs are at the heart of the audit given the principle-based approach in the

accounting ED. NZAuASB members commented on the recent NZASB decision not to

update the QCs in the Tier 3 simple format reporting standards as a consequence of the

issue of the PBE Conceptual Framework. There will be challenges in drafting an auditing

standard across the four tiers of accounting requirements if different QCs and

terminology are used across those tiers.

(f) When is it acceptable not to report on impacts?

The accounting ED proposed to require reporting of information on impacts only where

the entity has evidence about the links between outputs and outcomes, and the

information can be measured in a way that meets the QCs. NZAuASB members

discussed the practical implications from an audit perspective as to how much the

entity needs to do to comply with this requirement in the accounting ED. There was a

desire for the accounting ED to be clearer as to when impact reporting is expected.

(g) Clarity of definitions: outcome, impact, and intermediary outcomes.

NZAuASB members expressed concern at a lack of clarity in the defined terms in the

exposure draft (for example, the term impact is not defined), and the definition of

outcomes is defined with reference to impact. NZASB staff mentioned that similar

comments have come through in the submissions.

(h) Possibility of reporting recommendations in the auditor’s report.

The NZAuASB has discussed permitting and encouraging the auditor to include

recommendations for improvement in the auditor’s report to promote transparency

where the auditor considers that the selection of service performance information

could be improved and possibly negate concerns over modified audit opinions. There

were concerns that funders would view modified audit opinions negatively and hold

Agenda Item 7.1

Page 28 of 31 190348.1

back funding if the entity did not receive a “clean” audit report. Another member

suggested that the entity could make the disclosures and the auditor’s report could

refer to these disclosures.

Points of clarification:

(a) Should there be more discussion on users?

NZAuASB members commented that the description of user in the exposure draft is

narrowly defined, and that there would be other stakeholders using the report.

(b) Does society include the environment in the definition of outcomes?

The accounting ED states that service performance refers to the entity’s delivery of

goods and services with the intention of having an impact on society or segments of

society. NZAuASB members were seeking clarity as to whether “society” applies to the

environment. NZASB staff commented that this explanation of service performance was

derived from the definition of a PBE which resides in XRB A1 Application of the

Accounting Standards Framework. It was also noted that many entities that classify

themselves as PBEs have environmental goals. Concerns were raised about the

possibility of making explicit reference to the environment as members did not want to

signal a move into environmental reporting.

(c) Drafting conventions used (should, shall, must)

NZAuASB members would like the NZASB to consider the consistent use of terms when

drafting requirements in the accounting ED.

127. A matter that arose as a follow up to the meeting discussion was the need for a very clear

boundary over what is audited and what is considered to be other information (information

that would be read for consistency purposes but would not be subject to audit per se). The

audit covers the general purpose financial report (GPFR) and therefore the question arises as

to whether there is a need to clarify where the service performance information must be

located in a GPFR. Paragraph 54 of the ED refers to the “complete set of service performance

information presented in accordance with this [draft] Standard” but permits an entity to

present the service performance information outside of the service performance section of

the GPFR or even outside the GPFR if certain cross-referencing conditions are met. However,

the ED does not explicitly require the information to be presented in a “service performance

section”. The closest it gets to this is the proposed inclusion of paragraph 20.1 in PBE IPSAS 1.

20.1 A complete financial report comprises:

(a) A complete set of financial statements; and

(b) Service performance information, where this is required to be reported, including

any notes.

128. The fact that the ED permits cross referencing to other information does not create audit

issues as an additional paragraph was recently added to the ISAs (NZ) to clarify that

information that is appropriately cross-referred to will form part of the financial statements

for the purpose of the audit.

Agenda Item 7.1

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Feedback from XRAP

129. At the meeting on 11 May 2016, XRAP members were invited to comment on ED NZASB 2016-

6 and some of the challenges associated with developing an auditing standard. Their

comments on ED NZASB 2016-6 are noted in the Appendix to this memo. Most of their

comments are reflected in submissions.

Recommendations


(a) NOTE the submissions received on ED NZASB 2016-6 Service Performance Reporting;

(b) NOTE the feedback from the joint subcommittee and XRAP;

(c) PROVIDE FEEDBACK on how to move forward with this project; and

(d) PROVIDE FEEDBACK on next steps and timing.

Next steps

131. At this stage it is difficult to estimate how long it will take to revise the ED to reflect the

Board’s response to submissions. Tentative suggestions are:

(a) 3 November 2016: Finish Board consideration of submissions;

(b) 15 December 2016: Consider revised draft; and

(c) 8 February 2017: Approve standard.

132. If the Board agrees that its priority is to develop guidance for the smaller not-for-profit

entities in Tier 2, we suggest that we start work on this guidance in parallel with finalising the

standard and report back on progress in December 2016.

133. We see an ongoing role for a subcommittee to provide feedback on proposals before they

come to the Board. We expect that there might be four meetings of 12 hours over the next six

months.

Attachments

Agenda Item 7.2 Responses collated by Question

Agenda Item 7.3 Submissions received (in supporting documents)

Agenda Item 7.4 ITC and ED NZASB 2016-6 (in supporting documents)

Agenda Item 7.1

Page 30 of 31 190348.1

Appendix 1

Feedback from XRAP

This Appendix notes some comments made by XRAP members during an informal discussion at a

meeting on 11 May 2016. Members were invited to comment on ED NZASB 2016-6 and some of the

challenges associated with developing an auditing standard.

Comments on ED NZASB 2016-6

The implementation period could be reduced, and instead remove the requirement for

comparatives in the first year of adoption.

A smooth implementation period could be assisted by the formation of reference groups. The

reference groups could provide guidance on how to prepare a framework that allows for the

reporting of appropriate and relevant service performance information.

When developing Service Performance Reporting Standard, need to consider the impact on

Tier 3 and Tier 4, because they may use the standard as guidance.

Discussion on comparatives, reporting year-on-year comparatives will drive a short term focus

which may not be appropriate for service performance information. Standard should provide

flexibility for other periods to be reported.

Outputs could change yearly, therefore the reporting of trends in regard to impacts and

outcomes could be more useful than reporting comparatives.

The service performance reporting standard should allow enough flexibility to enable an entity

to “tell the story” – have we met our strategic objectives?

Examples are useful. However they would need to be quite broad.

Service Performance Reporting Standard cannot be too prescriptive, balancing act.

Implementation issues are expected both from an accounting and audit perspective.

The practice of developing service performance reporting in the not-for-profit sector is not

well developed – new thinking.

The most important aspect of service performance reporting is a PBE explaining what it has

done with the funding it has received (i.e. reporting of outputs). Desired outcomes can be

useful, but impacts can become less useful. For example, for a charity with an objective of

providing services to the poor, the impact of providing services to the poor is not important

because there will always be a sector of the community that needs help – what is important is

the services that are provided.

There is a difference between the public sector and not-for-profit entities when developing

outcome frameworks. Public sector entities are often focused on what they planned to do

(typically established in the Statement of Intent) and then on what they have done. Not-for-

profit entities will often start with developing an understanding of the desired outcomes (their

objectives), then deliver some outputs to achieve those outcomes, and sometimes there will

be an observable impact.

Will the service performance reporting standard be flexible enough to accommodate agencies

(that are separate reporting entities) which work together to achieve the same outcomes?

Agenda Item 7.1

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Comments based on consideration of not-for-profit preparers:

o Concerns with language and terminology e.g. outcomes and impacts mean the same

thing to many people;

o Requires removal of standard-setter jargon;

o What are meaningful measures?

o Should not be the accountants who determine performance indicators. Instead these

should be established at a governance level.

Discussion on the diagram of Dimensions of Service Performance: a number of members

commented that it made sense for the development of desired outcomes to come first.

Alternative approach to service performance reporting is a balanced scorecard to consider

service performance reporting from 4 dimensions.

Many not-for-profit entities are already doing this type [service performance reporting] of

reporting, but are currently unclear as to what information they should report.

Staff notes of comments from XRAP Members (audit considerations)

The approach taken by auditors in regard to service performance information, will often drive

what service performance information is reported.

Outputs are fairly easy to audit, however auditing the impacts of outputs on outcomes could

prove to be difficult.

Discussion on whether auditors should be required to provide an opinion on the

appropriateness and relevance of service performance information reported.

o Will auditors have the expertise and skill base to comment on an entity’s service

performance information?

o Will auditors have the expertise to form a view on the suitability of an entity’s service

performance framework applied?

o Auditors will need to have a very different skill set to financial reporting expertise.

o If auditors start to question the suitability of service performance information reported,

the auditors are effectively challenging the entity’s views of its own purpose.

o Users of financial statements will be seeking confidence from the auditors that service

performance information provided is appropriate and relevant.

o Viewed by some, the provision of assurance over the appropriateness of service

performance information will too hard.

o The audit report will require disclosure of how the service performance information has

been audited.

Important that responsibility for development of an entity’s service performance framework is

at the governance level.

Assurance difficulties anticipated given the proposed principle-based approach to developing

a service performance standard, compared to general accounting standards which are viewed

as being highly prescriptive.

Agenda Item 7.2

Page 1 of 64

ED NZASB 2016-6 Service Performance Reporting – Respondents’ Comments by ITC Question

This document sets out respondents’ comments on ED NZASB 2016-6, organised by ITC question.

The tables in this document show how the responses have been classified.

The classifications used for the 10 questions in the ITC are:

A. Agree

B Partially agree

C Disagree

– No response

Submissions were received from the following respondents.


R1 Habitat for Humanity NZ Registered Charity 7.3.1.

R2 The Treasury Public Sector 7.3.2.

R3 Parliamentary Service Public Sector 7.3.3

R4 Ministry for the Environment Public Sector 7.3.4

R5 BDO CA Firm 7.3.5

R6 Institute of Directors Member Body 7.3.6

R7 CA ANZ Member Body 7.3.7

R8 Dr Rodney Dormer Academic 7.3.8

R9 Cherrie Yang and Rowena Sinclair Academic (NFP) 7.3.9

R10 Commerce Commission and Electricity

Authority (joint submission)

Public Sector 7.3.10

R11 OAG and Audit NZ (joint submission) Public Sector 7.3.11

R12 RSM CA Firm 7.3.12

R13 EY CA Firm 7.3.13

R14 The Salvation Army Registered Charity 7.3.14

R15 Auckland Council Public Sector 7.3.15

R16 Foundation North Registered Charity 7.3.16

R17 Megan Thomas NFP 7.3.17

R18 HuiE! Community Aotearoa NFP 7.3.18

If you would prefer to read each submission in its entirety, copies are available in the supporting

Board papers (see agenda items 7.3.1 to 7.3.18).

Agenda Item 7.2

Page 2 of 64

R# Overall comments

R1 –

R2 We thank the NZASB for releasing this Exposure Draft (ED) on Service Performance

Reporting. The Treasury is submitting on this ED given the close relationship between the

ED and our Stewardship role with regard to the Public Finance Act 1989 (PFA) and Crown

Entities Act 2004 (CEA), which set out the legislative requirements for reporting service

performance information for the public sector public benefit entities in central government.

Treasury’s role also includes, in conjunction with the State Services Commission, supporting

state sector system performance so we have a strong interest in the objective of this ED to

present performance information that is useful for accountability and decision-making

purposes. We note and welcome the objective and dimensions in the ED in broad terms

support more meaningful reporting, which was one of the objectives for the 2013 state

sector reforms captured in changes to the PFA and the CEA.

We believe that this ED, mindful of the feedback below, will further help reinforce the

importance of service performance reporting for public benefit entities as well as provide a

useful framework for improving the quality of this reporting.

However, there is one area that we want the NZASB to amend:

Changing the proposed information to be reported in paragraph 33 of the ED from

the outputs, outcomes and impacts framework.

And there are two areas that we want the NZASB to consider:

Clarifying the scope that where an entity may be legislatively required to report

performance on only some of their services, in such instances this standard applies

only those services, and

Expanding the third dimension of service performance to read: “What impact did the

entity have and how does the entity know it has had this impact?”.

R3 Thank you for the opportunity to comment on the above Exposure Draft (ED). We have

addressed each of the questions for respondents in turn, where they are applicable. Our

understanding is that the ED complements the requirements of the Public Finance Act 1989.

This Act outlines the reporting requirements for departments1. While the Parliamentary

Service (the Service) has reported on non-financial performance information for many

years, the ED helps to clarify the nature and type of service performance reporting

requirements.

1 Although the Parliamentary Service is a non-public service agency, it is classed as a ‘department’ under the

Public Finance Act 1989 and therefore subject to the same reporting requirements as government

departments.

R4 We thank the NZASB for releasing this exposure draft on Service Performance Reporting.

We are making a submission on this draft from the perspective of having to apply the

standard as performance reporting practitioners in a public sector Department.

We are broadly supportive of the intent and direction of the draft, but there are some

points we consider worth raising. We have not sought to respond to every question listed

Agenda Item 7.2

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R# Overall comments

on page 6, instead we have confined ourselves to discussing points most relevant to us.

(answers provided to Questions 4, 7 and 10).

In summary, we consider that:

References to ‘outcomes’, ‘impacts’ and ‘outputs’ should be removed and the

standard aligned with the current terms in the Public Finance Act.

Depending on whether there is an expectation to set performance information prior

to the year, a two-year implementation period may not be adequate. At the very

least, we consider that it would be useful to provide guidance early on in the process

to allow entities to plan and report.

Some consideration should be given to whether performance information should be

set also, as the standard refers to reporting information and not setting it in the first

place.

Thank you for the opportunity to comment on Exposure Draft NZASB 2016-6: Service


R5 –

R6 The Institute of Directors (IoD) appreciates the opportunity to provide comment on the

exposure draft of the PBE Standard on service performance reporting (ED NZASB 2016-6).

The new standard will apply to Tier 1 and Tier 2 public benefit entities (PBEs) in the public

and not-for-profit sectors.

The primary objective of public benefit entities is to provide goods or services for

community or social benefit. It is therefore important for PBEs to monitor and report on

both financial and non-financial performance. This is particularly important for decision-

making and accountability purposes.

The IoD supports the introduction of a reporting standard to provide PBEs with a framework

for service performance reporting. Financial information alone doesn’t tell the whole story

and accurate, timely and meaningful non-financial information is essential for good

governance. It helps enable the board to monitor performance, hold management to

account and make more effective decisions.

Introducing a new performance reporting regime will mean significant change for many

PBEs and it is important that sufficient time and support is provided to enable an effective

transition.

About the Institute of Directors

The IoD is a non-partisan voluntary member organisation committed to raising governance

standards in New Zealand. We represent a diverse membership of about 7,500 members

drawn from NZX-listed corporations, unlisted companies, private companies, small to

medium enterprises, public sector organisations, not-for-profits and charities. Our

chartered membership pathway aims to raise the bar for director professionalism in New

Zealand, including through continuing professional development to support good corporate

governance.

Agenda Item 7.2

Page 4 of 64

General comments

A robust service reporting framework underpins good management and governance in

PBEs. Financial and non-financial performance information is critical for accountability

purposes and should also reflect good practices, including:

defining purpose and clearly setting out strategy and key priorities

linking strategy to operational plans

reporting on the delivery of services and operations

evaluating the effect of services and operations

A particular challenge for PBEs can be balancing short term objectives with long term

outcomes. For example making a difference to environmental outcomes may require an

intergenerational approach such as ensuring we have adequate and safe water for the

future.

Our comments on the new standard focus on:

the proposed scope and application of the standard

time and capability required for effective implementation

the need to take into account any future audit requirements

We also comment on the specific questions in the Invitation to Comment on the ED in the

attached table.

Proposed scope of the new standard

In our response to question 7 in the attached table we query the proposed scope of the

new standard. It is not clear to us why public sector PBEs that don’t have existing legislative

requirements to report service performance information will only be encouraged to comply

when non-public sector not-for-profit PBEs will be required to comply.

Both of these categories do not have current legislative requirements and it seems

inconsistent to require a higher expectation (required vs encouraged) for non-public sector

entities

Time and capability for effective implementation

It is essential that capability in PBEs is developed so that the new reporting regime is

implemented effectively.

There are existing legislative requirements for many public sector entities to report non-

financial information and to have that information audited. It is widely accepted that it has

taken a long time to lift the quality of non-financial performance reporting in the New

Zealand public sector:

There have been statutory requirements for over 25 years for a range of public

entities to report on their non-financial performance. Most of the requirements were

introduced during the late 1980s and refined in the early 2000s.

Following changes in 2004 to the Public Finance Act 1989 and the enactment of the

Crown Entities Act 2004 and the Local Government Act 2002 the Auditor-General

placed more emphasis on the appropriateness of performance reporting when

auditing public entities’ work.

Agenda Item 7.2

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R# Overall comments

In 2008 the Auditor-General reported to Parliament highlighting the ‘poor quality of

non-financial performance reporting’.

Financial reporting is underpinned by professional qualifications and training, but there isn’t

such well-established capability in respect of non-financial reporting.

Introducing the new service performance reporting regime will mean significant change for

many PBEs, particularly in the not-for-profit sector where this will be a new requirement.

Sufficient time and support is needed to raise awareness of the new regime and to build the

internal capability of those who manage organisational performance and prepare

performance reports.

Boards and others charged with responsibility for governance will also need to deepen their

understanding of the new reporting regime to enable them to fulfil their responsibilities

effectively.

There needs to be sufficient time and support for PBEs so that they can transition to the

new reporting regime effectively. (Also see response to Question 7).

We urge the XRB to consider a phased approach (e.g. over 3 to 5 years) to implementing the

new regime and to support the educational needs of PBE report preparers to enable the

effective implementation of the new service performance reporting regime.

Auditing service performance information

We understand that the NZAuASB will introduce a new auditing standard for

auditing/reviewing service performance reporting and we would like to make an advance

comment in respect of this.

The implementation period for the new service performance reporting regime needs to be

considered in light of the planned timeframe for introducing any associated audit or review

requirements.

The Auditor-General implemented a phased approach to the auditing of service

performance of public sector entities. This proved essential as it took many public sector

entities a long time to embed internal systems and capability to be able to reporting

meaningful and appropriate service performance information.

Having a phased approach for this new reporting regime will be particularly important if the

reports are required to be audited – especially as the process of auditing will expose

deficiencies in internal information and control systems. In addition auditors will also need

sufficient time to develop their capability to audit non-financial information.

Conclusion

Performance reporting on financial and non-financial information is important for effective

decision- making and accountability purposes. The IoD supports the XRB ensuring reporting

standards are fit for purpose in New Zealand

The introduction of service reporting requirements will mean significant change for many

PBEs, particularly those outside the public sector. We support a longer and phased

implementation period which includes clear guidance and educational support for PBE

entities.

Agenda Item 7.2

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R# Overall comments

The IoD appreciates the opportunity to make a submission on behalf of its members and we

would be happy to discuss this submission.

R7 We welcome the opportunity to provide feedback on the Exposure Draft (ED). We recognise

the increasing prevalence of, and demand for, service performance reporting and support

the collaborative efforts to establish a framework for such reporting in New Zealand.

We are particularly supportive of the high-level principles-based approach taken to further

develop the quality and quantum of service performance reporting. We consider this

approach will best balance the wide variety of user’s needs with the cost of recording and

presenting service performance information and will help to ensure that service

performance reporting is appropriate to the complexity, size and nature of the entity.

We note the Australian Accounting Standards Board (AASB) is also working on an

accounting standard for reporting service performance information and has been working

closely with the New Zealand Accounting Standards Board in developing the respective EDs.

We encourage trans-Tasman harmonisation, where appropriate, in finalising the

requirements of these standards.

Our submission has regard to the different legislative frameworks that apply to public

benefit entity (PBE) reporting in each country, such as the long standing requirement for

New Zealand public sector entities to report service performance information arising from

the Public Finance Act and the recent amendments to the Charities and the Financial

Reporting Acts, which introduced requirements for smaller not-for-profit (NFP) entities to

report service performance information. As such, we are broadly supportive of the

proposed scope of the standard, however we would like to see this offset by measures to

streamline NFP performance reporting to funding agencies to remove any potential

duplication and to ensure that the compliance cost of these requirements does not exceed

the benefits.

Appendix A provides responses to the specific questions raised in the Invitation to

Comment (ITC). Appendix B provides information about Chartered Accountants Australia

and New Zealand. If you have any questions regarding this submission, please contact Ceri-

Ann Ross (Acting Reporting Leader) via email; [email protected].

R8 –

R9 Thank you for the opportunity to comment on the Exposure Draft NZASB 2016-6 Service

Performance Reporting (the ED) for application to Tier 1 and Tier 2 public benefit entities.

Overall, we are supportive of the New Zealand Accounting Standard Board (NZASB)’s

proposed requirements on service performance reporting in the ED.

In the pages that follow, we firstly articulate our concerns regarding some of the

terminologies used in the ED, and secondly provide answers to the specific questions asked

in the ED. Please note that our comments focus specifically on Tier 1 and Tier 2 Not-for-

Profit (NFP) Public Benefit Entities (PBEs), rather than public sector PBEs.

mailto:[email protected]

Agenda Item 7.2

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R# Overall comments

The views expressed in this submission are our own personal views and do not necessarily

reflect the views of Auckland University of Technology, or one of the author’s membership

on the New Zealand Auditing and Assurance Standards Board.

Should you wish to discuss any matter below, please do not hesitate to contact either one

of us.

General Comments:

The ED is a timely piece of work for Tier 1 and Tier 2 NFP PBEs. In order to improve the

quality of the proposed standard, as well as answering the specific questions, we firstly

analyse the inconsistent and at times unclear use of terminology in the ED.

Terminologies used in the Exposure Draft

The ED includes some unclear terminologies, including (a) impacts, (b) outcomes, (c)

achievements, and (d) performance indicators. These terminologies could provide

difficulties for the NFP PBEs in understanding what the required information is. To avoid

such confusion, terminologies need to be:

1) defined very clearly in the ED paragraph 24 (Definitions); and

2) able to be distinguished from each other.

The following provides some examples of the possible confusion caused by inconsistent use

of terminologies in the ED. To provide support where relevant we have used appropriate

extant NFP research.

(a) Impacts

The term ‘impacts’ is used as a key reporting requirement in the ED, as evident in several

places for example, paragraphs 2, 10 (c), 13, 16, 18, 19, 20, 33(c), 42, 43(c), 44, 45, 63.

However, the definition for such an important term is not provided. It is interesting to note

that ‘impacts’ are used to define ‘outcomes’ in paragraph 24. While outcomes and impacts

have commonalities in meanings, they cannot be used interchangeably as impacts focus on

the long term, with deeper changes that have resulted from service delivery of NFP PBEs. In

order to understand the impacts of a NFP PBE, the causal relationships between the inputs,

processes, outputs, and outcomes must be provided.

(b) Outcomes

As identified in paragraph 24 of the ED, the term ‘outcomes’ is defined as "the impacts on

society or segments of society as a result of the entity’s outputs and operations”. This

definition is abstract and does not demonstrate the benefits or changes that have occurred

as a result of a program. It is crucial to provide a context for NFP PBEs in relating to their

own services. Thus, we recommend that the NZASB consider the definition of outcomes in

the NFP academic literature, as outlined in the following:

Outcomes are benefits or changes for beneficiaries “during or after their involvement with a

program” (Hatry, Houten, Plantz, & Taylor, 1996, p. 2), which focus on any changes in the

knowledge, attitudes, values, skills, behaviours, condition, or status of the beneficiaries

(Plantz, Greenway, & Hendricks, 1997). 3

Agenda Item 7.2

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R# Overall comments

This definition was used in Yang (2015)’s PhD thesis that investigated New Zealand charities’

performance measurement and reporting practices, and the extent to which such practices

meet the information needs of key stakeholders, including regulators and funders. As a key

non-financial performance information, outcome information is important in discharging

charity accountability. The definition helps to distinguish information on outcomes from

other types of performance information required by the key stakeholders, and is disclosed

by charities in New Zealand.

We believe using the term outcomes to explain paragraph 10(b) “why did the entity do it?”

is inappropriate. The reason a NFP PBE exists or is established is more likely due to its

unique values-driven motive or intention that arises from religious, social or ecological

purposes, which is presented in the form of its mission and objectives (Kreander, Beattie, &

McPhail, 2009). The term ‘mission’ represents the general intentions of NFPs, as it links the

“presumably deeply held promises and the conduct of those representing the non-profit”

(Lawry, 1995, p. 14). On the other hand, the term ‘objectives’ is “the more specific

intentions of the period concerned” (Dhanani, 2009, p. 186). Apart from the specific and

time-bound criteria, the objectives also need to be measurable, achievable and realistic

(Connolly & Hyndman, 2013). Hence, the terms mission and objectives are more

appropriate to explain the question ‘why did the entity do it?’

While it has been 20 years since the first publication of a performance framework in the

United Way of America’s manual (Hatry et al., 1996), it discussed extensively whether NFPs

use resources efficiently and effectively to deliver services to their beneficiaries (service

recipients). The terms ‘efficiency’ and ‘effectiveness’ are mentioned in the ED (e.g.

paragraph 51) but not defined. However, there is a lack of a Service Performance

Framework to guide the assessment of NFPs’ efficiency and effectiveness, as well as the

disclosure of service performance information.

Figure 1: Service Performance Framework – adapted from Hatry, Houten, Plantz and Taylor

(1996)

As demonstrated in Figure 1 above, efficiency highlights a relationship between processes

and outputs, indicating the amount of input per unit of output (Connolly & Hyndman,

2004). Efficiency also aims to reduce cost, time or effort to maintain the same level of

service (Sargeant, Jay, & Lee, 2006). Effectiveness considers whether the units of outputs

produced are the right outputs (Schmaedick, 1993), and assesses the degree to which the

missions and objectives are being met (Connolly & Hyndman, 2004). Hence, we suggest the

Service Performance Reporting comprises:

first, the information on what a NFP PBE is trying to achieve – its mission and

objectives; and

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R# Overall comments

second, the information on what it has achieved in terms of outputs, outcomes and

impacts identified in Figure 1.

We also suggest the NZASB replaces the terms ‘intermediate outcomes’ identified in

paragraphs 11, 42, and 43 (b) with ‘outcomes’, and ‘ultimate outcomes’ mentioned in

paragraphs 11 and 42 with ‘impacts’. This ensures the consistency of terminologies and

avoids introducing new terms.

(c) Achievements

Moreover, the ED also uses the term ‘achievements’, as evident in paragraphs 32, 46 and

60. Again what are considered as achievements of NFPs? Do achievements mean outputs,

outcomes, impacts? A combination of all, or any of them? Similar to the earlier comments,

a clear definition needs to be provided.

(d) Performance indicators

The term ‘performance indicators’ is defined in paragraph 24 and is explained respectively

in paragraph 36 for outputs, and paragraph 43 for outcomes. Also paragraphs 45-51

provide contextualize meanings of performance indicators in detail. However, the confusing

term “measurement of performance indicators” is outlined in paragraph 62(d). The

performance indicators are measures of performance. It is thus inappropriate to use the

word ‘measurement’ repetitively in this case.

As indicated in paragraph 50, ‘performance indicators should have an “external focus”.

Outputs are provided by an entity to recipients external to the entity. Therefore,

performance indicators should not focus on internal activities or internal processes, plans or

policies’.

We agree with the above argument regarding the external focused role of performance

indicators. However, we could not see how the external focus can be separable from the

internal activities, processes, plans and policies. The key role of performance indicators is to

quantify the efficiency and effectiveness of NFPs’ service delivery methods (Fine & Snyder,

1999), and to ensure NFPs are accountable for the use of public money (Osborne, Bovaird,

Martin, Tricker, & Waterston, 1995).

Also we suggest the NZASB uses the terms ‘output measures’, ‘outcome measures’ and/or

‘outcome descriptions’ to be key performance indicators. These are the common terms

used in the NFP literature and also they closely relate to the service performance NFP PBEs

need to measure and disclose, as identified in Figure 1.

The “quantitative measures”, as indicated in paragraph 46(a), are recommended to be

changed to ‘output measures’ that measure the outputs of a NFP PBE. Connolly and

Hyndman (2013) identified that output measures are the most important information type

sought by funders, and the ratio of outputs to inputs, or the amount of input per unit of

output (such as cost per child fed), is used to measure the efficiency of charities. Hence,

while output measures quantify the outputs produced to service recipients external to NFP

PBEs, they still focus on the internal activities or processes.

The “qualitative measures” and “qualitative descriptions”, as identified in paragraphs 46(b)

and 46(c), are recommended to be changed as ‘outcome measures’ and ‘outcome

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R# Overall comments

descriptions’. Sowa, Selden and Sandfort (2004) suggest that outcome measures are

important to assess the effectiveness of NFPs’ performance. The capacity of an NFP is

measured by its internal ability to enact a specific task to implement institutional

expectations or to change existing practices (Barman & MacIndoe, 2012). As such, outcome

measures and descriptions investigate the structure and process within the NFPs and how

the organizations operate.

Therefore, we argue that performance indicators should have both external and internal

focus. It is inappropriate to only focus on one aspect.

R10 Thank you for the opportunity to submit comments on Exposure Draft (ED) 2016-6: Service


As independent Crown entities the Commerce Commission and Electricity Authority are

subject to legislative requirements around performance reporting under the Crown Entities

Act 2004 (amended 2013). We welcome the efforts by the External Reporting Board (XRB)

to put in place a practical and useful standard to increase the quality of performance

reporting.

We think this will be particularly useful for those entities that are at the beginning of their

performance measurement journey, for example public benefit agencies without existing

legislative requirements. For those entities with existing legislative requirements, such as

the Commission and the Authority, XRB needs to take care that the proposed Standard does

not conflict with the intent and requirements of this legislation.

In particular, the Crown Entities Act was amended in 2013 to support more meaningful

performance reporting by providing more flexibility for entities to choose the most

appropriate method of reporting on performance on their work. We have utilised these

changes to improve the way we report on our performance so that it is more meaningful for

our staff and stakeholders. The proposed standard, particularly around paragraph 33 of the

ED, would restrict our ability to do this and we urge XRB to consider removing the

requirement to report on the three elements of outputs, impacts and outcomes.

R11 We appreciate the opportunity to comment on Exposure Draft NZASB 2016-6 Service

Performance Reporting (the exposure draft).

We are pleased that the New Zealand Accounting Standards Board (NZASB) has produced

the exposure draft, and is looking to issue a standard on service performance reporting. It is

an important topic in the public sector, and I would like to think that a standard will help to

drive the quality of performance information that is reported.

Although we broadly support the exposure draft, we consider that it is overly prescriptive

by focusing on an outputs, outcomes, and impacts framework. In our view, it should focus

on the principles underpinning service performance reporting, and recognise that there are

a number of different frameworks.

We support the high-level principles identified in the exposure draft for reporting

performance information. But we suggest that the dimensions of service performance be

expressed more generally and that the standard focus on entities providing appropriate,

meaningful information.

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R# Overall comments

In our view, if a principles-based standard is in place, guidance documents or other material

can be developed for particular types of public benefit entities (PBEs). That material would

demonstrate the application of the principles to the circumstances of those types of

entities.

We also think that further clarity is needed regarding the scope of the standard.

Our detailed responses to the Questions for Respondents outlined in the Invitation to

Comment are attached. Please note that our comments primarily focus on PBEs in the

public sector.

Our comments on the exposure draft are a result of collaboration between my staff at Audit

New Zealand and the Office of the Auditor-General.

If you have any questions about our submission, please phone Todd Beardsworth, Assistant

Auditor-General, Accounting and Auditing Policy on 021 244 0727 or email him at

[email protected].

R12 Background context regarding Service Performance Reporting

Our views in this submission have been formed largely from our direct involvement in

assisting clients and other stakeholders individually and in groups in matters relating to

service performance reporting. This has included providing education regarding service

performance reporting via seminars, workshops, and article writing. We have also been

involved in assisting clients with the preparation of service performance reports as well as

providing assurance over early adopters and Tier 3 entities’ performance reports.

Overarching Observations

We strongly agree with the overall aim of requiring entity and service performance

reporting and applaud the New Zealand developments in this area. Our view is that a more

holistic level of performance reporting that this initiative will engender should be a very

positive development for stakeholders seeking information about PBEs in New Zealand, and

more generally for New Zealand society.

We believe service performance reporting should provide much more useful information

for stakeholders and decision makers who in most cases do not have the power to require

such information. Due to the service objectives of most PBEs we believe the information

required by service performance reporting is generally much more important for assessing

an entity’s overall performance than just the financial statements.

We also note the strong parallels with the international movement towards requiring

integrated reporting. As such, with the legislative requirement already in place in New

Zealand for entity information and service performance reporting applying to some PBEs,

we believe New Zealand has the opportunity to be an international leader and role model in

this area.

However, while we see this as a significant opportunity to improve reporting in New

Zealand for PBEs, we also do not underestimate the challenge that this new requirement

will impose of some entities. From our experience with assisting clients to date we have

found vastly different levels of ability, and desire, to provide service performance reporting.

This is in terms of buy-in to the concept at the governance level, understanding the

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R# Overall comments

technical requirements, resource and capacity constraints within organisations, as well as

whether the type of activities of the specific PBE lend themselves to ease of service

performance reporting (e.g. where outputs and outcomes are not easily definable).

We have also already experienced first-hand the difficult situation auditors can be placed in

when they are having to educate clients about the requirement for service performance

reporting where client and/or their external accountant’s awareness and knowledge is sadly

lacking. We are also aware of some auditors very concerned about this new requirement.

Accordingly, we support all efforts in raising awareness and promoting education for

preparers and auditors. It is important that these initiatives also target governing bodies as

their early engagement and buy-in to the concept is critical in ensuring that meaningful

information is produced and reported. We have been urging philanthropic funders who we

are in contact with to assist in this area in relation to assisting preparers, as good quality

service performance reporting is in their best interests as well as being positive for the

wider community.

As regards auditors we believe it is important that they are given the tools and educated to

assist their clients, and especially so as not to squash this early stage initiative with a rigid

overly strict compliance attitude. Specifically, we see the scenario that a plethora of

qualified audit opinions, a possible outcome of risk adverse auditors, would likely be very

detrimental to this emerging area.

Hence we suggest considerable care needs to be taken to strike an appropriate balance

between requiring achievable information and not making this so hard to produce and audit

that it causes bad-will and negates the positive intention. Failure for this new reporting to

be embraced positively by the sector will result in information of much less use to wider

stakeholders.

R13 We are pleased to comment on the proposals set out in the NZASB Invitation to Comment

Exposure Draft NZASB 2016-6: Service Performance Reporting (ED).

EY is supportive of the NZASB’s project to establish a specific standard for reporting service

performance. The final standard will provide Public Benefit Entities (PBEs) with a

framework for reporting non-financial information, aligning reporting with their primary

objective to provide goods or services for a community or social benefit. We believe the

proposals will improve accountability to users of financial statements as well as enhancing

decision making within an organisation. EY also believes the proposals will improve

consistency between entities with similar activities and between reporting periods.

We have provided responses to the specific questions below. However, our key concern

with the proposals relate to the application of the requirements to not-for-profit entities

and ensuring there is an appropriate balance between cost of implementation and the

benefits. The NZASB acknowledges the expected increased cost for some not-for-profit

organisations and we agree with this concern. In particular, smaller entities are likely to

incur a significant burden relative to their funding levels.

The ED requires all Tier 1 and Tier 2 not-for-profit entities to report information as outlined

in para 33 of the ED (subject to the qualitative characteristics and providing appropriate and

meaningful information). We propose that the NZASB should consider whether the

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R# Overall comments

application of the final standard in the not-for-profit sector should provide a concession for

Tier 2 entities. Specifically we propose a concession from disclosure of the impacts the

entity has had on outcomes (para 33(c)).

Any impacts for Tier 2 entities are likely to be difficult to identify or lack a clear causal link.

In accordance with para 44 of the ED, such disclosure is unlikely to be able to be reported in

the majority of cases, yet a Tier 2 entity will be still required to go through the process of

determining whether or not there is evidence of a link. This seems an unnecessary burden

when the outcome is likely to mean disclosures are not able to be provided. Removing this

burden would go some way towards reducing the cost of application of the proposals for

smaller entities.

Please refer to the Appendix below for responses to the specific questions raised in the

invitation to comment.

We have no other additional comments on ED NZASB 2016-6. Please do not hesitate to

contact us should you have any queries. We also would be happy to meet with you to

discuss our comments further.

R14 The Army supports the NZASB’s desire to issue a standard on service performance reporting

and appreciates its recognition that public benefit entities provide a wide range of services

and goods to a variety of users with differing interests.

Therefore, we appreciate the principles-based approach that the NZASB is proposing to

allow for this divergence in PBE’s and the way they operate.

R15 The responses in this letter were also reviewed and agreed with Auckland Transport, one of

the council controlled organisations.

R16 Summary Comments on the Document

This is an extremely worthwhile undertaking, done well. The Principles outlined in the

document are sound. A minor quibble but perhaps there should some acknowledgment

that there will be times when comparatives in a service report are not meaningful, where

an organisation changes its strategies?

R17 Thank you for the opportunity to comment on the Exposure Draft for Service Performance

Reporting related to Tier 1 and 2 PBE entities. I fully support the need for this standard to

be in place, in particular for NFP entities.

There are some components of the ED that I believe could be improved, this submission is

addressed to these concerns.

The key points I would like to emphasis are as follows:

The focus of service performance reporting should be about giving NFPs the

opportunity to tell their non-financial story alongside the financial story.

Don’t assume you can make a link with this data to the financial data.

This story needs to have some justification/evidence as to why it is credible or the

reason they are focusing their efforts on the activities they are undertaking.

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R# Overall comments

In some instances, organisations will be trying new activities/innovations with no

evidence of its potential outcome. We should not discourage this.

The focus of this evidence or reason for doing an action is talking to the contribution

the organisation believes they are making to an outcomes and not a justification to

the attribution they have made.

It needs to be written in a way that removes the need for auditors to be making

judgements on the accuracy of the theory of change/logic model, their judgement

should be passed on whether any quantifiable performance measurements data

presented is accurately represented.

Some of the current language used feels inconsistent with many outcomes models

which leads to confusion.

Background

Service Performance Reporting is responding to the fact that NFPs’ are not just about their

financial results but are focused on “are we making a difference in line with our core

purpose”. If the question, “did we make a difference” is core to NFPs’ then it makes sense

this is part of their regulatory reporting requirements.

Service Performance Reporting would add most value to users through evolving

understanding of what an organisation has done to help learn and improve the outcomes it

is trying to influence.

This requires service performance reporting to focus on the following:

Story of Impact: telling the story, or drawing the picture, of why we are doing certain

activities because we believe it will contribute to certain outcomes that will

ultimately have the following population or society impact. We believe this because

of the following evidence. We use the following tools (performance indicators) to

measure this impact. Or in the case of new innovations, they may report we are doing

“A” as we believe it might lead to “B” but we have no evidence to support this as it is

a new innovation, we will use methodology XYZ to test whether it does have an

impact.

Reporting on Performance Activity: detailing quantitative and qualitative measures

that were measured in the relevant financial year related to the story of impact. This

should ideally be a mix of outputs and outcomes. Key to note here is it is results that

were measured in the current year. Ideally target figures (or benchmarks) should be

provided as a comparative.

With outcomes there is no guarantee that the outcomes were achieved thanks to the

outputs delivered in the current financial year, or in fact, by a particular organisation. They

may be attributable to work undertaken over a period of five years or due to an external

factor changing and influencing the result. The focus would be on contribution your work

has made to the impact you are seeking to achieve over time (not a financial reporting

period). This will mean moving from a perspective that understanding on the financial

information can be enhanced through the non-financial service performance reporting.

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R# Overall comments

The challenge associated with outcome reporting is linked to the complexity of the system

being measured. In the social and environmental context, we rarely see a “simple system”,

one in which we can draw a linear process that suggest doing A leads to B which will lead

to C.

What we are faced with are complex systems with many different layers of relationships

and dynamics. Tracing the path of causality becomes extremely difficult.

In developing a standard that is fit for purpose for the varying types of activities the PBE

sector is undertaking, we need to develop a reporting system that is of equal value for

complex systems as simple systems.

Many traditional evaluation systems have struggled with establishing attribution. It can be a

costly and lengthy process. As a result, we are seeing a move towards understanding,

adapting and improving outcomes rather than focusing on measuring and attributing

outcomes.

We need to ensure the Service Performance Reporting requirements do not lead us down a

path of little value to the end recipients of services. If Service Performance was to focus on

measurements and attribution incredible effort and expense could be expended, simply for

compliance. Despite efforts in proving causality, under a complex system the reported

result may always be questionable.

R18 We write to endorse Megan’s comments on the Exposure Draft for Service Performance

Reporting related to Tier 1 and 2 PBE entities. We fully support her statement of the need

for this standard to be in place, in particular for NFP entities.

Like Megan, we believe there are some components of the ED that could be improved, and

her submission details those areas.

We particularly support, and ask that XRB make changes in response to, Megan’s comments

about the difficulties of attribution and of measuring “impact” in New Zealand’s increasingly

complex society. This difficulty is particularly present in social services, charitable work, and

public benefit entities. See page 1 of Megan’s submission and also her specific response to

Question 1, on pages 2-3. We support the alternative lens Megan offers, which is more in

keeping with common languaging in the sector.

We appreciate the track record XRB has, in taking on board comments from this sector

about successive exposure drafts, and we urge you to continue that with the contribution

you have received through Megan Thomas.

Agenda Item 7.2

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ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by question

Question 1

Do you agree that the dimensions of service performance in the ED are a useful way of identifying

the information to be reported by public benefit entities? If not, why not?

Category (C#) Total

A – Agree (R1, R3, R5, R6, R8, R12, R13, R14, R15, R16) 10

B – Partially agree (R9, R10, R11, R17, R18) 2

C – Disagree (R2, R7) 5

Total of those providing comments 17

R # C # Responses to Question 1 (Dimensions)

R1 A Yes we agree that these are useful.

The difficulty comes in measuring impact that may not be quantitative, or may only

occur over significantly longer than one reporting period. For instance, Habitat for

Humanity has a model whereby we partner with families for a period of up to 10

years. During this time, the qualitative outcomes of home ownership would be

difficult to measure on an annual basis, but only become apparent over the life of the

partnership.

R2 B We agree that the dimensions of service performance in the ED are a useful. In

particular, we support use of a few key, critical questions (such as “what did the

entity do” and “why”) for agencies to address. This approach balances the need for

having standards expectations and requirements (i.e. these questions must be

answered) while retaining the flexibility needed for agencies to determine how best

to answer these questions, mindful of the potentially infinite range of activities that

this standard may cover.

In addition, as we mentioned at one of the NZASB’s Road Trip presentations, many

users of a Service Performance Standard are likely to be non-accountants. So

expressing the requirements in a manner that resonates with a broad audience is

critical if we are to get the focus on improving the quality of the performance story

rather that a focus on complying with an “accounting standard”.

We also note that these dimensions are broadly consistent with the PFA and CEA,

with their focus on “what is intended to be achieved” and “how performance will be

assessed”, as well as the Results Based Accountability framework.

Having said that, we urge the NZASB to consider if the dimensions of service

performance would be more complete if “What impact did the entity have?” was

expanded to include “and how does the entity know it has had an impact (using

performance indicators to support that description where possible)”? This is a further

nudge to encourage the use of supporting information and evidence to explain how

Agenda Item 7.2

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an entity assesses the contribution its activities have made and incorporates the

reference to performance indicators profiled in paragraph 33 (c) of the ED.

Using evidence and external information to verify performance is difficult to do in

some instances, however we consider the ED sufficiently covers this challenge and

how to respond (for example, see paragraphs 42 and 44).

R3 A Yes, we agree that the dimensions of service performance in the ED (What did the

entity do? Why did the entity do it? What impact did the entity have?) are a useful

way of identifying the information to be reported by public benefit entities.

R4 –

R5 A Yes, we agree that the three dimensions of service reporting being outputs,

outcomes and impacts are useful in identifying the information that is to be reported

by public benefit entities.

R6 A Yes, we agree that the following three dimensions of service performance are a

useful and appropriate framework for PBEs to report service performance

information:

1. What the entity does (outputs)

2. Why it does it (the outcomes it is seeking to influence)

3. What impact it had – e.g. the difference it made

However, it is important that:

The framework is not too prescriptive and enables the provision of useful and

relevant information for management and governance purposes and that it

doesn’t become overly compliance focused

There is an appropriate balance between accountability for annual

performance and working towards longer term outcomes.

R7 B While we agree that the dimensions of service performance in the ED are a useful

way of identifying the information to be reported, we consider that entities (and

their professional advisors) may become burdened with complying with the specific

terminology outlined in paragraph 33 of the ED (ie of outputs and performance

indicators, outcomes and a description of the impact) and may potentially lose sight

of the objective of ‘telling their performance story’.

It may be preferable to include the three dimensions of service performance in

paragraph 10 of the ED (“what did the entity do?”, “why did the entity do it?”, and

“what impact did the entity have?”) as a requirement of the standard and to include

the terminology currently outlined in para 33 as explanatory guidance rather than a

black letter requirement. The three dimensions of service performance are readily

understandable and we consider that service performance information prepared

using these as a basis will generate information that meets the accountability and

decision making needs of users.

We would suggest replacing “what impact did the entity have?” with “how did the

entity know it has had an impact?” We consider this change would help to articulate

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the need for preparers to use an evidence base to demonstrate their impact. This is

turn should improve the auditability of performance information.

R8 A Yes. The suggestions are useful for general purpose financial (or more accurately and

broadly, ‘accounting’) reports.

Paragraph 8

Although in terms of an entity’s ability to report on these dimensions recognition

should also be provided to the differing nature of the various functions undertaken

by public benefit entities. Thus, for example, the ability to identify and report the

outputs and impacts of client facing functions such as those of Work and Income, will

be quite different from that of its policy functions. Thus it is suggested that the

second sentence of paragraph 8 could be reworded as follows:

For example, the nature of an entity’s accountability for service performance may be

influenced by legislation, the nature of its functions, the extent to which an entity

can influence outcomes, and the nature of agreements between funders and an

entity or between an entity and other entities that it uses to deliver goods and

services.

It should also be recognised that the nature and purpose of general purpose financial

reports of public sector public benefit entities is different from those of for-profit

entities. Thus the suggestion in paragraph 9 (b) of the introduction to the Exposure

Draft that such reports “are intended to meet the needs of users that cannot

demand the information they require” is not entirely appropriate given the role of

the Official Information Act 1982.

R9 C No: We do not agree with using the term “dimensions” of service performance as

consider “framework” would better reflect the need for PBEs to develop a

framework based on their mission and objectives (refer earlier Terminology (b)). A

Service Performance Framework will act as the structure and foundation to support

the measurement and disclosure of an organisation’s mission and objectives,

outputs, outcomes, and impacts. Also it is important for NFP PBEs to understand the

difference between efficiency and effectiveness of their service performance, so that

they can provide appropriate service performance reporting.

R10 C We do not think that the three dimensions of service performance in the ED are a

useful way of identifying the information to be reported by public benefit entities.

The primary reason for this is the different nature of entities performance and the

many situations in which it would not be appropriate for these three dimensions to

be reported on, as noted in the ED itself. This could be either through entities not

having enough evidence of the dimensions or attribution to outcomes or because

these dimensions are not the best way to provide a useful story of the entity, e.g, it

may be may be more usefully told through the entities objectives or priorities for the

year.

This is apparent in the reforms of the Crown Entities Act in 2013 which loosened the

requirements to provide information on “specific impacts, outcomes or objectives”

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while still requiring information on “What is intended to be achieved” and “How

performance will be assessed”. This allows a high-level, broader interpretation of the

information to be reported on while still ensuring that information on what the

entity is aiming to do is provided as well as details of how this will be assessed.

Some organisations might find explanation and examples of the terms outcome,

impact and output useful as part of guidance. However, they should not be required

terminology in the Standard.

R11 C No, we do not agree with the dimensions of service performance. In our view, there

are a number of problems with the stated dimensions.

The three dimensions do not represent three different elements of performance

The three dimensions proposed do not represent three different elements of

performance. The first dimension “what did the entity do” (i.e. outputs, often

referred to as the goods and services produced and delivered to third parties) is a

separate element. However, the second and third dimensions “why did the entity do

it” (outcomes) and “what impact did the entity have” are essentially the same

element of performance. Impacts simply refers to first-order outcomes (a view

supported by the ED’s definition of outcomes).

The difference between outcome and impacts does not signify different performance

dimensions; the difference is that of “before” and “after”. “Why did the entity do it”

refers to the effect of service delivery from an ex ante perspective, while “what

impact did the entity have” refers to the effect of service delivery from an ex post

perspective.

Performance reporting is broader than outputs and outcomes/ impacts

More importantly, we consider that confining the dimensions of performance to

outputs and outcomes/impacts would not achieve the goals the reporting standard

needs to achieve.

In our view, a reporting standard for service performance should not only help

improve the discipline of performance reporting but also should help lead the way to

better and richer performance reporting.

Current developments in service performance reporting are towards a more

comprehensive framework for reporting for accountability purposes. This is evident

in the private sector in moves towards integrated reporting, where the elements of

resources (capitals), inputs, and processes are wrapped around the more

conventional reporting on outputs and outcomes. Integrated reporting identifies the

effect of the production process on the capitals as one aspect of outcomes to be

reported (along with the effect on customers and the effect on shareholders). In this

way, it seeks to identify how value is added throughout the process in which goods

and services are generated.

A broader approach to performance reporting is also evident in the public sector.

This can be seen in the flexibility provided by the state sector public finance reforms

(specifically changes to the Public Finance Act 1989), as well as an evolving

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requirement for asset-intensive agencies to report on asset performance (one of the

“capitals” identified in the integrated reporting framework).

In our view, the reporting standard needs to not only accommodate current

legislation and evolving practice, it should embrace and support them.

The challenge is, how the Standard encourages rich and diverse performance

reporting without imposing onerous, voluminous, or narrow and restrictive

measurement and disclosure requirements?

The Standard needs to clearly distinguish between service performance information

and service performance indicators that need to be reported

We agree with the principle that service performance information (along with the

financial statements) should enable users to make assessments of the entity’s

performance. However, assessment of service performance cannot be achieved in an

information vacuum. Users cannot properly assess entity performance solely by

examining selected performance indicators. Those users need to understand the

entity’s environment, strategy, value proposition, and business model to make sense

of the performance indicators. Essentially, users need to understand the entity’s

business model or “performance framework”.

In our view, the reporting standard needs to require reporting entities to provide a

sufficient amount of information to explain or illustrate their performance

frameworks. The reported frameworks should be flexible to provide users context by

which to assess performance.

All entities produce or provide something (a good or service) and do it for a reason.

At the very least, all entities should be required to explain what they provide and

why. But we do not think that necessarily means the Standard should require

performance indicators for, or restrict performance indicators to, these elements.

We think that in mandating the content of service performance reports, the standard

should balance the need of entities to have flexibility in terms of describing their

performance frameworks, with a non-prescriptive or non-restrictive approach to

reporting performance indicators for external accountability purposes.

We recommend that the reporting standard require the following:

(a) Information for understanding

The standard should require sufficient information to be provided to enable the user

to understand why the entity exists, what it intends to achieve, and how it goes

about achieving its objectives.

This information should draw together any or all of the dimensions (or elements) of

performance necessary to explain to the user how the entity operates and which

aspects of its performance are of greatest importance to the entity and its

stakeholders. It may include, but should not be restricted to, information on outputs

and outcomes/impacts.

The information provided should be as flexible (broad or narrow, comprehensive or

succinct) as needed to provide context for the performance indicators. It should

Agenda Item 7.2

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allow the reporting entity to describe its business and express a performance

framework that it considers most appropriate to its business model.

At the very least, we would expect entities to describe or explain what they provide

and why.

(b) Performance indicators for assessment

The standard should require the performance report to provide performance

indicators to enable the user to assess what the entity has achieved and whether it

achieved what it intended. Performance “indicators” need to meet the qualitative

characteristics.

The standard needs to recognise the increasing flexibility in the way entities report.

For example, entities may report their performance using case studies as well as with

more traditional performance measures.

To be understandable, the Standard should avoid technical language

We appreciate the difficulty in arriving at language that is suitable to all readers. For

example, the terms input, output, and outcome are long-standing conventional

terms used in economic and accounting settings and are understood by some people.

However, even within the public sector, different sub-sectors use different

terminology, partly because of differing language within legislation.

More importantly, the constituency for this reporting standard is wide and varied

and includes not only public sector entities but also not-for-profit entities in the

private sector.

Therefore we think the Standard would be more “user-friendly” if it were to adopt

common language as much as possible, with only passing reference to the

corresponding technical terms, rather than the other way around. For example, the

Standard could refer to:

• Goods and services (also known as products or outputs)

• The “effects” of providing goods or services (also known as outcomes or

impacts)

• Resources (also known as capitals or inputs)

• Business activities (also known as production processes, which are to be

distinguished from administrative process).

R12 A We agree that the dimensions of service performance in the ED are a useful way of

identifying the information to be reported.

We find the dimensions reasonably easily understood by users and hence wonder if it

is not preferable to incorporate these into the definitions of the terms inputs,

outputs & outcomes in the standard.

We do however foresee some potential complications for some entities especially as

regards attribution for their impact. i.e. measuring and claiming responsibility for

outcomes when for example a number of different social service agencies may be

involved in addressing a particular social service need.

Agenda Item 7.2

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We find it unusual that the term “impact” is not defined yet appears to be a key

concept. Additionally, we note the potential for confusion in that the definition of an

outcome uses the term “the impacts on society…”

From practical experience we have found it very difficult to explain the distinction

between outcomes and impacts to clients. Accordingly, if impact reporting is

continued to be required then we think that there needs to be clearer definitions,

and there should be further guidance regarding distinguishing between the two

different concepts.

This raises the question of whether there should only be two dimensions being

outputs and outcomes, albeit we appreciate this is a fairly significant change. We

note this is the case with the Tier 3 reporting requirements.

There is also a subtle, but important, distinction between impacts that an entity

“influences” rather than “controls”. Further elaboration or guidance regarding

reporting on this may be of assistance.

R13 A Yes, we agree that the dimensions of service performance in the ED are a useful way

of identify the information to be reported. The dimensions are well established in

the public sector and are often used in the not-for-profit space for those that have

voluntarily disclosed performance reporting information. Therefore, we believe the

terms are well understood and provide a robust basis for determining the

information to be reported.

R14 A Yes, we agree that the proposed dimensions are useful in identifying the information

to be reported and appreciate the acknowledgement that it may not always be

possible to report on all three of these dimensions.

R15 A Auckland Council Group, a local government, is required to include information in its

annual report based on the Local Government Act 2002 (LGA 2002). The LGA 2002

outlines information to be included in the annual reports (Part 3 of Schedule 10). The

information required is more onerous and detailed when compared to the

requirements of the proposed “Service Performance Reporting” standard.

The LGA 2002 uses terminology such as community outcomes, groups of activities

and statement of service provision that requires performance measures for groups of

activities. The LGA 2002 states that the performance measures will enable the public

to assess the level of service for major aspects of groups of activities. The proposed

new standard is highlighting different terminology such as the three dimensions

(outputs, outcomes and impacts). We propose to the XRB that guidance is prepared

to link the terminology of the various applicable legislations with this ED, which can

come in a form of a table as a separate guidance of part of this proposed standard.

We also propose that the XRB work with the Office of the Auditor-General (OAG) in

preparing the guidance to link the different terminologies. The OAG has an auditing

standard for service performance reports which provides a list of commonly used

terminologies with the corresponding definition which can be used as a starting

point.

Agenda Item 7.2

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R16 A Yes, paragraph 13 is especially helpful in accepting there will be differences – the

range of organisations in the PBE- universe is very diverse.

R17 C I am concerned with the language being used in the ED. I feel this is inconsistent with

many different outcomes frameworks. The area of particular concern is the use of

the term impact. Impact is normally a term used for the ultimate result or outcomes,

such as a societal level outcome e.g. reduce family violence, decrease crime. Further

the language used here suggests attribution is required to report on outcomes.

Another lens to look at this could be:

Outputs – what we did

Outcomes – the difference we aim to make in our target group

Impact - long-term results (often society/population level change, such as

reduction in crime, decreased rate of diabetes)

Performance indicators are the tools used to measure each of the above.

Another useful framework to consider is the Results Based Accountability (RBA)

framework which all NGOs contracting to government need to review. RBA considers

performance accountability as follows:

Population Accountability: the results (change) we are seeking for a particular

population

Performance Accountability: the results we achieved with the particular group

of people we worked with. Based around three questions: How much did we

do? How well did we do it? Is anyone better off?

Keeping the framing simpler and removing suggestion that proven and evidenced

causal links need to be in place will offer more rather than less to the report.

R18 C R18 endorses the comments made by R17.

Agenda Item 7.2

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ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by

question

Question 2

Do you agree that application of the qualitative characteristics and appropriate balancing of the

pervasive constraints on information will result in appropriate and meaningful service

performance information? If not, please explain why not and identify any alternative proposals.

Category (C#) Total

A – Agree (R2, R3, R5, R6, R7, R8, R9, R10, R11, R12, R13, R14,

R15, R16)

14

B – Partially agree (R17, R18) 2

C – Disagree (R1) 1


R # C # Responses to Question 2 (QCs)

R1 C Not necessarily. It may be that a better outcome would be to directly link the

reporting information to the Mission Statement of the entity – this keeps it at a high

level and would assist users to understand if the mission is achieved.

R2 A We agree that applying the qualitative characteristics will result in appropriate and

meaningful service performance information.

However, while the discussion on the qualitative characteristics is understandably an

abridged version of that is the PBE Conceptual Framework, we consider that there

needs to be more context given regarding the qualitative characteristics. Notably,

that judgements and trade-offs need to be made between the different

characteristics. This could be achieved by including the text below from the PBE

Conceptual Framework:

“Each of the qualitative characteristics is integral to, and works with, the other

characteristics to provide in GPFRs information useful for achieving the objectives of

financial reporting. However, in practice, all qualitative characteristics may not be

fully achieved, and a balance or trade-off between certain of them may be

necessary.”

Or it could be achieved by cross-referencing the standard to the relevant section of

the PBE Conceptual Framework.

On balance we support having the relevant text inserted into the standard (or a

combination of this and cross-referencing, as having a stand-alone standard will help

users in interpreting the requirements, particularly If they do not have ready access

to the PBE Conceptual Framework.

We consider having the trade-off/balance discussion explicitly in the standard

reduces the risk that an entity or auditor interprets that all the qualitative

characteristics must be met at all circumstances.

Agenda Item 7.2

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We also consider that providing comparability against other entities is more difficult

for service performance reporting compared with financial reporting, given the

variety of different activities undertaken by entities. Similarly, comparability over

time will be more challenging where qualitative descriptions are used. It would be

useful either in the ED, or in subsequent guidance, to acknowledge this challenge.

While we support comparability, where possible, care is needed not to focus on

quantitative measures if they do not sufficiently tell the performance story.

R3 A Yes, we agree that the application of the qualitative characteristics and appropriate


meaningful service performance information. The Service applies these

characteristics and constraints when devising appropriate performance indicators.

Any performance measures reported on externally are also subject to independent

scrutiny from Audit New Zealand.

R4 –

R5 A Yes, we agree that the application of the qualitative characteristics and appropriate


meaningful service performance information.

R6 A Yes. The qualitative characteristics of relevance, faithful representation,

understandability, timeliness, comparability and verifiability, help provide context

and meaning so that reported information is useful and reliable.

R7 A We consider that application of the qualitative characteristics and appropriate

balancing of the pervasive constrains on information will result in appropriate and

meaningful service performance information, however we have two specific points to

make in this regard:

• In order to help the proposed standard ‘stand-alone’ it would be useful to refer

readers to the description of each qualitative characteristic from the PBE

Conceptual Framework, or to provide the detailed descriptions within an

appendix to the standard itself;

• It would also be useful to reinforce the need to ‘trade-off’ qualitative

characteristics (ie adding in the following phrase from paragraph 3.4 of the PBE

Conceptual Framework; ‘in practice, all qualitative characteristics may not be

fully achieved, and a balance or trade-off between certain of them may be

necessary’). Reinforcement of the ability to trade-off qualitative characteristics

will assist PBE’s and their auditors in determining whether information should

be included and the degree to which the information needs to be verifiable.

R8 A Yes

R9 A Yes: It is appropriate to ensure that the PBE’s Conceptual Framework issued by the

NZASB (2016, May) should be used as the basis for the qualitative characteristics and

balance of constraints. These should be consistent across all four tiers, not just Tier 1

and Tier 2.

Agenda Item 7.2

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R10 A Yes, these are examples of good practice in performance reporting and are useful

in this context.

R11 A Yes, we agree. These characteristics and constraints are recognised concepts in

the public sector, which we believe have provided a useful framework for

appropriate performance information.

However, in terms of applying the qualitative characteristics in the exposure

draft, we thought it would be useful to highlight to the New Zealand Accounting

Standards Board that some public sector entities choose to report on more than

100 performance measures in their annual reports. Where a public entity chooses

to report on a large number of measures we think it will be challenging to meet

the requirements of paragraph 28(f) ‘verifiability’ for each measure.

We think it would be helpful if the standard was clear about expectations where

such a large number of performance measures are included, particularly for

paragraph 28(f).

R12 A We agree that application of the qualitative characteristics and appropriate

balancing of the pervasive constraints on information, if dutifully considered by

preparers, should result in appropriate and meaningful service performance

information. However practically we appreciate that not all qualitative

characteristics may be achievable in all cases.

R13 A The inclusion of the qualitative characteristics is useful in ensuring a broad,

principles based, standard providing a structured basis for making judgements

around disclosures. We believe including the qualitative characteristics and

pervasive constraints ensures the standard has a robust framework but, given the

broad nature of the disclosures for different entities and sectors, provides enough

scope to enable relevant and useful information to be provided.

R14 A We agree that the application of the qualitative characteristics and appropriate

balancing of the pervasive constraints on information will result in appropriate

and meaningful service performance information.

R15 A We agree that the qualitative characteristics and pervasive constraints should be

applied. In describing what an appropriate and meaningful service performance

information is, consider adding the following characteristics:

1) Influenceable, so we are not measuring metrics that we cannot shift.

2) Appropriate for the audience, so that we don’t, for example, report a

detailed output metric to a group interested in impacts and outcomes.

R16 A In general, yes. There are sometimes instances in the PBE-sector where there are

constraints on obtaining information on “outcomes” but there is a growing

recognition that there is a need to address this, if only to satisfy funders who are

increasingly demanding evidence of social impact.

Agenda Item 7.2

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R17 B In principle weighing these factors up should be part of an organisations

development of their outcomes framework. In many organisations quite different

people may be involved in developing the outcomes framework to those

preparing the financial information. It is unlikely the accounting standard

information would be very accessible, or used, by other staff in the organisation.

Simple every day user guides would be helpful to assist people in interpreting

these criteria.

Two challenges I see with the qualitative characteristics:

Comparability: as mentioned above the data might be measured in a

particular period but caution should be placed on thinking the result is

achieved thanks to activity in the particular reporting period, this could

make comparability difficult and lack meaning. Likewise, one group you are

working with year-on-year could vary greatly in complexity meaning

comparability is challenging.

Verifiability: this is obviously very linked to how well the outcomes can be

audited. Verifiability is important but should not be linked to the concept of

attribution/causal proof (refer above)

R18 B R18 endorses the comments made by R17.

Agenda Item 7.2

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question

Question 3

Do you agree with the use of the term “appropriate and meaningful”? If not, please explain why

not and identify any alternative proposals.

Category (C#) Total

A – Agree (R2, R3, R5, R6, R7, R8, R10, R11, R12, R13, R14, R15,

R16, R17, R18)

15



R # C # Responses to Question 3 (Appropriate and Meaningful)

R1 C “Appropriate and meaningful” could better be defined by linking it directly to the

mission statement of the organisation.

R2 A We agree that the term “appropriate and meaningful” is useful, especially to help

entities to step back and review the detail of their service performance

information to ensure that it is an appropriate selection of information and an

appropriate volume of performance information.

R3 A The use of the term “appropriate and meaningful” when applied to service

performance information is accurate, and we agree with it. This is standard

practice for departments.

R4 –

R5 A We do not have any issues with the use of the words “appropriate and

meaningful”, however it should be emphasised that this should be from the user of

the financial statements point of view, and not only from the point of view of the

entity/preparer.

R6 A Yes. We support PBEs reporting information that is appropriate and meaningful to

the entity.

This is important for the board to be able to effectively monitor performance and

hold management to account. Performance information must be relevant to the

business needs and nature of the entity’s operations. Requirements need to be

flexible to ensure they are meaningful rather than prescriptive.

R7 A We agree with the use of the term ‘appropriate and meaningful’. However, we also

recommend including the word ‘balanced’ to explicitly remind non-accountants

that the information should include negative, as well as positive, service

performance information.

Agenda Item 7.2

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R8 A Yes. While the practical and cost issues of information provision should be

considered, so should the need to provide a comprehensive understanding of an

entity’s operations.

R9 C No: Bringing in an additional term “appropriate and meaningful” that is not in

common use and not defined in the ED’s Definition paragraph 24 will lead to

confusion. It is interesting that in the Invitation to Comment (ITC) paragraph 14 an

explanation is given as to what is “appropriate”, but no explanation is provided for

meaningful. If “appropriate” is kept its meaning must be included in the Definition

paragraph 24.

Given that many (if not most) of the Tier 1 and Tier 2 NFP PBEs could have some

form of assurance it is perhaps useful to look at the auditing terms “appropriate

and sufficient”. These terms are clearly defined within the context of auditing in

International Standard on Auditing (New Zealand) 500 Audit Evidence, for

example:

Paragraph 5 (b) “Appropriateness (of audit evidence) – The measure of the quality

of audit evidence; that is, its relevance and its reliability in providing support for

the conclusions on which the auditor’s opinion is based.”

Whilst this is not relevant for this standard it can provide the basis for a definition

of “appropriate” that ensures the information provided by organisations on their

respective service performance framework has some form of basis that auditors

will be able to audit.

R10 A Yes, this will be useful for entities when assessing whether they have an

appropriate coverage and volume of performance information, without being too

restrictive.

R11 A Yes, we think the term “appropriate and meaningful” is helpful to preparers of

performance information. The term has a common meaning that is likely to be well

understood, without the need for much explanation. We envisage the term being a

helpful touchstone for preparers. As performance information is being prepared,

preparers can ask the question: Is this information both appropriate and

meaningful for all of the users?

R12 A We agree that the use of the term ‘appropriate and meaningful’ is appropriate.

We also think the faithful representation qualitative characteristic is very

important. There is an inherent danger that entities will just seek to disclose

positive information and avoid or ignore reporting any results that may in any way

be negative. We think that in order for service reporting to achieve the aim of a

holistic view of performance that it is important that preparers are reminded of

the need for a complete and neutral view. Failure in this regard could result SSPs

resulting in a sugar coated marketing spin instead of honest holistic reporting of

performance and achievement.

Agenda Item 7.2

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R13 A We agree with identification of a general principle for disclosure of information

based on what is ‘appropriate and meaningful’. Ensuring entities review their

disclosures and ensure they are aligned with the qualitative characteristics, within

the constraints, is important. But having the additional requirement to take a step

back, and ensure the disclosures are appropriate to the particular entity and

meaningful in that they tell the right story, adds another layer of consideration,

which is useful when a standard is not prescriptive in its requirements.

We believe the wording in para 26 of the ED could be made clearer to identify

‘who’ the information should be appropriate and meaningful to. Currently this

paragraph is not specific. Not identifying this as the ‘users’ of the financial

statements could mean that the information provided is appropriate and

meaningful only to the preparer or to one stakeholder and not others, or does not

consider members or recipients of the services. We suggest either the paragraph

is amended to make this clear or there is reference back to paragraphs 2 – 8 of the

ED, which outlines who users are.

R14 A We believe the use of the term “appropriate and meaningful” will result in more

appropriate service performance reporting.

R15 A We support the use of the term “appropriate and meaningful”. However, we note

that an “appropriate and meaningful” report does not always show direct links

between the three dimensions (output, outcomes and impact).

R16 A Yes, this term is intuitively easy to understand.

R17 A Appropriate and meaningful is a good test overall.

R18 A R18 endorses the comments made by R17.

Agenda Item 7.2

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question

Question 4

Do you agree with the proposed information to be reported? If not, please explain why not and

identify any alternative proposals.

Category (C#) Total

A – Agree (R5, R6, R8, R12, R13, R14) 6

B – Partially agree (R15, R16) 2

C – Disagree (R1, R2, R4, R7, R9, R10, R11, R17, R18) 9


R # C # Responses to Question 4 (Information to be Reported)

R1 C Limiting the information to the reporting period only does not take into account

much more complex models like Habitat’s that last for 10 years, where outcomes

are not necessarily matched with financial reporting periods. It would be good to

have multiyear outcomes

R2 C Paragraph 33 states “An entity’s service performance information shall include the

following:

(a) Outputs and performance indicators for outputs;

(b) Outcomes that the entity is seeking to influence and the links between the

entity’s outputs and those outcomes; and

(c) A description of the impact that the entity has had on the outcomes that it is

seeking to influence and performance indictors to support the description.”

We do not agree with the specific requirements in paragraph 33 in relation to

outputs, outcomes and impacts. Rather we consider that agencies should be

required to report on the dimensions: “What did the entity do?”, “Why did the

entity do it?”, and “What impact did the entity have?” (or an amended version of

these as proposed in our response to Question 1).

Outputs, outcomes and impacts provide a lens through which to structure the

performance story to respond to these questions. And they could be provided as

examples for how to respond to the dimensions, but requiring explicit reporting on

outputs, outcomes and impacts (as opposed to the dimensions) in our view could

detract from the intent of the ED.

In our experience requiring reporting on codified labels such as outputs, outcomes

and impacts as a proxy for the dimensions:

Shifts the focus to debating definitions and complying with these labels,

(i.e. is it an impact, an outcome, an intermediate outcome, an intention, an

objective?) rather than telling the performance story required from the

dimensions. This focus on labels and the need for flexibility in how they are

Agenda Item 7.2

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used is evident even in the ED with its discussion on (undefined)

‘intermediate outcomes’.

May not resonate with a particular agency or its stakeholders. Where these

labels don’t resonate with senior leadership teams or are seen as too

inflexible for how they tell their performance story it can result in lack of

ownership and confidence in the reporting, and lead to a compliance

approach in order to meet an accounting standard requirement. For

example, some agencies may have quite a defined role and why they do it

may be prescribed for them. Explaining why they do what they do at the

level of “impacts on society” may not be relevant or meaningful in all

instances.

Reinforcing the unproductive debate that can occur through requiring use of these

labels is the interplay in how outcomes and impacts are referred to in the ED.

Outcomes are defined in paragraph 24 in terms of impacts, impacts and

intermediate outcomes are referred to in the ED but are undefined, while

paragraph 33 requires performance information to include the impact on

outcomes. If these terms, the confusion of these definitions and requirements

needs to be resolved before the Standard is released.

The above points are some of the reasons that the PFA was amended in 2013 to

remove explicit reference to outcomes, objectives and outputs2. In its place was

the requirement to focus on “what is intended to be achieved” and “how

performance will be assessed”.

Reintroducing these terms through the standard would create a confusion between

the legislative requirements, which provides a broader framework (consistent with

the dimensions), and the GAAP requirements.

We urge the NZASB to remove all the codified labels from the standard.

2 Refer to pages 8 and 9 of this paper for the rational for PFA changes. Better Public Services

Paper 5: Amendments to the Public Finance Act 1989.

R3 –

R4 C [Refer to paragraph 33 of the ED]

The draft contains multiple references to ‘outcomes’, ‘impacts’ and ‘outputs’,

terms which were removed from the Public Finance Act in 2013. While the intent of

this reporting is clear, for the sake of consistency and ease of reporting, it seems

reasonable to align the requirements to the approach used in the Act, which is now

less prescriptive.

We note too that paragraphs 18 and 19 refer to ‘impacts’ and ‘intermediate

outcomes’ but these terms do not appear in the definitions list in paragraph 24.

We ask that you make the draft consistent with the Public Finance Act and remove

references to the more prescriptive terms of ‘outcomes’, ‘impacts’, and ‘outputs’.

Should you decide to retain these terms, they should at the very least be very

Agenda Item 7.2

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clearly defined to allow those not familiar with them to more easily apply the

standard.

R5 A We agree that the proposed information to be presented is acceptable, however

we note due to the qualitative nature of Service Performance reporting, this may

result in varying degrees of reporting and usefulness to the readers of the financial

reports.

We do note, however, that providing concise and useful information to users may

be challenging for those organisation that have multiple and diverse service

offerings.

R6 A Yes. Service performance information should be provided for the same reporting

entity and period as the financial statements. Additional information may be

provided where it provides context for reported performance or progress towards

longer term objectives.

The ED proposes that an entity provide information on its outputs, the links

between its outputs and the outcomes it seeks to influence, and its impact on

those outcomes.

However, some entities may not be able to provide information on impacts that

satisfy the qualitative characteristics and the standard needs to allow for this.

R7 C As noted in our response to Question 1 above, we agree with the proposed

dimensions of service performance however we consider that the proposed

information to be reported on in paragraph 33 of the ED (ie of outputs and

performance indicators, outcomes and a description of the impact) may

unnecessarily burden preparers and create a ‘compliance’ framework rather than

focussing preparers attention on ‘telling their performance story’.

Should the NZASB decide it is necessary to retain the specific requirements we

have the following comments:

• We support the concession in paragraph 44 stipulating entities should report

information on impacts only where the entity has evidence about the links

between outputs and outcomes and the information can be measured in a

way that meets the qualitative characteristics and constraints. We consider

this will assist in ensuring the costs to entities in complying with the

requirements of the ED are balanced with the useful of the information

reported.

• We also support the concession to require an entity to report actual service

performance against its planned service performance only where planned

service performance information has been published. We consider this is a

pragmatic approach which is likely to result in entities reporting useful

service performance information, without creating burdensome compliance

costs. We are aware that some NFPs set ‘stretch’ targets and may be

reluctant to report on whether they have achieved these more ambitious

targets.

Agenda Item 7.2

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• We consider it would be useful to include definitions of some of the key

terms used such as ‘impacts’, ‘objectives’ and possibly ‘intermediate

outcomes’ to ensure a consistent interpretation across PBEs.

R8 A Yes, although it should also be emphasised that, whenever possible, that

information should include both financial and non-financial components and, in

particular, volume information.

Thus any meaningful assessment of an agency’s efficiency requires information in

respect of both the cost and quantity of the outputs produced. Similarly, an

assessment of cost effectiveness requires information in respect of both impacts

(or outcomes) and the aggregated costs of related outputs.

R9 C No: As per our earlier section on the confusion of terminologies we consider that:

Paragraph 10(a): an explanation of causal relationships between the inputs,

processes, outputs needed to be provided in terms of “What did the entity

do?”

Paragraph 10(b): the terms of mission and objectives are incorporated into

the ED in terms of “Why did the entity do it?”

Paragraph 10(c): both outcomes and impacts are incorporated into the ED in

terms of “What impact did the entity have?”

Paragraphs 19 and 42: replace “intermediate outcomes” and “ultimate

outcomes” with “outcomes” and “impacts”;

Paragraph 24: This should include all key terms e.g. “appropriate”,

“meaningful”, “mission”, “objectives”, “achievements”, “efficiency”,

“effectiveness”, including separate definitions for “outcome” and “impact”

that do not overlap.

Paragraph 46(a): “Quantitative” measures are replaced by “output”

measures;

Paragraphs 46(b) and 46(c): “Qualitative” measures/descriptions are

replaced by “outcome” measures/descriptions.

R10 C No, we do not agree with the proposed information to be reported as we feel this

is too restrictive. The answer to question one largely applies to here as well. In

addition, we are concerned that the use of the language of outputs, impact and

outcomes will lead to more discussion and debate in house and with auditors

around what the terms mean rather than focusing on the key aspects of

performance that are important to include.

We think XRB would be better focusing on the high level principles that

performance information should cover rather than try to determine specific terms

to be used

R11 C Please refer to our response to question 1 above. Although the standard is

intended to be focused on principles, we consider that its use of the outputs,

outcomes, and impacts framework makes it too prescriptive, such that it doesn’t

Agenda Item 7.2

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work with some of the legislative requirements related to PBEs in the public sector,

or with other performance frameworks.

R12 A We agree with the proposed information to be reported. We do however make the

following observations:

1. We think that there could possibly be more in the definitions section of the

standard.

2. Paragraph 44 is a very important paragraph as regards reporting impacts. In

our work we have already seen a wide variety from some entities easily

being able to report impacts, to others where it is virtually impossible. We

wonder if this concession should not be highlighted more. However, we are

also aware that there is a risk that some entities may see this as a “get out of

jail” card and use this as an excuse to avoid hard thinking as regards impacts.

We do however think the latter risk is much lesser than the former.

3. With our auditors hat on we are concerned that there currently may not be

enough specificity in the standard as regards the requirements for a preparer

to explain the basis of their chosen measures etc. i.e. identifying the output

and outcomes that are appropriate to be reported. The entity needs to be

the one making the decisions around outputs being reported on and linkages

to outcomes and impacts.

Our concern is that auditors should be providing an independent opinion on the

work of a preparer. Their role is narrower than the preparers. Auditors should

ideally follow, and not lead in disclosure, unless the preparer’s disclosure is clearly

deficient. Hence auditors should not have to make new disclosures as regards the

basis for determining which measures to report etc. because it is not clear enough

by the preparer. Accordingly, we are concerned that it should be very clear to the

preparer as to required disclosures.

In our opinion there needs to be a general aim that preparers describe fulsomely

enough in the financial report so that the auditor does not need a huge degree of

volume of information in their audit report.

R13 A Yes, we agree with the proposed information to be reported. We understand the

NZASB’s desire is to ensure the standard is not prescriptive and instead provide

entities with the ability to use judgement around what disclosures are useful to the

users of the financial statements.

However, we are concerned that, taken to the extreme, entities could conclude

that they are not required to make any disclosures based on the qualitative

characteristics and pervasive constraints. Therefore, we suggest the final standard

is clear that paragraphs 25 and 26 are general principles to use when applying the

specific requirements of paragraph 33.

We note that the ED proposes that when determining what to disclose, the nature

of an entity’s accountability for service performance will determine what it should

report on. We believe some examples would be useful to identify the different

Agenda Item 7.2

Page 36 of 64


types of accountability an entity might have and how that might impact what

information is disclosed.

R14 A Yes, we agree with the proposed information to be reported.

R15 B As discussed in our response to question 1, the legislation requires more specific

and detailed information for a public sector entity’s annual report. We found that

the requirements of the proposed standard are more principle based which are

already addressed by the detailed requirements of the legislation. It will be more

helpful for public sector entities with existing legislative requirements if there is a

guidance that aligns the terminologies used in the legislations to that of the

proposed PBE standard (the three dimensions namely; output, outcomes and

impacts).

R16 B Again, yes in general. I do wonder if there should be some ‘allowance’ for the

inclusion of inputs on occasion, especially where funders or purchasers choose

(rightly or wrongly) to fund on this basis. The mental health sector (public and

NGO) works in this fashion.

R17 C Refer earlier. Particular concerns around reporting and evidencing links between outputs and outcomes as this suggests attribution and also concerned with the language of impacts. The following table gives a summary of the information I believe should be reported. Story of Impact Describe the difference you are seeking to achieve, the activities you will undertake to lead to this difference and why you believe these activities will lead to the resulting outcomes. Can include any outcomes frameworks/theory of change you work with. Also could include any population level indicators you are working towards and trends/changes in this results. Outcomes/Outputs Performance Indicator Target Actual # workshops Count number. of XYZ workshops

held in year 20

Satisfaction workshop Survey conclusion of workshop, ranking % satisfied/highly satisfied with overall workshop

90%

Application of what learnt everyday

6 months following workshop survey participants’ response “Overall how would you say the workshop contributed positively to your current practice.” % Respondents significant, very significant.

75%


Agenda Item 7.2

Page 37 of 64


question

Question 5

Do you agree that cross referencing to information outside of the service performance section of

the general purpose financial reports should be permitted? If not, why not?

Category (C#) Total

A – Agree (R1, R2, R3, R5, R6, R7, R8, R9, R11, R12, R13, R14, R15,

R16, R17, R18)

16

C – Disagree (R10) 1


R # C # Responses to Question 5 (Cross-referencing)

R1 A Yes, if there is a direct relationship between the financial information and the

service performance information.

R2 A We agree, and also note that this is consistent with the flexibility introduced in

2013 to the PFA. We discuss in response to Question 6 the need for this flexibility

to help ensure that reporting against appropriations by departments can also be

used to meet the requirements of a Service Performance Reporting standard.

We are also mindful that Chief Executives of Public Service departments, and

Boards of Crown Entities have legislated responsibilities, respectively, in responding

to the collective interests of government and in collaborating with other public

entities. We welcome the presentation flexibility in the ED as this will support

efforts to report on “collective impact” in a meaningful way.

R3 A We agree with the proposed information to be reported, namely an entity’s

outputs, the links between its outputs and the outcomes it seeks to influence.

Again, for departments, this is standard practice although we acknowledge that for

other organisations, e.g. not-for profit, this will be a new requirement. In addition,

including cross-referencing to other information makes sense to reduce duplication

and enhance readability and understandability of the service performance

information. It will help to provide a complete picture for a reader.

R4 –

R5 A We note that paragraph 53 of the Exposure Draft states that an entity should

include cross references between the service performance information and the

financial statements so that users can assess the service performance information

within the context of the financial statements.

We agree that this is appropriate to ensure that this increases the

understandability of the service performance information. The guidance in

paragraph 54 to 56 is useful.

Agenda Item 7.2

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R6 A Yes. We support the cross referencing to other information.

This is particularly important in an increasingly digital environment where

stakeholders and consumers expect easy and timely access to further relevant

information. It should also help enable annual reports to focus on key performance

information and help avoid overly long reports.

R7 A We consider that permitting cross referencing to information outside the service

performance section of the general purpose financial report is an appropriate and

pragmatic approach.

R8 A Yes

R9 A Yes: It is appropriate that where information is included outside of the service

performance section (although still within the general purpose financial report)

that this is cross referenced. This is preferable to duplicating this information within

the service performance section.

R10 C We disagree that service performance information should be required to be

reported within the ‘general purpose financial report’. If non-financial performance

information is to be included with financial information, then the title of the report

should be changes to reflect this, e.g., annual report, performance report etc.

Performance information is made up of financial and non-financial dimensions.

Non-financial performance information is not a subset of financial reporting.

In addition, as required by legislation, we produce an Annual Report containing our

financial statements as well as non-financial information. This includes reporting

against the performance information set out in our planning documents. In the

interests of readability and to assist the readers’ understanding of our

performance, it is important that the service performance information is located

with the narrative explaining what we have done during the year against our

strategic objectives and priorities. Service performance information would lose

some of its meaning if it was included with the financial statements rather than

with other non-financial information.

R11 A Yes, we agree with permitting the cross referencing of performance information

outside of a general purpose financial report. This would be consistent with the

increased flexibility for government departments and Crown entities.

R12 A Yes, we agree.

R13 A Yes, we are comfortable that information be cross-referenced under the

requirements of para 53. We believe it is important to qualify this with the need to

ensure the information can be easily identified and accessed and is based on the

same terms as the financial report. Thus the inclusion of para 54 is useful to clarify

this.

Agenda Item 7.2

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R14 A We agree that cross referencing to information outside of the service performance

section of the general purpose financial reports should be permitted and agree

with the points raised in paragraphs 53 to 56.

R15 A We support cross referencing to information between reports if links are direct,

meaningful and value adding. Cross-referencing allows links to interrelated

information within the financial reports which is useful to avoid duplication of

information. We also suggest to the XRB to consider encouraging the inclusion of

links to other information that, while useful, is not included in the financial report

to avoid duplicate and immaterial information being included while allowing

interested parties to dig deeper without cluttering the financial report.

R16 A Yes, this will be very helpful in allowing PBE some latitude to tell their story in the

way which best suits them, a general outcome can be described and reported in a

service performance report but this can for example then be cross referenced to

case studies in an annual report.

R17 A Yes. Will this then be audited?


Agenda Item 7.2

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question

Question 6

Do you agree with the proposed scope in relation to:

(a) public sector public benefit entities with existing legislative requirements to report service

performance information;

(b) public sector public benefit entities currently without existing legislative requirements to

report service performance information; and

(c) not-for-profit public benefit entities?

The NZASB would welcome information on the costs and benefits of the proposals in relation to

specific types of entities. If you do not agree with the proposed scope, please explain why not and

your views on what the scope should be.

Category (C#) Total

A – Agree (R1, R3, R5, R7, R8, R10, R12, R13, R14, R17, R18) 11

B – Partially agree (R2, R11, R15, R16) 4



R # C # Responses to Question 6 (Scope)

R1 A We agree with the proposed scope. Although there will be an associated cost. The

current best practice amongst charities is to report this information already. The

additional cost will be around the compilation of such information and the audit

fee associated with auditing these figures. This could prove difficult for both the

auditor and the client with respect to non-qualitative figures or as discussed above

those that need to be measured over a period greater than the financial reporting

period. Perhaps there could be an option to opt out of having the Statement of

Service Performance audited to reduce the compliance costs.

R2 B Our submission is from the perspective of public sector public benefit entities and

we strongly support them being included in the scope of a future standard.

We agree that where there is no existing legislation requirement in the public

sector that entities are encouraged to apply the standard, but agree that it should

not be required. We think Parliament is the appropriate body to determine who

reports on service performance information as they act for the public interest.

Within central government, agencies may be legislatively required to report on

service performance but may be exempted from reporting on some of their

activities. For example, s.15D of the PFA permits the Minister of Finance to exempt

reporting against appropriations in certain instances, while the s.149E of the CEA

requires reporting only for “reportable outputs” (as defined in s.136 of the CEA).

Agenda Item 7.2

Page 41 of 64


To make it clear that the standard is to be applied within the legislative

requirement, we suggest adding words along the following lines to the scope

discussion in paragraph 21 “An entity may be legislatively required to report

performance on only some of their services, in such instances this standard applies

only to those services”.

With regard to central government departments, the requirement to report against

appropriations exists independent of a department’s reporting requirement (see

section 19A to 19C of the PFA). This is because appropriations cover both

departmental and non-departmental activities (i.e. appropriations cover activities

outside the departmental reporting entity).

The PFA also states (refer s.45) “the annual report of a department must provide

information that is necessary to enable an informed assessment to be made of the

department’s performance…”. While this is a separate legal requirement to the

need to report against appropriations, in practice reporting by departments against

their departmental appropriations contributes to providing an informed

assessment of performance.

We consider that, given the flexibility in how service performance information can

be presented (paragraphs 52-56 of the ED), departments would use the reporting

against departmental appropriations to discharge their reporting requirements

under a Service Performance Reporting Standard.

R3 A We agree with this as the proposed ED complements the existing reporting

requirements under the Public Finance Act. We do not envisage any additional

costs in complying with the ED.

R4 –

R5 A Yes, we agree with the proposed scope of the Exposure Draft.

R6 C NZASB proposes that:

(a) public sector PBEs with existing legislative requirements to report service

performance information would be required to comply with the new

standard

(b) public sector PBEs without existing legislative requirements to report service

performance information would be encouraged but not required to comply

with the new standard

(c) not-for-profit PBEs would be required to comply with the new standard

It is not clear to us why public sector PBEs that don’t have existing legislative

requirements to report service performance information (b) will only be

encouraged to comply when non-public sector not-for-profit PBEs (c) will be

required to comply.

Both of these categories do not have current legislative requirements and it seems

inconsistent to require a higher expectation (required vs encouraged) for non-

public sector entities.

Agenda Item 7.2

Page 42 of 64


R7 A We consider that the proposed standard has the potential to effectively balance

the cost of preparing service performance information with the broader benefits

this reporting will bring, particularly in terms of discharging obligations for

accountability and transparency and providing useful information to users. As such,

we are broadly supportive of the suggested scope of the proposed standard.

We note that many New Zealand public sector PBEs have been required to report

service performance information since 1989 and, as such, the proposals do not

introduce any new requirements in this respect. Given the usefulness of service

performance information for users, we consider all public sector PBEs should be

encouraged to report service performance information.

Tier 3 and 4 NFP PBEs have been required to include service performance

information in their financial reporting from periods beginning 1 April 2015. It is

reasonable that the accounting standard requirements for Tier 1 and Tier 2 NFP

PBEs be no less than for those in lower tiers. However, we would like to see any

increase in scope offset by measures to streamline NFP performance reporting to

funding agencies to remove any potential duplication and to ensure that the

compliance cost of these requirements does not exceeded the benefits.

R8 A 6) (a) Yes, but despite the suggestion that “some public benefit entities such as

government departments … have been subject to some form of

performance reporting requirement for a number of years”, a concern

exists as to how loosely that requirement is now stated and whether or not

it will therefore be seen as applicable.

Thus, as amended in 2014, section 45(2)(a) of the Public Finance Act 1989

currently simply requires “an assessment of the department’s operations”

with no clear guidance as to whether than encompasses operational

performance or just a broader description of what the entity has done.

Similarly, section 45(2)(b) requires “an assessment of the department’s

progress in relation to its strategic intentions” that might include the

impacts achieved but could imply any other dimension seen as appropriate

by the relevant minister.

It is therefore suggested that, following the 2014 removal of the words

‘service performance” from the Act, the requirement for central

government agencies to provide service performance information is no

longer clear.

6) (b) Yes - thus leaving the decision to Parliament.

6) (c) Yes.

R9 C No: It would be more appropriate to have consistency between all Tier 1 and Tier 2

PBEs. Furthermore, as per paragraph 21 of the ITC it is concerning that new

requirements for public sector PBE could conflict with this proposed standard as

this would mean inconsistent approaches between public sector PBEs.

R10 A We agree that this standard should apply where public sector public benefit

entities have existing legislative requirements to report service performance

Agenda Item 7.2

Page 43 of 64


information as a means to standardize the key principles which all high quality

performance information should meet. However, the NZASB should ensure that the

Standard does not conflict with the requirements or intent of existing legislative

requirements and guidance published by central agencies.

A lot of the requirements in the standard are already required under legislation for

many public sector PBEs so the main purpose of the Standard should be to ensure

that the preparation and presentation of service performance information is

consistent across entities, for example, that comparable information is included, or

that the principles of verifiability, fair representation etc. are met.

In addition, the XRB should consider how the Service Performance Standard will

align with the Auditor-General’s Auditing Standards 4, which provides guidance to

auditors on the auditing of service performance reports required by some public

benefit entities under legislation.

R11 B We broadly agree with the proposed scope of the standard, including limiting its

application for Tier 1 and Tier 2 public sector PBEs to those which are required by

legislation to provide a statement of service performance (by whatever name

called). We consider it appropriate that the standard does not apply to those public

sector PBEs without such a legislative requirement, such as schools.

However, there are three matters related to scope that require further

consideration.

Firstly, we note that the standard only applies to PBEs (Tiers 1 and 2), even though

there are some public sector for-profit entities that have to prepare performance

information. As it stands, those for-profit entities will presumably still need to apply

FRS-44. There are differences in the requirements proposed in the exposure draft

to those in FRS-44, which in our view would be a problem in the public sector.

In some sectors, similar types of entities will have different reporting requirements.

For example, in the Council-Controlled Organisation (CCO) sector, Council-

Controlled Trading Organisations (CCTOs) are typically for-profit entities and apply

NZ IFRS. Other CCOs are typically PBEs and apply PBE IPSAS, which in time will

include a standard based on the exposure draft. The application of different

standards as currently proposed could lead to inconsistent reporting.

Secondly, we note that there are groups of public sector PBEs, such as tertiary

education institutions and CCOs, that have a legislative requirement to provide a

statement of service performance (by whatever name called) but do not have a

legislative requirement to prepare that information in accordance with GAAP. It

would be helpful if the exposure draft clarified whether these entities would be

required to comply with this standard.

Thirdly, we note paragraph 31 of the exposure draft appears to require entities to

report performance information at the group level. Not all of the entities in the

public sector which are required by legislation to report performance information

have to do so at the group level. In our view, the proposed standard needs to

acknowledge that on occasion, there may be conflict between legislative

requirements and the standard. The standard should set out the approach

preparers should take when a conflict is identified.

Agenda Item 7.2

Page 44 of 64


R12 A Yes, we agree with the proposed scope.

We appreciate the current reasoning for different treatment with some public

sector PBEs given OAG mandate etc., albeit given the policy and purpose behind

this reporting we would suggest over time that it is logical that this be applied to

the entire PBE sector.

We suspect that there may be a cost outcry from some in the NFP sector given that

this will be negatively seen by some as a new compliance burden, rather than as a

positive opportunity for improved stakeholder communications. However, we don’t

see this as a reason for exempting entities or reducing the requirements.

R13 A We agree with the scope in relation to public sector PBEs. The government has an

on-going process of determining which entities are to prepare service performance

information and we do not believe this process should be reconsidered by the

NZASB.

However, as noted in our cover letter, we are concerned that not-for-profit entities

might be burdened with significant cost. We believe the NZASB’s concerns in this

area are justified.

We are unable to provide any reliable commentary on the estimated amounts of

any expected incremental costs. However, we do note that the costs to comply

with the draft standard could vary considerably across the population of NFP

entities and would depend on the:

• nature and size of the NFP entity;

• complexity of the types of information they would need to report upon;

• current reporting capabilities of the NFP entity;

• complexity of any new or amended processes they would need to introduce

to capture and report on such information; and

• reporting requirements that the NFP entity currently has to comply with.

Based on our experience, consistent with the introduction of any new framework,

the costs would be more significant upfront in setting up the measurement and

reporting framework and then would revert to a lesser annual cost thereafter.

However, given the nature of such reporting requirements, for some entities, this

will still increase their overall compliance burden and associated costs, which

means more of the entities funding will need to be directed towards compliance.

We agree that the ED will ensure information is more comparable across entities

and financial periods, as well as ensuring application across the board for all

entities. However, for smaller Tier 2 entities we question whether this benefit is

significant enough, relative to the cost of preparing the information.

Therefore, we believe Tier 2 entities should be given a concession from the full

requirements of the proposals. We acknowledge that paragraph 44 of the ED

provides relief from disclosing the impact that an entity has had on the outcomes it

is seeking to influence when there is no evidence of a link between outputs and

outcomes and any information would not meet the qualitative characteristics.

However, coming to this conclusion will require a process and could involve

significant costs, such as time spent considering whether and what types of

Agenda Item 7.2

Page 45 of 64


evidence might exist, creating systems to collect information and time spent

assessing the information. In many cases, entities are likely to conclude that

reporting on impacts on outcomes is not feasible. In order to reduce costs, we

propose a concession for Tier 2 entities to remove the requirement to disclose

impacts on outcomes (i.e. paragraph 33(c)).

R14 A We agree with the proposed scope of the standard. In relation to the NZAB’s

question on costs and benefits, we are not in a position to quantify the additional

costs that will be incurred as a result of this new standard, but expect that

significant costs will be incurred in developing the service performance report and

implementing systems to capture and report appropriate information, as well as

maintaining such systems going forward.

R15 B We agree with the proposed scope of the ED. Auckland Council and its council-

controlled organisations fall under public sector public benefit entities with existing

legislative requirements. Currently, Auckland Council has a dedicated Financial

Control team who is responsible for the financial statements and Corporate

Performance and Reporting team who is responsible for the service performance

reporting and/or other requirements of the LGA 2002 in the preparation of annual

report. We are expecting costs for initial implementation e.g. costs to determine

that our current service performance report aligns with the requirements of the

proposed standard, will be absorbed within existing budgets. As we already have

service performance reporting requirements, we don’t expect further benefits to

our stakeholders except if guidance is included to align the terminologies which will

help the preparers of the financial reports to appropriately address both the

legislative and the proposed standard requirements.

We also support that the scope include public sectors with no existing legislative

requirements and not-for-profit public benefit entities to improve service

performance framework within these entities’ reports and generally promote

improved transparency and accountability of PBEs. We appreciate that the NZASB

acknowledge in the exposure draft that the high-level principles based approach by

them is intended to provide flexibility for entities to “tell their story” in a way that

is meaningful for them and their users, without being too prescriptive.

We support that Tier-3 and Tier 4 public benefit entities, those who have chosen to

apply accrual and cash basis of accounting, are exempt from applying this standard

due to their size. Auckland Council has legacy council controlled organisation that

are exempt from preparing reports required by the LGA 2002 since these entities

are not material in size. The time associated with the auditing of service

performance reports can be prohibitive for these entities given the quality and

complexity of the reporting system these entities is required to maintain in order to

accurately record, collate and report service performance information.

R16 B (a) Yes

(b) No, perhaps there should be an encouragement to comply except where the

costs outweigh the benefits?

(c) Yes

Agenda Item 7.2

Page 46 of 64


R17 A Yes.


Agenda Item 7.2

Page 47 of 64


question

Question 7

Do you agree that a two year implementation period would be appropriate?

Category (C#) Total

A – Agree 10

B – Partially agree 2

C – Disagree 5


R # C # Responses to Question 7 (2 year implementation)

R1 A Yes, we agree this is appropriate.

R2 A The Treasury supports a two-year implementation period if it is supported by

appropriate guidance.

R3 N/A The implementation period will not apply to the Service – along with a number of

other public sector entities – as we report on service performance information as a

legislative requirement. We can’t comment on whether the two-year period would

be suitable for not-for-profit and other public sector entities.

R4 B Paragraph 32 of the summary (covering the ED) explains that guidance will be

developed. If a two-year implementation period applies, we suggest it would be

useful to provide guidance relatively early on in that two-year period. This would be

especially useful for those new to this type of reporting. It can take at least a year to

undertake strategic through to more detailed planning. Good guidance, with best

practice examples, is a helpful way to ensure faster and higher quality

implementation.

Please also see our comment below, which may affect this two-year implementation

period. (see answer to Q10)

R5 A Yes, we agree that a two year implementation period would be appropriate.

R6 C No. Introducing the new performance reporting regime will mean significant change

for many PBEs, particularly in the not-for-profit sector where this will be a new

requirement.

Sufficient time is needed to raise awareness of the new regime and to build the

internal capability of those who manage organisational performance and

prepare performance reports.

Boards and others charged with responsibility for governance will also need to

deepen their understanding of the new reporting regime to enable them to

fulfil their responsibilities effectively.

Agenda Item 7.2

Page 48 of 64


The timeframe for implementing any associated audit/review requirements

also needs to be considered and allow for auditor capability building where

needed.

We suggest consideration of a phased implementation period over 3 to 5

years.

There also needs to be more clarity about transitional provisions.

R7 A We agree that a two year implementation period would be appropriate. Given Tier 3

and 4 NFPs adopted service performance reporting for periods beginning 1 April

2015, a two year adoption period will allow time for larger NFP entities to learn from

the experiences of smaller NFP PBE entities in preparing this information.

As the proposed standard will not introduce new requirements for public sector PBEs

we consider the implementation period is not an issue for this sector.

R8 A Two years should be the maximum. I would expect most public sector public benefit

entities to be able to comply much sooner.

R9 A Yes: Two-years at a minimum will allow those PBE NFPs who have never reported

service performance information to develop their service performance framework.

R10 A As a result of the changes to the Crown Entities Act, we have moved away from a

strict use of outputs, impacts and outcomes, to a model more appropriate for the

Commission and the Authority. As a result of the proposed standard we are likely to

need to revise this work/revert to our previous model which we do not think was as

useful for telling the Commission’s story. Despite this, we would likely to able to meet

the majority of the requirements of this Standard within the proposed two year

implementation period.

R11 A Yes, we agree with a two year implementation period. Many public sector PBEs have

been required to report on their performance, and have it audited, for a number of

years. Those entities should be well placed to meet the requirements of the proposed

standard.

R12 A We agree that a two-year implementation period for mandatory application would

be appropriate. It will take time for some entities not currently doing any of this type

of stakeholder communication reporting to become aware of it, understand it and

determine how it applies in their specific circumstances and then develop

appropriate reporting.

However, we also strongly support early adoption being allowed as many in the

sector are already well down the path of this type of reporting albeit that they may

have not seen it specifically as service performance reporting in the context of a

standard previously. For these NFPs with already reasonably sophisticated

stakeholder communication we suspect it will not be a significant exercise to realign

their existing reporting to comply with the proposed standard.

R13 B Yes, we believe a two year implementation period is appropriate for adoption of the

proposals, subject to our comments above for not-for-profit entities.

Agenda Item 7.2

Page 49 of 64


We also note, depending on when the final standard is issued, the NZASB should take

into consideration other standards that may be required to be adopted for the first

time, at or around the same time as these proposals. Any application date should be

reconsidered closer to the time when the final standard is to be issued. We note

additional time will also ensure the NZASB is able to provide useful guidance well

before the application date.

R14 C The Army provides a wide variety of services across a diverse range of programmes

and centres. A significant amount of work will be required to develop an appropriate

service performance report that provides good quality, appropriate and meaningful

information. Once this has been developed we will need to ensure that our systems

and internal organisational processes are capable of recording and reporting the

required information. These two phrases of development and implementation will

take time. Therefore, we feel that a minimum three year implementation period

would be required.

R15 C We propose a longer that two-year period for implementation or at least three-year

period.

This is beneficial for those public benefit entities that currently don’t have existing

legislative service performance reporting requirements. This will allow these entities

to set-up auditable systems to record, collate and report the information that are

required for service performance reporting. The budgeting period is normally three

years for these entities. Allowing a three-year implementation period for this

proposed standard will allow the PBEs to prepare for the requirements and align with

their budgeting period.

R16 A Yes

R17 C The challenge with service performance data is it can be difficult to obtain if you have

not identified what you are reporting on at the beginning of the period, as it often

requires separate reporting tools to be established. If introduction of the Tier 3 and 4

standards is anything to go by then it suggests it is not until the end of the year that

organisations consider what needs to be reported.

It may be advisable to give one year’s notice of introduction, this provides time to

establish service performance measures and put in place but remove the need for

comparatives in the first year.


Agenda Item 7.2

Page 50 of 64


question

Question 8

Do you agree with the proposal to change the title of PBE IPSAS 1 Presentation of Financial

Statement to Presentation of Financial Reports and the proposed amendments to that Standard?

If not, please explain why not and indicate your preferred alternative approach.

Category (C#) Total

A – Agree (R1, R5, R9, R11, R13, R14, R15, R16, R17, R18) 10

B – Partially agree (R2, R3, R8, R12) 4

C – Disagree (R6, R7, R10) 3


R # C # Responses to Question 8 (Changes to PBE IPSAS 1)

R1 A Yes, but we would note the discussion in 6 above regarding possible difficulty for an

auditor to express an opinion on some of the non-qualitative information.

R2 B We agree with the changes to that standard because we believe that financial

statements and service performance information are both required to assess the

performance of public benefit entities.

We think the title should be changed to Presentation of Financial and Performance

Reports because the proposed title (with its focus on “financial”) doesn’t clearly

convey the inclusion of service performance information.

R3 B Changing the title of the Standard makes sense as it is being widened to include

service performance information. Arguably you may like to consider amending the

proposed title to Presentation of Financial and Service Performance Reports to make

it clear what specific information is being covered.

R4 –

R5 A Yes, we agree with the proposed changes.

R6 C No. The proposed word change from financial statement to financial report does

not reflect that ‘non-financial’ service performance information is also being

reported.

Alternatives such as Presentation of Performance Reports or Presentation of

Financial and Non-Financial Performance Reports, would reflect the wider

reporting requirements.

R7 C In our view changing the title of PBE IPSAS 1 to Presentation of Financial Reports

does little to alert readers to the fact that these reports will now contain both

financial and non-financial information. We consider a title such as Presentation of

Performance Reports would better reflect that these reports now contain service

Agenda Item 7.2

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performance information. This would also align the terminology with that of tier 3

and 4 PBEs.

R8 B Yes, although the retention of the word “financial” continues to imply just financial

rather than also non-financial information. Would “Presentation of Accounting

Reports” be more appropriate?

R9 A Yes: As the change in PBE IPSAS 1 to “financial reports” will be consistent with the

PBE Conceptual framework’s use of General Purpose Financial Reports, rather than

General Purpose Financial Statements.

R10 C We do not agree with the changes to the title and content of this Standard. As

mentioned in response to question 5, if non-financial information is to be included

with the financial statements then the title should be changed to reflect that the

reports contain both financial and non-financial information. This will also help

non-financial performance reporting to be seen as on an equal footing with

financial reporting rather than an add-on, which is important for improving the

quality of the information.

In addition, we consider the draft approach adds complexity to the understanding

of the Standards, particularly for people who are not qualified accountants. Under

the proposed structure, people who want to understand the requirements for

reporting service performance information would have to refer to two different

Standards, including one where the majority of the Standard is not applicable,

which would lead to some confusion, It would be more appropriate to incorporate

or reference the sections of PBE IPSAS 1 that are applicable to service performance

information within the proposed service performance reporting standard.

R11 A Yes, we agree. The proposed changed title and other amendments to refer to both

financial information and, where appropriate, service performance information

seem sensible.

R12 B Yes, we agree that a name change is needed and technical clarity is required.

However, we do have a practical concern that the subtle technicality of the

proposed title change will be lost on most of the NFP population.

We also believe that it will take some time to ingrain the term “Performance

Reports” into the sector as a replacement for Annual Financial Statements.

Accordingly, perhaps there is an opportunity to incorporate that into the title. The

title “Presentation of Financial Reports” implies it is not concerned with non-

financial reporting.

R13 A Yes, we agree with the proposals to change the title of PBE IPSAS 1 and amend the

standard as outlined in the ED.

R14 A The change of title of PBE IPSAS1 would appear reasonable.

R15 A The proposed changes to PBE IPSAS 1 are reasonable.

R16 A Yes

Agenda Item 7.2

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R17 A Yes


Agenda Item 7.2

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ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by question

Question 9

What type of guidance should the NZASB develop to support entities preparing service

performance information in accordance with the proposed standard?


R # Responses to Question 9 (Guidance)

R1 The guidance should have a range of qualitative and non-qualitative information, including

performance information that spans over multiple years, i.e. that does not just sit one

financial reporting period.

R2 We consider that guidance should help with reporting progress towards “Why” an entity

exists given the challenge that such reporting is expected to be done annually but progress is

a multi-year story.

The guidance should include examples of good (and bad, or not so good) performance

reporting, as well as examples (even stylised) of the range of way in which performance

information may be presented.

Finally, the above examples should also include reporting using qualitative measures and

descriptions.

R3 An Explanatory Guide would be useful. The Treasury produces similar guidance for the

preparation of Annual Reports and Statements of Intent, and this may well provide some

useful pointers in developing your guidance material.

R4 –

R5 We note that there is limited guidance regarding specific presentation of the Service

Performance Reporting included in the Exposure Draft. This may lead to preparers being

unsure of how to actually present the information they have.

A guide that has some examples include for different types of entities and how these

examples meet the different requirements of the Exposure Draft would be useful for

preparers who have not done Service Performance Reporting in the past.

This guidance could be included as an appendix to the standard, or an explanatory guide

separate from the standard.

R6 It is critical that guidance is developed for PBEs well in advance of the implementation of the

new standard. Guidance should not be prescriptive but should provide flexibility to allow

reporting that is most relevant to the entity. Examples of reporting, including samples of

what good reporting looks like, would be useful.

Training and education is also vital. Preparers of performance reports usually have

professional financial qualifications and experience but there is not the same established

professional capability in non-financial reporting.

R7 This will be a new concept for many entities. Experience gained from the tier 3 and 4 PBE

implementation shows that many entities found it quite challenging in relation to what

Agenda Item 7.2

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service performance information to present and how best to present it. Therefore illustrative

examples would be well received.

R8 Service performance may be assessed against four criteria – economy, efficiency,

effectiveness and equity. Useful guidance material would provide definitions, discussion and

examples of performance indicators for each of these criteria.

Useful guidance could also be provided by a discussion of the performance measurement

implications of the differing functions undertaken by public benefit entities. See, for

example, the OECD Outputs Manual (2000).

R9 The guidance should be tailored for different users e.g. the preparers of the service

performance information as well as those charged with governance. The NZASB may like to

include the questions ‘to whom’ and ‘for what means’ in the guidance to support NFP PBEs.

For example, to whom an NFP PBE is accountable and who relies on the service performance

information? The users may include funders, service recipients, potential donors and

volunteers, which are further discussed in the following question (question 10). Similarly, a

consideration of what forms the account should take place, and decision-making should be

based on what may be appropriate. Moreover, it is important for the NZASB to provide

guidance on various types of performance indicators, such as output measures and outcome

measures/descriptions that NFP PBEs could choose. Also, guidance is needed regarding

appropriate narrative reporting and some exemplars would be helpful to improve the

appropriateness of comparative information for narratives.

R10 Some of the information in the proposed Standard would be better provided as guidance,

for example, the requirement to report on outputs, impacts and outcomes. This is one

example of a way which service performance information can be reported and both the ED

itself and the changes to the Crown Entities Act recognize that it may not be the most

appropriate model for all entities. It would therefore be more appropriate for this to form

guidance to support the proposed standard, e.g., as a model which could be used to fulfil the

high-level principles in the standard, than as part of the standard itself.

The standard should include the high level principles and requirements. Everything else

could be covered by guidance, including appropriate examples.

We suggest you discuss with Treasury, SSC, the OAG and Audit NZ to possibility of creating

one set of guidance for each category of agency. The desired result of better non-financial

performance information would be greatly assisted by a cross agency approach.

R11 As mentioned above, the exposure draft should be less prescriptive about what is required

to be reported, and focus on the principles underpinning service performance reporting.

We suggest that you initially develop guidance for the not-for-profit sector, given service

performance reporting is something new for that sector. In our view, example-based

guidance would be practical.

We also think it desirable to have guidance for different types of public sector PBEs.

Guidance for these entities is something that the NZASB may be able to facilitate. In our

Agenda Item 7.2

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view, such guidance needs to involve people that work in and have a good understanding

about how the different types of public sector PBEs operate.

Preparing a set of targeted guidance documents is likely to result in different types of

performance frameworks being demonstrated through those documents.

R12 We suggest practical “how to” approach guidance is required and always appreciated.

We have already faced an interesting conundrum from Tier 3 entities and early adopters in

that many of them have just wanted to be provided with the “template” or the “model

example”. This request appears to be coming from a quick compliance mentality, and just

wanting to copy someone else’s to make their life easy.

We have been loath to provide “the answer” as it appears some are looking for. Our

reasoning for specifically steering away from providing a model(s) is as, at its core, service

performance reporting done well is about reflecting the specifics and uniqueness of the

individual organisation. It should also cascade down from an entity’s vision and mission, not

built up from some outputs that can be measured. Hence why governing body engagement

is necessary and why a template model approach is not desirable.

To progress conversations though and to be of assistance we have however pointed some of

our clients to a range of good examples to show them the wide variety of different ways to

effectively communicate this type of information.

As such we believe that there may be a place for some examples but considerable care taken

to ensure that anything provided is not seen as “the sanctioned answer”.

R13 We believe it will be important to establish guidance in the not-for-profit space on the

application of the standard, as highlighted in our responses above. Specifically, we believe

examples of the types of disclosures expected and how the information should be presented

would be useful. Examples of the different types of entities applying the standard and

typical performance measures would be useful.

R14 In line with the NZASB’s observation that PBE’s operate in a wide range of areas providing a

variety of services aimed at achieving various and sometimes multiple outcomes, guidance

would be helpful. We feel that this guidance might take the form of practical examples,

particularly in relation to NFP- PBE’s that provide multiple services with a variety of intended

outcomes. Such organisations are likely to have multiple users of their accounts who would

be interested in service performance reporting to help when considering such issues as

funding applications. An example might focus on this need.

R15 For all PBEs, providing guidance to link the terminologies used in legislation with the

proposed dimensions of this ED will promote clarity for the users in addressing the

requirements of both legislation and this proposed standard.

We also suggest to the XRB that the guidance on how to link the three dimensions should

include some practical examples. We noted that the Auditor-General has mentioned in the

past how the “effects of the community” section of the annual report, which may be

equivalent to “impact”, was not done well by many local government councils. There is

Agenda Item 7.2

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plenty of literature trying to address this aspect but no clear guidance coming from

legislators or standard setters.

R16 Refer to suggestions and comments made under Question 10.

R17 Examples of completed service performance reports across variety of different types of

sectors e.g. social services, health, environment, community development.

Simple language guide on how to interpret what is appropriate and meaningful.

R18 R18 endorses the comments made by R17.

Agenda Item 7.2

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question

Question 10

Do you have any other comments on ED NZASB 2016-6?


R # Response to Question 10 (Other Comments)

R1 No.

R2 Paragraph 42 refers to links between outputs, intermediate outcomes and ultimate

outcomes. We suggest that this be recast to focus on an entity explaining its intervention

logic or performance framework, why they chose to deliver their mix of goods and services,

and to acknowledge that there is rarely a linear relationship (between an output, and

impact and an outcome). More commonly a combination of activities leads to a change,

which may lead to achieving a strategic objective or outcome, and so in describing this

intervention plan, where appropriate agencies should focus reporting on the combination

of goods and services they provide (allowing them to say something about the mix of their

interventions).

Commonly a combination of activities performed by numerous entities leads to a desired

change, and entities should reflect this in their own intervention logic/plan. That is, who are

they partnering with, needing to support and reliant on to effect change? Relevant entities

should be developing aspects of their performance frameworks together e.g. when

designing and reporting on what they had an impact. The Better Public Service Results and

targets are one type of collective impact (or intermediate outcome) measure.

In its guidance or standard the NZASB needs to highlight the importance of having some

sort of performance framework or expectations before the start of the year. Ex-ante set up

and thinking needs to be highlighted before entities can successfully report ex-post.

R3 We have no further comments on ED NZASB 2016-6.

R4 Although the focus of the ED is on service performance reporting, there has been little

reference to setting direction against which to report.

Paragraph 3 of covering note to the ED refers to ‘selecting and presenting aggregated

service performance information’ and refers to one of the benefits of introducing this kind

of performance reporting as a way of ‘assessing whether a PBE has done what it said it

would’. It is not clear how this kind of assessment would be done without first setting

performance information before the year begins to allow the audience to make this

assessment.

It may be useful to provide some expectation for setting performance information prior to

reporting on it. If this is the case, then a two-year implementation period (as referred to

above) may not be sufficient, because an entity would likely need to conduct planning

during year one, publish said plan, and at the end of the two-year period, begin reporting.

Agenda Item 7.2

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R5 We are pleased to see that the NZAuASB has an active project on service performance

reporting and believe that the development of an auditing standard and review standard on

service performance information should be given a priority.

We have no further comments on ED NZASB 2016-6.

R6 See comments made in cover letter.

[Staff Note: The cover letter includes comments on scope, long-term focus of many entities,

capability and phased implementation]

R7 Trans-Tasman harmonisation

As noted above, the AASB is also working on a standard for reporting service performance

information and has been working closely with the NZASB in developing the respective EDs.

We encourage trans-Tasman harmonisation where appropriate (i.e. taking into account

legislative differences) in the finalisation of the requirements contained in these standards.

Development of assurance standards

We welcome development of both an auditing standard and a review standard dedicated to

audits and reviews of service performance information and understand that the NZAuASB

has been working closely with the NZASB in the development of these draft standards.

While experience with the introduction of audit requirements for public sector service

performance information suggests that there will be initial difficulty in adopting these

standards, experience also suggests that this is countered with an increase in quality of the

resulting service performance information and systems and controls.

Role of professional bodies in ‘rolling out’ these requirements

As a professional body we look forward to promoting the ensuing standards with our

members and working closely with the XRB to develop tools, resources and other

educational material to help our members develop service performance information which

will add value to readers of the financial statements.

R8 Paragraph 21 to be consistent with the language used elsewhere, the words “statement of

service performance” should be replaced by “information in respect of service

performance”

Paragraph 24 currently confuses outcomes and impacts. The definition should therefore be

twofold as follows:

“Outcomes are a state or condition of society, the economy or the environment, or a

change in that state or condition.”

“Impacts are the contribution to an outcome made by the outputs of one or more

entities.”

Paragraphs 36 and 37 – While the provision of information in respect of the quality,

timeframe and physical location of outputs may be a matter of pragmatic judgement in the

context of the qualitative characteristics, information in respect of output volume and cost

should be mandatory.

Agenda Item 7.2

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Depending on the nature of the outputs concerned it may not always be possible to count

the actual number of outputs delivered. However, it should then be possible to state

volumes in terms of a capacity to deliver a given level of service; for example, the number

of civil defence emergency response teams able to be deployed within a given timeframe.

Equally importantly, and given the high level at which most output class appropriations are

stated, the provision of cost information at the level of outputs should not be a matter of

choice.

R9 We have two further comments on the ED. Firstly, on the users of service performance

information (paragraphs 2 and 4), and secondly on the use of comparative information

(paragraph 57).

a) Research on ‘users’ of service performance information

As identified in paragraph 4 of the ED, ‘there are two general categories of users of service

performance information, being funders and service recipients’. Also paragraph 2 indicates

that these users ‘rely on those reports for information that is useful for accountability and

decision making’.

Since the ED is drafted for Tier 1 and Tier 2 PBEs including NFPs, these organizations are

more likely to receive significant funds from their government and philanthropic funders

considering their sizes. Specific mechanisms may be already included in the funding

contract or requirements to enforce the provision of service performance information.

Connolly, Hyndman and McConville (2013, p. 65) found that large funders have more power

to require specific information, such as service performance information, tailored to their

needs directly from NFPs, including charities: Large funders, such as charitable trusts and

government agencies, often require charities that are seeking resources to make a detailed

application outlining such things as how the money will be spent and what is likely to be

achieved. In addition, over the period of the funding, they may require funded charities to

provide periodic reports on progress in terms of planned achievements and actual spend to

date (monitoring reports).

Therefore, if the funders’ information needs are met by their own enforcement

mechanisms, Service Performance Reporting may serve as a compliance reporting that

meets the needs of regulators, e.g. Charities Services and External Reporting Board, or

potential donors and volunteers in making donating decisions. We agree that making the

NFPs’ service performance information publicly available on the Charities Register will

promote public trust and confidence in the charity sector, and indicate charities in New

Zealand are accountable and transparent. However, the extent to which funders rely on the

service performance information provided in the form of Service Performance Reporting is

questionable. Specifically, whether the service performance information is useful for

funders to make funding decisions and assess the accountability of NFPs requires discussion

with these users.

Service recipients, the other targeted users of service performance information, are

generally referred to as beneficiaries. The academic literature supports that beneficiaries

are an important group of stakeholders to NFP PBEs. For example, Connolly, Hyndman and

McMahon (2009) highlighted that it is important to understand the information needs of

Agenda Item 7.2

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beneficiaries, and their information needs are perceived to be similar to funders’

information needs. However, various problems of engaging the beneficiaries were also

identified including: an unwillingness for charities to forward questionnaires to some

beneficiaries given their perceived vulnerable status, limited formal contact between

charities and beneficiaries, and limited willingness of beneficiaries to participate in the

research (Connolly & Hyndman, 2013). In the absence of beneficiaries’ voices, funders were

identified by Connolly, Hyndman and McMahon (2009, p. 8) as often attempting to take a

beneficiary-focused view:

Some funders, whilst acknowledging their own specific information needs, recognized the

needs of beneficiaries, saw them as being related to their own information needs, and

reflected on the view that they saw their role as championing beneficiaries’ interests.

While regulators and funders may act on behalf of the beneficiaries, assuming that the

beneficiaries’ information needs align with their own, there is a lack of research on the

extent to which the reporting of service performance information is valued by this group of

stakeholders. In a New Zealand context, Yang (2015) identified that the actual services

received by the two interviewed beneficiaries seem to be valued higher than the disclosed

service performance information. While the voices of beneficiaries were not the focus of

this research, there is a need to explore further to what extent beneficiaries (service

recipients) rely on the service performance information provided in the Service

Performance Reporting. Also, whether the information needs of beneficiaries are similar to

the funders’ information needs in New

Zealand require further investigation, as these two groups of stakeholders have different

accountability requirements.

b) Comparative information for narratives

Paragraph 57 identifies that ‘an entity shall report comparative information for the

previous period…Comparative information shall be included for narrative and descriptive

information when it is relevant to an understanding of the current period’s service

performance information.’

We agree with the idea that the narrative information is useful to disclose the service

performance information of NFPs, as this is identified in the academic literature. For

example, narrative disclosures regarding NFPs’ performance play a critical role in

discharging accountability to their stakeholders in the United Kingdom (Connolly & Dhanani,

2009). Specifically, storytelling, as a mechanism to disclose narrative information, is used to

engage both internal and external stakeholders in the United States (Chen, 2013; Merchant,

Ford, & Sargeant, 2010). In a New Zealand context, Yang (2015) found that storytelling is

incorporated into formal mechanisms of annual reports and websites, to disclose

performance information of the charities, rather than being used as a separate mechanism.

However, we are concerned about the feasibility of requiring comparative information for

narratives. Yang (2015) identified that storytelling requires considerable time and effort to

establish a trust relationship with beneficiaries, and one case study charity in this research

was reluctant to share the stories of its beneficiaries. This relates to the earlier point that

NFP PBEs provide services to beneficiaries who are external to the organizations, thus

Agenda Item 7.2

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performance reporting should have an external focus. Given the problems of time

constraints and the difficulties in capturing the beneficiaries’ life-changing stories, it is more

difficult to disclose this narrative information in a comparative manner. Accordingly, the

NZASB may like to provide guidance on narrative reporting, and exemplars of appropriate

comparative information for narratives, as identified in question 9.

R10 We commend the stated intention for a “high-level principles-based approach” in this

Standard but do not think this has been met as the resulting standard has the potential to

be quite restrictive. Despite assurances that they can be applied as appropriate, the three

dimensions, and in particular the use of the terms outputs, impacts and outcomes are likely

to lead to confusion and extended discussion within agencies and with our auditors each

year rather than clarify the requirements for performance information.

The success of the new standard will rely on ongoing support and education. Consideration

should be given to ensuring that this reaches all those who are, and who will need to be in

the future, involved in non-financial performance planning and reporting. This includes the

governance levels, senior management, and staff involved in developing performance

measures, and associated systems. As noted in presentations regarding the ED, non-

financial performance is not always the domain of accountants. However, accountants, and

in particular auditors do require a sound understanding of non-financial performance. We

encourage XRB to reach out to partners in government (for example Audit NZ who engage

many recent graduate accountants to conduct non-financial performance audits) and

universities to assist in ensuring that the Standard is incorporated into future training and

formal education.

R11 Yes, as outlined below.

Additional comments

Ex ante reporting

We are comfortable with the exposure draft’s focus on ex post service performance

reporting, given that the standard applies to not-for-profit PBEs as well as public sector

PBEs. However, ex ante performance reports are an important part of public sector PBE

accountability requirements, establishing the base at the start of the year against which

performance can be measured and reported at the end of the year. We suggest that NZASB

consider how and where to include requirements for ex ante performance reporting.

Output cost disclosure (paragraphs 36-38)

It is important that performance information is integrated with financial information.

Therefore, we consider that the standard should require cost disclosures related to services

or activities, unless it is impractical to provide that information. We do not expect many

situations where it is not practicable for entities to disclose costs.

Performance indicators (paragraphs 45-51)

The increased flexibility from the 2013 legislative changes to the Public Finance Act 1989

and Crown Entities Act 2004 enables entities to use other means of measuring and

reporting performance, such as case studies, as well as traditional performance indicators.

Agenda Item 7.2

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We suggest that the standard recognise that performance measurement may include other

forms.

Although we agree that in general performance indicators should not focus on internal

activities, processes, plans or policies (paragraph 50 of the exposure draft), Government

departments and Crown entities can include measures/indicators of other aspects of their

performance, such as objectives or internal processes, if they consider these material

performance information. For example, a District Health Board may wish to measure and

report on progress with major projects such as building a new hospital.

Prior year comparatives (paragraph 57)

We support the requirement for prior year comparatives, as these help users by providing

some context to current year performance.

Principles approach to service performance reporting

This submission has advocated that the exposure draft be amended to take a principles

approach to reporting performance information. If the External Reporting Board decided

not to take this approach and we were limited to commenting on the framework (which

considers outputs, outcomes, and impacts) rather than the principles underpinning

performance reporting we may have provided other feedback to the External Reporting

Board.

As an example, paragraph 44 of the exposure draft says:

“Information on impacts should be reported only where the entity has evidence

between the links between outputs and outcomes, and the information can be

measured in a way that meets the qualitative characteristics and constraints”.

We think that the word “only” creates a benchmark which is too high and will result in

entities deciding not to report information which they consider helpful to users. We would

prefer to see entities report information that they consider helpful to users and accompany

that information with a brief discussion about any significant weaknesses in the link

between outputs and outcomes.

R12 Trans-Tasman harmonisation

We are aware that there is also a standard being developed in Australia but that that

standard has some fundamental differences in what it covers and how. While we applaud

trans-Tasman harmonisation wherever practical we believe in this instance the first priority

of the New Zealand is to follow the NZ policy ideals for Service Performance Reporting

which is a key plank of our PBE framework.

Liaison with, and role of others regarding Service Performance Reporting

We urge the XRB to liaise with other key parties in the reporting supply chain and all

encouragement of them to become advocates for and to enlist their assistance in

awareness raising, education and sector support.

Key parties we believe with a role to play are:

The professional accountancy bodies: CA ANZ and CPA

The philanthropic funding community

Agenda Item 7.2

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Government related funders

Other professional bodies linking to governance such as IOD, Governance NZ etc.

Development of assurance standards

We look forward to the development of appropriate assurance standards. We do however

reiterate that considerable care needs to be taken that there is not a greater requirement

on auditors compared to the requirements on preparers, especially as regards specificity of

disclosures.

R13 We note the ED discusses the interplay with existing auditing guidance prepared by the

NZAuASB on the application of ISAE (NZ) 3000 to audit or reviews of Tier 3 entities

preparing a statement of service performance. We note that the OAG has specific guidance

on auditing service performance reports (AG 4 The Audit of Service Performance Reports).

We believe it will be important for the NZAuASB to ensure there is either consistency in the

approach to auditing service performance reporting or alternatively make it clear they are

not consistent and different sectors will be covered by different auditing standards.

We have no other specific comments on the ED.

R14 -

R15 None

R16 Some Comments on Preparation of a Service Report

The PBE organisation for which I work chose to early-adopt the requirement to prepare a

service report. A subsidiary company early adopted last year without too much difficulty

and it was decided that it was desirable to do so for the parent.

Perhaps the best way of communicating the issues encountered is a series of

suggestions/comments:-

In a well-managed organisation, the outputs and outcomes will be the result of an

organisation adopting strategies and plans of how to achieve its objectives. These

strategies and plans form an invaluable framework for service reporting: if these plans are

what you say you are going to do, they are like the budgets for financial reporting.

If you have plans and strategies that reflect the most important things you are doing, a well

managed organisation will report against these things regularly – if not, ask why – are these

things really that important after all? The governance level would not accept year end

surprises in the financial reports, why would year end surprises as far as outcomes/outputs

be any more acceptable. Levels of achievement should be flagged early and often.

Following on from these comments, if these principles are followed it should be possible to

develop a “blank” service performance report when the annual plan is agreed, this serves

as:-

1. A basis for reporting at year end

2. A reminder to the organisation of what the important outcomes are that the

organisation is working towards

3. A template for regular (monthly/quarterly?) reporting.

Agenda Item 7.2

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This concept of the blank service report still provides the ability to provide additional

context and “cross referencing” in the annual report, especially in describing and explaining

performance which has not achieved target levels.

The document makes reference to public bodies who have had a requirement to report on

service for many years, in the case of local government for more than twenty for example.

The current level of performance reporting in these sectors did not happen overnight.

There should be a recognition that the best service reports will emerge from planning

processes as described above, these may take time to develop.

R17 -

R18 -

Agenda Item 8.1

Page 1 of 18 190360.1

Memorandum


To: NZASB Members

From: Joanne Scott and Aimy Luu Huynh

Subject: PBE Interests in Other Entities

Action

1. The Board is asked to CONSIDER the key matters raised in submissions on ED NZASB 2016-1

to 5 PBE Interests in Other Entities (the EDs) and how to move forward with this project.

Background

2. The Board issued the five EDs that make up this project in February 2016. Comments were

due by 30 June 2016. The Invitation to Comment and EDs are available in the supporting

Board papers.

3. The full titles of the five EDs were:

(a) ED NZASB 2016-1 PBE IPSAS 34 Separate Financial Statements;

(b) ED NZASB 2016-2 PBE IPSAS 35 Consolidated Financial Statements;

(c) ED NZASB 2016-3 PBE IPSAS 36 Investments in Associates and Joint Ventures;

(d) ED NZASB 2016-4 PBE IPSAS 37 Joint Arrangements; and

(e) ED NZASB 2016-5 PBE IPSAS 38 Disclosure of Interests in Other Entities.

4. This memo also refers to the EDs using shorter titles (for example, ED PBE IPSAS 34).

5. Staff conducted the following outreach on the EDs:

(a) XRB seminars in Auckland, Wellington and Christchurch followed by a webinar; and

(b) presentations to Chartered Accountants Australia and New Zealand (CA ANZ) special

interest groups in Auckland and Wellington.

6. The Invitation to Comment (ITC) that accompanied the EDs highlighted the changes that the

NZASB was proposing to make to the underlying IPSASs and explained key differences

between the EDs and the current PBE Standards (PBE IPSASs 6 to 8).

Agenda Item 8.1

Page 2 of 18 190360.1

Structure of this memo

7. The remainder of this memo is set out as follows:

(a) submissions received;

(b) overview of the feedback received;

(c) a summary of responses by question and suggestions for moving forward;

(d) other matters;

(e) further IASB amendments;

(f) recommendations; and

(g) next steps.

8. This memo identifies matters raised by the respondents and outlines the changes we propose

in response to respondents’ comments. In order to gain a full understanding of respondents’

comments it is necessary to read the complete submissions. Responses, collated by question,

are set out in agenda item 8.2. Copies of the submissions are included in the supporting Board

papers.

Submissions received

9. We received six submissions, as listed below.

R# Respondent Type Agenda item

R1 Julia Fletcher Individual 8.3.1

R2 BDO CA firm 8.3.2

R3 Auckland Council Public sector 8.3.3

R4 OAG Public sector 8.3.4

R5 EY CA firm 8.3.5

R6 The Treasury Public sector 8.3.6

Overview of the feedback received

10. The questions in the ITC and an overview of the feedback received on those questions is

shown in the table below. The questions are shown in the order in which they are considered

in this memo. This is different from the order used in the ITC. The EDs and questions which

received a high level of support have been covered first so that we can then focus on the more

difficult issues in relation to ED PBE IPSAS 35.

Agenda Item 8.1

Page 3 of 18 190360.1

Overview of feedback received

ED PBE IPSAS 34 Separate Financial Statements

Question 1

Do you agree that no substantive changes to IPSAS 34 are required to make it suitable for

application by PBEs in New Zealand? If you disagree, please describe the additional changes

that you consider to be appropriate.

• General support.

• There is an error in the ED. We are seeking feedback on how to address this error.

ED PBE IPSAS 36 Investments in Associates and Joint Ventures

Question 6





ED PBE IPSAS 37 Joint Arrangements

Question 7

Do you agree with the proposed modifications to IPSAS 37 in PBE IPSAS 37? If you disagree,

please provide reasons and indicate the nature of any additional modifications that you

consider to be appropriate.


ED PBE IPSAS 38 Disclosure of Interests in Other Entities

Question 8





• R6 has concerns about the definition of a structured entity.

General

Question 9 RDR

Do you agree with the Reduced Disclosure Regime concessions proposed in the EDs? If you

disagree, please provide reasons and indicate any additional concessions that you consider

would be appropriate.


• Two minor edits.

Question 10 Effective Date

Do you agree with the proposal that the final PBE Standards should have an effective date of

1 January 2019, with earlier application permitted.

• General support as long as standards are issued by the end of this year.

Agenda Item 8.1

Page 4 of 18 190360.1

Overview of feedback received

ED PBE IPSAS 35 Consolidated Financial Statements

Question 2 Investment entity accounting

Do you consider that the IPSASB’s reasons for retaining investment entity accounting in the

financial statements of a non-investment controlling entity are relevant for both public sector

and not-for-profit public benefit entities in New Zealand? If you do not agree, please explain

why


• Suggestion to monitor use of exception by NFPs.

Question 4 Network and partner agreements

Do you agree with the proposal to include integral application guidance on network and

partner agreements in PBE IPSAS 35 (paragraphs AG31.1 to AG31.7)? If you do not agree,

please explain why.


• Suggestions to add more guidance and examples.

Question 3 Guidance on predetermination

Do you agree with how we have proposed to modify IPSAS 35 by including more guidance on

predetermination (see paragraphs 21, 29.1, 35.1, AG8.1, AG53 and Example 29A)? If you do not

agree, please explain why.

• R4 considers further work is required.

• R5 queries addition to AG53.

Question 5 Other modifications

Do you agree with the other proposed modifications to IPSAS 35 in PBE IPSAS 35? If you

disagree, please provide reasons and indicate the nature of any additional modifications that

you consider to be appropriate.

• R4 considers further work is required.

• R5 made a couple of suggestions.

General

Question 11 Other comments

Do you have any other comments on the EDs?

Although this was a general question, most responses were about control and consolidation.

• R1 wants requirement for parent information clarified.

• R4 has a number of suggestions.

• R5 suggests changes for NFP sector.

Agenda Item 8.1

Page 5 of 18 190360.1

ED NZASB 2016-1 PBE IPSAS 34 Separate Financial Statements

11. This ED was based on IPSAS 34 Separate Financial Statements, which, in turn, was based on

IAS 27 Separate Financial Statements. The NZASB proposed no substantive changes to the

requirements in IPSAS 34. Question 1 from the ITC is shown below.

Q1. Do you agree that no substantive changes to IPSAS 34 are required to make it suitable

for application by PBEs in New Zealand? If you disagree, please describe the additional

changes that you consider to be appropriate.

12. Five respondents answered Question 1. We have classified the responses as:1

Agree (R2, R4, R5, R6) 4

Partially agree (R3) 1

13. R3 commented on an error in paragraphs 14 and 22 of IPSAS 34 (which was carried through to

ED PBE IPSAS 34) and how it might be addressed. We became aware of this error after the

New Zealand ED had been issued and had discussed this error with R3. We also mentioned

this issue to some other constituents but did not receive any other comments on it. The ED

refers to an accounting method that is not appropriate for separate financial statements (in

respect of a controlling entity with controlled investment entities that is not itself an

investment entity).

14. The error would affect only those PBEs that have controlled investment entities and that

prepare separate financial statements. We think there are likely to be only a few entities that

fall into this category. However, we do not think that it is appropriate to issue the standard

without this issue being resolved. The IPSASB plans to address this issue in an annual

improvements project but has not yet considered what changes it will propose.

15. The general requirements regarding how an entity accounts, in its separate financial

statements accounting, for investments in controlled entities, joint ventures and associates,

are set out in paragraph 12 of the ED. The three methods permitted are:

(a) at cost;

(b) in accordance with PBE IPSAS 29 Financial Instruments: Recognition and Measurement

(being fair value through surplus or deficit); or

(c) using the equity method as described in PBE IPSAS 36.

16. Both the IASB and the IPSASB limited the the choice of method in some cases. For example,

IAS 27 requires that an investment entity parent account for its investment entity subsidiary at

fair value in both its consolidated and separate financial statements. The IPSASB established

different investment entity requirements than those in IFRS® Standards. The IPSASB decided

that a controlling entity that was not itself an investment entity should account for a

controlled investment entity in the same way as if it were an investment entity. However, the

1 There is judgement involved in classifying responses, particularly classifying a response as “Agree” or “Partially

agree”. The classifications that we have applied are shown in agenda item 8.2.

Agenda Item 8.1

Page 6 of 18 190360.1

changes made in IPSAS 34 to establish requirements for a controlling entity with controlled

investment entities but which is not itself an investment entity were not quite right.

17. The underlined text in paragraphs 14 and 22 below illustrates the problem. The paragraphs

refer to the controlling entity measuring the investments of a controlled investment entity at

fair value through surplus or deficit and consolidating the other assets and liabilities and

revenue and expenses of the controlled investment entity. This was based on the wording used

in IPSAS 35 Consolidated Financial Statements and was appropriate in that standard. However,

one does not consolidate items in separate financial statements.

Extracts from ED PBE IPSAS 34 Separate Financial Statements

14. If a controlling entity is required, in accordance with paragraph 56 of PBE IPSAS 35, to

measure its investment in a controlled entity at fair value through surplus or deficit in

accordance with PBE IPSAS 29, it shall also account for that investment in the same way in

its separate financial statements. If a controlling entity that is not itself an investment entity

is required, in accordance with paragraph 58 of PBE IPSAS 35, to measure the investments

of a controlled investment entity at fair value through surplus or deficit in accordance with

PBE IPSAS 29 and consolidate the other assets and liabilities and revenue and expenses of

the controlled investment entity, it shall also account for that investment in the controlled

investment entity in the same way in its separate financial statements.

…

22. If a controlling entity that is not itself an investment entity is required, in accordance with

paragraph 56 of PBE IPSAS 35, to measure the investments of a controlled investment

entity at fair value through surplus or deficit in accordance with PBE IPSAS 29 and

consolidate the other assets and liabilities and revenue and expenses of the controlled

investment entity, it shall disclose that fact. The entity shall also present the disclosures

relating to investment entities required by PBE IPSAS 38.

18. We need to determine what method(s) a controlling entity (which is not itself an investment

entity) should be permitted to use in accounting for its investment in a controlled investment

entity. We considered whether such entities should be required to account for controlled

investment entities in accordance with PBE IPSAS 29. The controlled investment entity will

already have had to account for the majority of its investments using fair value. The

controlled investment entity might have some investments in service entities which it has

consolidated, but these would be expected to be small in relation to the overall value of the

controlled investment entity.

19. However, to allow for the possibility that fair value information might not always be available,

we recommend that the Board allow such entities to use any of the three methods normally

permitted by IPSAS 34. This would be consistent with the approach taken by the South

African Accounting Standards Board in its recent ED based on IPSAS 34 (ED 144 Separate

Financial Statements, July 2016).

Moving forward – ED PBE IPSAS 34

20. We plan to bring a revised standard to the next meeting for approval.

21. Our suggestions for correcting the error in IPSAS 34 are shown in the table below.

22. Does the Board agree with the proposed changes to ED PBE IPSAS 34?

Agenda Item 8.1

Page 7 of 18 190360.1

Proposed change to ED PBE IPSAS 34 Comment

14. If a controlling entity is required, in accordance

with paragraph 56 of PBE IPSAS 35, to

measure its investment in a controlled entity at

fair value through surplus or deficit in

accordance with PBE IPSAS 29, it shall also

account for that investment in the same way in

its separate financial statements. If A

controlling entity that is not itself an investment

entity is required shall measure its investment in

a controlled investment entity in accordance

with paragraph 12 in its separate financial

statements. paragraph 58 of PBE IPSAS 35, to

measure the investments of a controlled

investment entity at fair value through surplus

or deficit in accordance with PBE IPSAS 29 and

consolidate the other assets and liabilities and

revenue and expenses of the controlled

investment entity, it shall also account for that

investment in the controlled investment entity in

the same way in its separate financial

statements.

This is consistent with the approach

taken in the South African ED 144.

22. If a controlling entity that is not itself an

investment entity is required, in accordance

with paragraph 56 of PBE IPSAS 35, to

measure the investments of a controlled





investment entity, it shall disclose that fact. The

entity shall also present the disclosures relating

to investment entities required by

PBE IPSAS 38.

In discussions with R3 we had suggested that paragraph 22 could be deleted. R3 concurred.

We considered deleting the paragraph because there would be very few situations in which it would lead to disclosures that are not already required by other standards. For example, most of the entities referred to in paragraph 22 would either be preparing consolidated financial statements or making use of the exemption from preparing consolidated financial statements in paragraph 5 of ED PBE IPSAS 35. In both cases these entities would be required to make equivalent disclosures, either by ED PBE IPSAS 35 and ED PBE IPSAS 38 or paragraph 20 of PBE IPSAS 34.

To allow for the possibility that some entities might fall into this category and not be caught by other disclosure requirements, we recommend keeping paragraph 22.

The South African ED is proposing that an entity disclose which method it has selected, and comply with the disclosures in the South African equivalent to IPSAS 38.

Agenda Item 8.1

Page 8 of 18 190360.1

Proposed change to ED PBE IPSAS 34 Comment

30. At the date of initial application, a controlling

entity that is not itself an investment entity but

which is required, in accordance with

paragraph 5614 of PBE IPSAS 35 this Standard,

to measure its the investments of in a controlled





investment entity, shall use the transitional

provisions in paragraphs 24–29 in accounting

for its investment in the controlled investment

entity in its separate financial statements.

This change would align paragraph 30

with paragraph 14.

ED NZASB 2016-3 PBE IPSAS 36 Investments in Associates and Joint Ventures

23. Consistent with IAS 28 and IPSAS 36, ED PBE IPSAS 36 proposed to require that an entity

account for its interests in associates and joint ventures using the equity method of

accounting. The NZASB did not propose any substantive changes to IPSAS 36 to make it

suitable for application by PBEs in New Zealand. Question 6 from the ITC is shown below.




24. Five respondents answered Question 6. We have classified the responses as:

Agree (R2, R3, R4, R5, R6) 5

25. R5 noted that paragraph 2.2 refers to “disclosure” concessions. However, one of the

concessions in the ED relates to presentation rather than disclosure. We propose that,

consistent with the wording of equivalent paragraphs in the for-profit standards, we remove

the word disclosure and just refer to concessions.


26. We plan to bring a standard to the next meeting for approval.

ED NZASB 2016-4 PBE IPSAS 37 Joint Arrangements

27. Consistent with IFRS 11 and IPSAS 37, ED BE IPSAS 37 proposes accounting requirements for

the following two types of joint arrangements.

(a) In a joint operation, the joint operator recognises the assets, liabilities, revenue, and

expenses arising from its interest in the joint operation.

(b) In a joint venture, the joint venturer recognises its interest in a joint venture as an

investment, using the equity method of accounting.

Agenda Item 8.1

Page 9 of 18 190360.1

28. The NZASB proposed to incorporate into PBE IPSAS 37 relevant narrow scope amendments

from the IASB’s Accounting for Acquisitions of Interests in Joint Operations (Amendments to

IFRS 11) issued in May 2014. These narrow scope amendments added guidance on how to

account for the acquisition of an interest in a joint operation that constitutes a business, as

defined in IFRS 3. Question 7 from the ITC is shown below.

Q7. Do you agree with the proposed modifications to IPSAS 37 in PBE IPSAS 37? If you

disagree, please provide reasons and indicate the nature of any additional modifications



Agree (R2, R3, R4, R5, R6) 5



ED NZASB 2016-5 PBE IPSAS 38 Disclosure of Interests in Other Entities

31. The NZASB did not propose any substantive changes to IPSAS 38. The ED highlighted the

definition of a structured entity as this was a new concept. Question 8 from the ITC is shown

below.





Agree (R2, R3, R4, R5) 4


33. R6 considers that the definition of a structured entity is confusing because it refers to

administrative factors and binding arrangements as separate ideas. However, in the

New Zealand public sector binding arrangements are regarded as an administrative

mechanism. R6 has not proposed any change to the definition at this stage. R6 has suggested

that we refer this matter to the IPSASB for consideration in a post-implementation review.


34. Does the Board agree that we should forward the comments about the term structured entity

to the IPSASB?


Agenda Item 8.1

Page 10 of 18 190360.1

Proposed RDR Concessions

36. The EDs proposed concessions based on those in the equivalent for-profit standards. The

NZASB noted that it intends to review the RDR concessions in for-profit standards and PBE

standards, and would consult separately on any changes to these proposals as a result of that

review. Question 9 from the ITC is shown below.

Q9. Do you agree with the Reduced Disclosure Regime concessions proposed in the EDs? If

you disagree, please provide reasons and indicate any additional concessions that you

consider would be appropriate.


Agree (R2, R3, R4, R5, R6) 5

Moving forward – RDR

38. We will include the concessions identified in the EDs in the standards.

39. There are two editing changes required. The word “disclosure” needs to be removed from

paragraph 2.2 of PBE IPSAS 35 and paragraph 1.2 of PBE IPSAS 36.

Effective Date

40. The NZASB proposed that, once approved, the final PBE Standards should be effective for

annual financial statements covering periods beginning on or after 1 January 2019, with

earlier application permitted. Question 10 from the ITC is shown below.

Q10. Do you agree with the proposal that the final PBE Standards should have an effective

date of 1 January 2019, with earlier application permitted?


Agree (R2, R3, R4, R5, R6) 5

42. R5 noted that the effective date is reasonable if the standards are issued soon.

Moving forward – Effective Date

43. If the NZASB approves the five standards for issue before the end of 2016 then we think the

proposed effective date is still appropriate. If approval of the standards takes longer we would

need to reconsider the effective date.

Agenda Item 8.1

Page 11 of 18 190360.1

ED NZASB 2016-2 PBE IPSAS 35 Consolidated Financial Statements

44. PBE IPSAS 35 establishes principles for the preparation of consolidated financial statements

when an entity controls one or more other entities. In order to have control over another

entity, an entity must have:

(a) power over the other entity;

(b) exposure, or rights, to variable benefits from its involvement with the other entity; and

(c) the ability to use its power over the other entity to affect the nature or amount of

benefits from its involvement with the other entity.

45. For the purpose of assessing power, PBE IPSAS 35 distinguishes between substantive rights

and protective rights. For a right to be substantive, the holder must have the practical ability

to exercise that right. Protective rights are not considered when assessing power.

46. The NZASB proposed a number of changes to IPSAS 35 to make it suitable for application by

PBEs in New Zealand. Some changes were prompted by the need to ensure the coherence of

PBE Standards as a whole. The NZASB also proposed additional guidance on:

(a) assessing control when there has been predetermination of activities;

(b) network and partner agreements (based on guidance in IFRS 10); and

(c) mixed groups (based on the current guidance in PBE IPSAS 6).

47. Questions 2 to 6 of the ITC sought feedback on aspects of ED PBE IPSAS 35. The responses to

Question 2 on investment entity accounting and Question 4 on mixed group guidance were

generally supportive. We have therefore considered the responses on these two questions

first.

Investment Entity Accounting

48. The ITC noted that in contrast to IPSAS 35, the exception to consolidation in IFRS 10 is

available only to investment entities – it is not available to the parent of an investment entity

unless that parent is itself an investment entity. The ITC explained the reasons for this

difference between IFRS 10 and IPSAS 35 and sought feedback from New Zealand constituents

about this difference. Question 2 from the ITC is shown below.

Q2. Do you consider that the IPSASB’s reasons for retaining investment entity accounting in

the financial statements of a non-investment controlling entity are relevant for both

public sector and not-for-profit public benefit entities in New Zealand? If you do not



Agree (R2, R3, R4, R5, R6) 5

Agenda Item 8.1

Page 12 of 18 190360.1

50. R5 recommended that the NZASB monitor the use of the investment entity exemption in the

NFP sector to ensure structuring of entities is not occurring.

51. Given the level of support in the responses we do not see any reason to change the proposals

in relation to investment entities.

52. Does the Board agree to keep the proposals in the ED in relation to investment properties?

Network and partner agreements

53. The NZASB proposed additional integral application guidance on network and partner

agreements (paragraphs AG31.1 to AG31.7). This guidance was based on the franchise

guidance in IFRS 10 (paragraphs B29 to B33). The IPSASB omitted the IFRS 10 guidance on

franchises from IPSAS 35 because it considered that there were likely to be few franchises in

the public sector. The NZASB considered that PBEs, particularly not-for-profit PBEs, might

enter into arrangements similar to franchises and decided to provide guidance on this topic

and refer to the arrangements as network and partner agreements. Question 4 from the ITC is

shown below.

Q4. Do you agree with the proposal to include integral application guidance on network and

partner agreements in PBE IPSAS 35 (paragraphs AG31.1 to AG31.7)? If you do not



Agree (R2, R3, R4, R5, R6) 5

55. R5 suggested two further modifications in respect of the guidance on network and partner

agreements. R5’s first suggestion was to include additional guidance from PBE IPSAS 6

paragraph AG 15 about the ability of a franchisee to withdraw from the agreement and

continue operating its business (possibly as paragraph AG 31.6) to make this point clear.

Extract from PBE IPSAS 6

AG15. Delegation under a contractual arrangement includes relationships established under

management agreements and franchise agreements. Under a typical management

agreement, an external party is contracted to manage an entity in return for a management

fee. This involves a transfer by the owner of the entity to the external party of a decision-

making ability in respect of the entity. However, the ultimate decision-making capacity is

retained by the owner of the entity through the ability to terminate the contract and

reacquire the decision-making ability previously transferred. In a franchise agreement, the

owner of a franchisee might or might not have transferred to the franchisor its decision-

making ability over the franchisee. This position depends on whether, by virtue of the terms

of the agreement, the franchisor is able to determine all significant financing and operating

decisions affecting the franchisee. However, in all cases the ultimate decision-making

capacity is retained by the owner of the franchisee through its ability to withdraw from the

franchise agreement, reacquire any decision-making ability previously held by the

franchisor, and continue operating in business.

Agenda Item 8.1

Page 13 of 18 190360.1

56. The guidance in PBE IPSAS 6, paragraph AG15 originally came from FRS-37 Consolidating

Investments in Subsidiaries (paragraph 4.26). We have reservations about adding in more

guidance based on this paragraph from FRS-37. These reservations are:

(a) Adding more guidance would lead to a further difference between the for-profit

standards and the PBE Standards. IFRS 10 does not discuss how rights to terminate

agreements affect the analysis of franchise agreements. We are not sure that these

types of arrangements are sufficiently different to warrant different guidance.

(b) The guidance in FRS-37 was written to support the requirements in FRS-37, not the

requirements in the proposed PBE IPSAS 35. We are concerned that the guidance from

FRS-37 would not mesh well with the proposed standard and might change the meaning

of the guidance taken from IFRS 10.

57. Does the Board agree not to add more guidance about the ability of an entity to withdraw

from a network and partner agreement and continue operating its business?

58. R5’s second suggestion was to include examples of network and partner agreements

illustrating where control arises and where it doesn’t. The example could highlight a fact

pattern where entities were either operating for their own objectives or for the same

objective, or situations where there was financial dependency between the two entities (for

example the “franchisor” funding losses of the “franchisee”).

59. Does the Board want us to draft more examples on network and partner agreements as

suggested by R5?

Guidance on predetermination and other modifications

60. Question 3 on predetermination and Question 5 on other modifications generated the most

feedback and suggestions for change. We have therefore grouped the responses on these

two questions. Some responses to Question 11 (see R1, R4 and R5) also touched on issues

relating to control and consolidation. The responses to Questions 3, 5 and 11 should be read

together. R4’s cover letter also touched on issues associated with determining control.

61. The NZASB spent a lot of time developing the proposed additional guidance on

predetermination. Paragraphs 34 to 39 of the ITC discuss the types of changes made by the

NZASB. The NZASB wanted to make it clear that, although the definition of power uses the

terms “existing rights” and “current ability”, this does not preclude the possibility that an

entity could control another entity in situations where power has already been exercised

through predetermination of activities. The NZASB made a number of changes to IPSAS 35 to

try and bring in these ideas. The changes made were set out in:

(a) paragraphs 21, 29.1, 35.1, AG8.1 and AG53; and

(b) example 29A.

62. A discussion of matters considered by the NZASB in adding this guidance was set out in the

Basis for Conclusions, paragraphs BC5 to BC9. These paragraphs are included in Appendix 1 of

this memo.

Agenda Item 8.1

Page 14 of 18 190360.1


Q3. Do you agree with how we have proposed to modify IPSAS 35 by including more

guidance on predetermination (see paragraphs 21, 29.1, 35.1, AG8.1, AG53 and

Example 29A)? If you do not agree, please explain why.


Agree (R2, R3, R6) 3


Disagree (R4) 1

65. R4 did not agree with the proposed modifications on the grounds that they are not clear

enough. In particular R4 is concerned that the definition of power does not include the notion

of predetermination. R4 considers that further modifications are need to embed the notion of

predetermination. R4 provided more detailed comments on some of the changes that they

consider are necessary in response to Question 5.

66. R5 expressed the view that the reason for the NZASB’s addition to paragraph AG53 was not

clear.

67. Question 5 from the ITC is shown below. Some respondents used Question 5 as the vehicle for

providing more detailed feedback on the types of changes that they would like to see to ED

PBE IPSAS 35.

Q5. Do you agree with the other proposed modifications to IPSAS 35 in PBE IPSAS 35? If you

disagree, please provide reasons and indicate the nature of any additional modifications



Agree (R2, R3, R5, R6) 4

Disagree (R4) 1

69. R3, R5 and R6 took the opportunity to support the inclusion of the guidance on mixed groups.

70. R4 took the opportunity to outline more detailed concerns with parts of the ED. R4’s main

concerns were that the NZASB’s attempts to incorporate the possibility of control occurring in

situations where there is predetermination have not adequately covered the types of

situations that occur in the public sector and are not sufficiently clear.

Agenda Item 8.1

Page 15 of 18 190360.1

71. Parts of the ED that R4 thinks need further work include:

(a) the definition of power;

(b) the application guidance on assessing control (including AG8.1, AG16 and AG17,

AG60(c)) including clarification of whether the “controlling entity” has to have

established the entity with predetermined activities being assessed for control; and

(c) the illustrative examples (particularly Examples 28 and 29A).

72. We have not repeated all of R4’s comments as they are clearly expressed in the submission

(see agenda item 8.2, Question 5, or agenda item 8.3.4).

73. In developing the ED the Board deliberated extensively on the issues raised in relation to

Questions 3 and 5. Therefore the staff is seeking feedback on the direction that the Board

wishes to take before doing further work.

74. We are seeking feedback on whether the Board would like us to address any of the concerns

expressed in response to Questions 3 and 5, and if so, which ones.


75. We will be guided by the Board’s feedback on Questions 2–5 above in drafting changes to the

proposed standard for consideration in November.

Other Matters


Q11. Do you have any other comments on the EDs?

77. R1, R3 and R5 responded to Question 11. As noted above, most responses were about control

and consolidation.

78. R1 made two points. The first was a view that in practice, the proposed new standard would

be unlikely to result in more NFPs consolidating controlled entities. R1 noted that some NFPs

resist the idea of consolidation due to perceived loss of autonomy and administrative

challenges of consolidation.

79. R1’s second suggestion was that the proposed standards explicitly state whether parent

information is required. In R1’s view parent statements are useful. Requirements for parent

financial statements are established in legislation rather than accounting standards.

Therefore we do not propose any amendments in relation to R1’s suggestion.

80. R4 identified a number of areas where the proposed standard on consolidation could be

clarified or improved. These included:

(a) referring to Entity A and Entity B throughout;

(b) clarification of who service recipients are and the benefits they receive;

Agenda Item 8.1

Page 16 of 18 190360.1

(c) the use of similar but slightly different terms and the desire for clarification (for

example congruent activities, complementary objectives, and congruent objectives, and

financial policies and financial activities); and

(d) paragraph AG27.

81. R5 identified a number of situations where PBEs are experiencing difficulties in deciding

whether control exists. Most of these examples involved a national governing body with local

entities. R5 suggested that the Board consider more examples. The suggestions were a youth

group or a church, and a collection of entities with no “parent”.

82. R5 also noted the usefulness of the guidance in PBE IPSAS 6 on trusts. This guidance was not

carried forward into the ED. However, the ED does contain a number of examples involving

trusts (for example, Examples 15, 25, 27, 28, 29, 29A, 30, 35).

83. The Board might like to consider these suggestions when it reviews EG 8 Financial Reporting

by Not-For-Profit Entities: the Reporting Entity.

Moving forward – Question 11 Other Matters

84. What work would the Board like us to do in relation to R4’s suggestions?

85. Does the Board want us to develop more examples? If so, which ones?

86. Does the Board want us to develop more guidance on trusts?

Further IASB amendments

87. Since the EDs were issued the IASB has proposed more changes to IFRS 3 and IFRS 11. The

IASB issued ED/2016/1 Definition of a Business and Accounting for Previously Held Interests

(Proposed Amendments to IFRS 3 and IFRS 11) (ED/2016/1) in June 2016. The proposed

amendments have come out of the Post-implementation Review of IFRS 3. They clarify:

(a) the definition of a business; and

(b) how an acquirer should account for previously held interests in a business if acquiring

control, or joint control, of that business.

88. We will apply the PBE Policy Approach to the amendments when they are finalised.

Recommendations


(a) NOTE the submissions received on the five exposure drafts comprising PBE Interests in

Other Entities;

(b) PROVIDE FEEDBACK on the proposals for moving forward outlined in this memo; and

(c) PROVIDE FEEDBACK on next steps and timing.

Agenda Item 8.1

Page 17 of 18 190360.1

Next steps

90. We plan to bring draft PBE Standards to the next meeting. We plan to seek approval in

principle of PBE IPSASs 34 and 36 to 38 at the November Board meeting. We expect the

Board will need at least two meetings to review the changes to PBE IPSAS 35. The proposed

timing for the project is shown below.

Project milestones Date

Review the draft standards November 2016

Review and approve the standards December 2016

Attachments

Agenda Item 8.2 Responses collated by Question

Agenda Item 8.3 Submissions received (in supporting documents)

Agenda Item 8.4 ITC and EDs NZASB 2016-1 to 5 (in supporting documents)

Agenda Item 8.1

Page 18 of 18 190360.1

Appendix 1 Extract from NZASB Basis for Conclusions on ED PBE IPSAS 35 Consolidated Financial Statements

Predetermined Activities

BC5. The NZASB expanded the discussion of predetermined activities in IPSAS 35. This was due to

concerns that the language used in the definition of power, could, in the absence of further guidance, be

read as excluding control obtained through predetermination of activities. IPSAS 35 states that power

consists of existing rights that give the current ability to direct the relevant activities of another entity.

The NZASB wanted to clarify that, although the definition of power uses the terms “existing rights”

and “current ability”, this does not preclude the possibility that an entity could control another entity in

situations where power has already been exercised through predetermination of activities.

BC6. In developing IPSAS 35 the IPSASB modified the guidance in IFRS 10 about assessing power to

highlight that, in the case of an entity established with predetermined activities, the right to direct the

relevant activities may have been exercised at the time that the entity was established. The NZASB

considered that the IPSASB’s additional guidance about predetermination in IPSAS 35 is helpful, but

was of the view that the guidance in IPSAS 35 is not sufficient to lead to consistent and appropriate

assessments of control by PBEs in New Zealand. The NZASB noted that PBEs often have to make

assessments about the existence of control when there has been predetermination of activities and that

these assessments can be difficult. The NZASB’s intention in expanding the discussion of

predetermined activities in IPSAS 35 was to clarify, as much as possible, the circumstances in which

predetermination is likely to result in control.

BC7. Based on its experience with assessments of control in New Zealand, the NZASB considered that the

Standard should acknowledge that a broad range of scenarios are possible and indicate the

circumstances in which predetermination generally leads to control. The NZASB agreed that control is

likely to exist when the entity determined the purpose and design of the other entity being assessed for

control and, in so doing, established significant restrictions on the relevant activities of that entity,

which limit the ability of others to make decisions about those relevant activities and ensure that the

establishing entity receives the significant benefits from those activities.

BC8. The NZASB decided to modify the discussion of power and to highlight the importance of considering

the purpose and design of an entity when assessing control, including explaining that such

considerations of purpose and design should include consideration of the relevant activities, who has

the power to make decisions about the relevant activities over the life of the entity and who receives the

benefits from those activities (see paragraphs 21, 29.1, 35.1, AG8.1 and AG53). That is, assessments of

control should include the impact of predetermination, not just the remaining decisions that are left

following predetermination. The NZASB also included an additional illustrative example of an entity

with predetermined activities (refer Example 29A).

BC9. The NZASB acknowledged that both the IPSASB’s guidance on predetermination in IPSAS 35,

together with the NZASB’s proposed further guidance, could result in different assessments of control

compared to IFRS 10. This could have implications for mixed groups. For example, a PBE applying

PBE IPSAS 35 in assessing whether it controls a for-profit entity with predetermined activities could

come to a different conclusion than a for-profit entity making the same assessment using IFRS 10.

Agenda Item 8.2

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Respondents’ Comments by ITC Question

R# Respondent Type Agenda item

R1 Julia Fletcher Individual 8.3.1

R2 BDO CA firm 8.3.2

R3 Auckland Council Public sector 8.3.3

R4 OAG Public sector 8.3.4

R5 EY CA firm 8.3.5

R6 The Treasury Public sector 8.3.6

Cover letter or opening comments

R1 R1’s comments have been shown as a response to Question 11.

R2 General comments only.

R3 Auckland Council is Australasia’s largest local government entity and is made up of the

Council and six substantive council controlled organisations. We invest heavily in

infrastructure and many of our decisions will have a fiscal impact on Auckland’s future

generations.

We believe that the proposed exposure drafts are generally consistent with NZ IFRS

equivalents, thus, limiting consolidation issues arising from “mixed groups”.

We have given our responses to the specific questions for the respondents as an

attachment to this letter along with our additional comments for the XRB’s

consideration.

The responses in this letter were also reviewed and agreed with Auckland Transport,

one of the council controlled organisations.

R4 We have considered the contents of the exposure drafts and we are broadly

supportive of the accounting standards proposed by the NZASB. Our comments mainly

focus on the exposure draft on PBE IPSAS 35 Consolidated Financial Statements.

The reason we have a particular interest in this proposed accounting standard is

because it not only determines whether Entity A consolidates Entity B, but it is also

used to determine whether Entity B is a public entity under the Public Audit Act 2001.

Therefore, the issues that arise for us in relation to this standard include concerns

about what is, or is not, appropriately classed as a public entity, and about how far the

Auditor-General’s mandate is intended to extend.

Because this standard has the status of legislation, it needs to be written, as far as

possible, in language that is clear, precise, and consistent. Some examples of where we

think the standard could be clearer are provided in the attachment to this letter.

Our interest is in having a standard that makes sense, is based on principles and is

clear, so that it can be readily and consistently applied across different entity types.

There are a range of entities in the public sector that we are required to apply the

Agenda Item 8.2

Page 2 of 25 190361.1


standard to. For example, trusts, charitable trusts, incorporated societies, and

increasingly limited partnerships. Because this is a standard that applies to public

benefit entities, we would expect that it will be applied in many cases to entities other

than companies. In the public sector, we come across a lot of trusts where this

standard would need to be applied.

Trusts do not have ownership instruments, such as shares. Therefore, it can be quite

challenging to assess whether trusts are public entities and/or should be consolidated

by the potential ‘parent’ entity. We often encounter trusts which dispute that they are

“controlled” under the financial reporting standards. Because trusts are generally

discretionary and are set up to operate quite autonomously within the boundaries set

out in their trust deed, the concept of “control” does not fit comfortably for trusts.

Another common view is that a potential parent entity does not receive benefits from

the trust’s activities because they are not the direct beneficiaries of the trust.

However, this is a narrow view of “benefits” and does not take into account

complementary benefits.

In our view, it would be helpful if the standard could explicitly acknowledge that it

does apply to entities other than companies, and explain how concepts such as

‘financial and operating policies’, ‘power’, and ‘non-financial benefits’ are intended to

apply to these sorts of entities.

In our view, the definitions of control and benefits in the exposure drafts are an

improvement to the existing standard. However, the definition of power as it is

currently drafted is too rigid and limiting.

We are concerned about how the definition of power in the exposure drafts could be

interpreted for autopilot arrangements. There is a lack of emphasis on autopilot

arrangements and it is not clear that the exceptions to the ongoing need for power,

found in PBE IPSAS 6, still apply.

There is a long history to trying to improve the accounting standard on control.

Although there were some problems with the wording of FRS-37, it did clearly

recognise that control could exist even where there is no ongoing power (autopilot

arrangements).

When IFRS was adopted, cross-references to some paragraphs of FRS-37 and IPSAS 6

were inserted in NZ IAS 27 for public benefit entities in order to recognise that control

could arise in autopilot arrangements. However, there were different interpretations

of the cross-references, with some people considering them only to the extent they

did not conflict with the underlying standard, whereas we considered them part of the

standard.

The current PBE accounting standard, PBE IPSAS 6, incorporated FRS-37 as Application

Guidance. We understand this was done to maintain the “status quo” until a new

standard could properly incorporate the autopilot concept, as well as improve on

some of the wording in FRS-37.

In our view, the modifications made by the NZASB to IPSAS 35 to include guidance on

predetermination are helpful. However, it is unclear how these will be interpreted

Agenda Item 8.2

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because the definition of power has not been modified and predetermination has not

been embedded throughout the standard where power is discussed.

The most clear statement in our view is in paragraph BC5 which notes: “…although the

definition of power uses the terms “existing rights” and “current ability”, this does not

preclude the possibility that an entity could control another entity in situations where

power has already been exercised through predetermination of activities.” In our view,

the sentiments of this statement need to be embedded throughout the standard. This

is discussed further in the attachment to this letter.

In our view, where power has been exercised by Entity A on establishment of Entity B,

such that Entity B cannot deviate significantly from the predetermined activities, it

could be argued that Entity A no longer has the “current ability” to direct the relevant

activities (based on existing rights). Therefore, it could be argued that Entity A does

not control Entity B. We would like to see wording changes to the exposure drafts, if

this is not the intention of the NZASB.

In our view it is important that the exposure drafts acknowledge the need for ongoing

reconsideration of control judgements, as circumstances change.

R5 We are pleased to comment on the proposals set out in the NZASB Invitation to

Comment Exposure Drafts NZASB 2016-1-5: Interests in Other Entities) (EDs 2016-1-5).

We are encouraged by the NZASB’s work to align Public Benefit Entity (PBE) Standards

to the latest standards issued by the International Public Sector Accounting Standards

Board (IPSASB). We believe that, because the proposals are based on the most recent

conceptual thinking on control, joint control and significant influence, they provide

more comprehensive guidance for what can be a complex area of accounting. We also

believe there is a significant benefit to aligning financial reporting for PBEs and for-

profit entities, especially for mixed groups.

R6 The Treasury prepares the Financial Statements of the Government of New Zealand.

These financial statements consolidate a significant number of entities, who for their

own reporting purposes are a mix of Public Benefit Entities (PBEs) and for-profit

entities (a “mixed group”). The Treasury therefore supports close alignment between

PBE standards and for-profit standards where appropriate to avoid unnecessary

differences and minimise the cost associated with mixed group issues. We are

therefore pleased that these standards will substantially align the requirements in PBE

standards with the requirements for for-profit entities.

Agenda Item 8.2

Page 4 of 25 190361.1

ED NZASB 2016-1 PBE IPSAS 34 Separate Financial Statements

Question 1


application by PBEs in New Zealand? If you disagree, please describe the additional changes that you


Category (C#) Total

A – Agree 4


C – Disagree


R # C # Response Question 1

R2 A Yes, we agree that no substantive changes to IPSAS 34 are required.

R3 B We have the following interpretations of the errors which the XRB has suggested to us

to look at:

Paragraph 12

IPSASB has agreed to delete this sentence because IPSAS 35 will require different

accounting treatment for different types of controlled entities. The IPSASB wanted to

avoid the possibility that readers would interpret this paragraph as requiring the same

accounting for all controlled entities. (Based on IPSASB minutes of meeting, December

2014 agenda item 3.2).

We note the decision of the XRB to retain this sentence in New Zealand environment.

We support the XRB in retaining this sentence if the reason is to promote consistency

in how the parent entity accounts for same nature investments, for example, all

investments in joint ventures that are accounted using equity method at consolidation,

are all accounted for at cost by the parent entity, as a policy choice.

This is how we interpret the meaning of the last sentence of paragraph 12.

Paragraph 14

We note that this appears to be the process for a non-investment parent entity to

consolidate a controlled investment entity not to account for the controlled

investment entity in the non-investment parent entity’s separate financial statements.

There is therefore, no guidance on how to account for the controlled investment entity

in the separate financial statements of a non-investment parent entity.

Please also refer to the basis of conclusion 9, page 18 of PBE IPSAS 34.

Paragraph 22

We believe that this disclosure guidance is for consolidation of a non-investment

entity with a controlled investment entity, which is already covered under

PBE IPSAS 35. This is not applicable to the requirements of PBE IPSAS 34 as it is

Agenda Item 8.2

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irrelevant to the parent accounts, thus, we suggest deleting this.

Also, the reference made to paragraph 56 of PBE IPSAS 35 is not related since this

paragraph applies to a controlling entity that is an investment entity.

R4 A We agree that no substantive changes to IPSAS 34 are required to make it suitable for

application by PBEs in New Zealand.

R5 A Yes, we agree that there should be no substantive changes to IPSAS 34 for PBEs in New

Zealand.

R6 A The Treasury supports the proposal that no substantive changes are required to

IPSAS 34 to make this standard suitable for application by PBEs in New Zealand.

In our submission to the IPSASB we suggested that they remove the option to use the

equity method to account for investments in controlled entities, joint venture and

associates of an entity that prepares separate financial statements. We consider the

equity method to be a method of consolidation and therefore inappropriate to be

used in non-consolidated financial statements. We are however relaxed about

allowing the equity method to be used in the absence of cost information, as a

deemed cost amount.

We note that the IPSASB considered this point in finalising IPSAS 34, but disagreed

with the Treasury and maintained the equity option noting that this was also

supported by the majority of respondents.

On the basis that there is merit in limiting differences between IPSAS 34 and

PBE IPSAS 34, and the fact that it’s an option rather than a requirement, we are

comfortable that PBE IPSAS 34 is aligned with IPSAS 34.

Agenda Item 8.2

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Question 2

Do you consider that the IPSASB’s reasons for retaining investment entity accounting in the financial

statements of a non-investment controlling entity are relevant for both public sector and not-for-

profit public benefit entities in New Zealand? If you do not agree, please explain why.

Category (C#) Total

A – Agree 5

B – Partially agree

C – Disagree



R2 A Yes, we agree with these reasons. Furthermore, based on our client base, we do not

expect there will be a significant number of entities that qualify as investment entities

in New Zealand.

R3 A Yes, this is still relevant if Auckland Council and/or any of its controlled entities, in

future, acquire entities that fall into the definition of “investment entities”.

R4 A We agree with the IPSASB that users would find it most useful if the accounting for

investments applied in a controlled investment entity’s financial statements were

extended to its controlling entity’s financial statements.

R5 A We agree with the proposals to retain investment entity accounting in the financial

statements of non-investment entity parent PBEs. While we understand the

International Accounting Standards Board’s (IASB’s) reasons for not allowing the

exemption to flow up to a non-investment entity parents, we also support the IPSASB’s

reasoning for allowing the fair value accounting to be retained in the consolidated

financial statements of a non-investment entity parent. This proposal will decrease

the cost of preparing financial statements as well provide users with useful fair value

information.

We are comfortable that in the public sector there is sufficient level of scrutiny to

ensure structuring or off balance sheet leveraging is not a pervasive issue. However,

we do have some concerns that, in the NFP sector, the existing mechanisms in place

for review and monitoring of entities are not as robust as in the public sector. To this

end, we believe the NZASB should monitor the use of the investment entity exemption

in the NFP sector to ensure structuring of entities is not occurring in order to avoid

consolidation.

R6 A Yes, agree.

We are supportive of the investment entity exception and retaining this in the financial

Agenda Item 8.2

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statements of a non-investment controlling entity.

We disagree with the IASB’s reasons for limiting the investment entity exception and

not allowing the same fair value accounting to flow up to the non-investment

controlling entity.

We note one of IASB’s arguments was that this exception should be limited to the

unique business model of the investment entity itself and the arguments for the

exception is weakened when applied to the non-investment controlling entity. In our

view, the non-investment controlling entity does not have a different view of the

business model for this specific investment within the investment entity from the

investment entity itself. We believe that fair value accounting of the investment in this

limited circumstance is just as relevant for the non-investment controlling entity as the

investment entity itself.

In New Zealand, the Government’s sovereign wealth fund, the New Zealand

Superannuation Fund (NZSF), meets the definition of an investment entity under

IFRS 10 and as such fair values all its investments, whether it controls them or not. In

our view, this treatment should be retained in the Financial Statements of the

Government. There are many common users for both the financial statements of

NZSF and the Government, such as parliament select committees and government

ministers. Such users may be puzzled by different accounting for the same transaction

and therefore question which treatment shows the “right answer”.

We are comfortable with the IPSASB’s reasons for retaining investment entity

accounting in the financial statements of a non-investment controlling entity as set out

in the Basis of Conclusion to IPSAS 3, paragraphs BC27 to BC 29.

Agenda Item 8.2

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Question 3

Do you agree with how we have proposed to modify IPSAS 35 by including more guidance on

predetermination (see paragraphs 21, 29.1, 35.1, AG8.1, AG53 and Example 29A)? If you do not


Category (C#) Total

A – Agree 3


C – Disagree 1



R2 A Yes, we agree with these proposed modifications.

R3 A We agree with the decision of the XRB to include more guidance on predetermination.

This is helpful especially in determining who controls a charitable trust entity, which is

common to the Group.

R4 C We do not agree with the proposed modifications because they are not clear enough.

In particular we are concerned that the definition of power in the exposure draft does

not include the notion of predetermination. We consider further modifications are

needed to embed the notion of predetermination, otherwise the NZASB will risk

inconsistency in application of this standard.

R5 B We agree with the additional guidance and emphasis placed on the consideration of

the purpose and design of an entity in determining control. In particular, we believe

this additional guidance will be useful in the NFP sector. Such entities often have

involvement with establishing entities with predetermined policies and objectives and,

in such situations, determining control can be difficult.

Often when determining control, preparers focus on who makes the day-to-day

decisions of the entity, without considering the fact that decisions about the relevant

activities have been predetermined at the outset. Therefore, we believe the proposed

guidance will be useful to help entities to determine control in such circumstances.

Refer to our response to Q11 below for additional consideration of consolidation in the

NFP sector.

We note the reason for the addition to paragraph AG53 is unclear. It seems

unnecessary to include the added sentence over and above what the existing amended

paragraphs already cover. We suggest this additional wording is redrafted to be clear

what new information or guidance the sentence is trying to highlight.

Agenda Item 8.2

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R6 A Yes, agree. The additional guidance is helpful in the New Zealand context as the role

of pre-determination is pervasive and making judgments about this fact when

determining whether one entity controls another is an area of significant debate.

Agenda Item 8.2

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Question 4

Do you agree with the proposal to include integral application guidance on network and partner

agreements in PBE IPSAS 35 (paragraphs AG31.1 to AG31.7)? If you do not agree, please explain

why.

Category (C#) Total

A – Agree 5


C – Disagree



R2 A Yes, we agree with the proposal to include integral application guidance on network

and partner agreements in PBE IPSAS 35.

R3 A Yes, we agree.

R4 A We are not aware of any such arrangements in the public sector, however, such

guidance may be helpful for not-for-profit PBEs.

R5 A We believe the guidance added in AG 31.1 – 31.7 is useful to assist entities to

determine control in these situations. Based on our experience in the NFP space, we

are aware of entities looking to analogise to the franchise/network agreement

scenario to argue that control does not exist. Therefore, the inclusion of this guidance

is useful to clarify when control arises. The guidance makes it clear that in a true

network/partner agreement, the “franchisee” is operating to meet its own objectives

rather than the objectives of the “franchisor”. We note, the original guidance in PBE

IPSAS 6 para AG 15 referred to the ability of a franchisee to withdraw from the

agreement and continue operating its business. We think this guidance should be

carried over into the amendments in PBE IPSAS 35 AG 31 (possibly AG 31.6) to make

this point clear.

We believe it would be useful if the NZASB included an example in order to

demonstrate a situation where control did arise and one where it doesn’t. The

example could highlight a fact pattern where entities were either operating for their

own objectives or for the same objective, or situations where there was financial

dependency between the two entities (for example the “franchisor” funding losses of

the “franchisee”). Refer to our response to Q11 below also for further consideration.

R6 A Yes, agree.

Agenda Item 8.2

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Question 5

Do you agree with the other proposed modifications to IPSAS 35 in PBE IPSAS 35? If you disagree,

please provide reasons and indicate the nature of any additional modifications that you consider to

be appropriate.

Category (C#) Total

A – Agree 4


C – Disagree 1



R2 A Yes, we agree with the other proposed modifications.

R3 A Yes, we agree. The “mixed groups” guidance is helpful to New Zealand environment

because of the multi-standards approach. This specifically impacts Auckland Council

Group because Ports of Auckland is a for-profit entity adopting NZ International

Financial Reporting Standards.

R4 C Predetermination of activities (autopilot arrangements)

We note that some of the proposed modifications that relate to predetermination

attempt to incorporate autopilot arrangements as controlled entities. The Basis for

Conclusions explains that the expanded discussion of predetermined activities was

added due to concerns that the language used in the definition of power, could, in the

absence of further guidance, be read as excluding control obtained through

predetermination of activities.

We agree it is helpful to add the expanded discussion on predetermined activities.

However, without a modification to the power definition, and further clarity

throughout the standard, it is unclear that an ‘exception to power element’ could

apply where there has been predetermination of activities at the time an entity is

established. Below are some examples of areas where predetermination has not been

embedded, and where additional clarity is needed.

R4 Definition of power

The words “existing rights” and “current ability” in the definition of power contradict

the concept of predetermination. In our view, the power definition itself needs to

explicitly acknowledge that power could include any decision-making rights that a

controlling entity has already exercised by determining the purpose and design of the

controlled entity.

Agenda Item 8.2

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In such cases, where there has been predetermination of activities, for example by

deciding what a trust’s objects and purposes are, ‘existing rights that give the current

ability to direct the relevant activities’ would not be required for control to exist.

In our view, the standard would be clearer if power is defined as follows:

“Entity A has power in relation to Entity B if Entity A has rights that enable Entity A to

direct the relevant activities of Entity B. Entity A’s rights must be existing rights that

give it the current ability to direct the relevant activities of Entity B, except where Entity

A has determined the purpose and design of Entity B and therefore established

restrictions on the relevant activities of Entity B, which limit the ability of others to

make decisions about those relevant activities.”

R4 Paragraph 29.1

In our view, paragraph 29.1 should be moved to 26.1 so that the discussion on the

situation of rights already having been exercised is before the discussion on situations

where the rights have yet to be exercised.

R4 Paragraph 36

Paragraph 36 infers that there must be ongoing power for the controlling entity to

“direct” the activities in order for control to exist. It therefore precludes the possibility

that an entity could control another entity in situations where power has already been

exercised through predetermination of activities.

R4 Paragraph AG8.1

Paragraph AG8.1 is not sufficiently clear because it is not linked to paragraphs AG9 to

AG11. If these paragraphs are read in isolation under the heading of “Power”, it could

be argued that you do not need to take into account paragraph AG8.1 when assessing

whether control exists. In our view, there needs to be clarification in paragraphs AG9

to AG11 that the entity does not need to have existing rights that give it the current

ability if these rights have already been exercised.

R4 Paragraphs AG16 and AG17

Paragraphs AG16 and AG17 do not make any reference to predetermination. In our

view, without reference to predetermination, these paragraphs preclude the

possibility that an entity could control another entity in situations where power has

already been exercised through predetermination of activities.

R4 Paragraph AG60 (c)

Part (c) of paragraph AG60 infers that a trust can only be controlled if the controlling

entity has the power to replace the trustee of the trust. It does not take into account

autopilot arrangements where control can exist where power has already been

exercised through predetermination of activities.

R4 Illustrative examples

Although the examples are not part of PBE IPSAS 35, it would be helpful to users if the

examples are as realistic as possible, and relevant to New Zealand public benefit

Agenda Item 8.2

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entities. It is also important that the examples are clear about the conclusion reached,

and assist in applying the standard to different types of entities.

We are pleased that Example 29A has been included to illustrate that control is

possible where there is predetermination of a trust’s activities at inception. However,

based on our experience Example 29A is restrictive and not typical (see further detail

below). We also think that it would be helpful to users if there were two or three

realistic examples of autopilot arrangements, as this is a challenging concept to apply.

R4 Example 28

Example 28 is a concern because it is overly simplistic and could therefore be

misleading. We have given some examples above of where we think there is a lack of

acknowledgement of the notion of predetermination. Example 28 is another example

which appears to preclude the possibility that an entity could control another entity in

situations where power has already been exercised through predetermination of

activities.

Example 28 is quite broad and therefore is not typical of what we see in New Zealand.

There are examples in the public sector where a local authority establishes a trust and

transfers assets to it. However, it is usually one type of asset rather than a number of

different assets, for example a leisure centre.

Although we have seen examples where the purposes of a trust extend to other

charitable purposes, it is certainly not prevalent. For some of these trusts that we have

seen, we are of the view that the local authority controls the trust under an autopilot

arrangement.

Therefore, when considering Example 28 and the more typical New Zealand examples,

and thinking about paragraph 29.1 on predetermination of activities, there are

questions about whether or not the local government could control the trust through

an autopilot arrangement.

In our view, the example needs to be expanded and changed, and the analysis needs

to consider whether or not the trust is controlled through an autopilot arrangement,

and the reasons it is, or is not, controlled. We include some questions below to prompt

further thought about enhancing the example to be helpful to users.

We note that Example 28 contains the sentence: “The trust can decide the nature and

extent of facilities to be provided and can engage in any other charitable purpose.”

Does this mean that the trust can dispose of, or change the use of, the assets it

holds? If so, this needs to be made clear.

Are the trust’s objects restricted to the local government’s boundaries?

If the words ‘and can engage in any other charitable purpose’ were removed

from this sentence, would the conclusion on control change? If the conclusion on

control does not change, what further changes would be needed so that the

example aligned with the concept of autopilot arrangements in paragraph 29.1?

If this clarity is not added, it might be better if the example is removed so that it does

not confuse users. We are also concerned that the addition of Example 29A to

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specifically illustrate predetermination automatically means that the other examples

exclude predetermination.

R4 Example 29A

Example 29A is very prescriptive, and as a result not typical in the public sector. There

are not many examples of trusts currently in the public sector where the trust deed is

so prescriptive that it details an investment strategy and qualification criteria.

We think it would be better for users to have more realistic examples and

Example 29A could be more realistic if it is less prescriptive. We also think that

Example 29A could be improved, if the second, and fourth paragraphs were changed

or removed.

The second sentence of the second paragraph states the trustees have no power to

alter, vary, revoke or add to the powers and provisions declared in the trust deed

without the consent of Entity A. We see few autopilot arrangements where the trust

deed is so restrictive as to require the controlling entity’s approval to change any

provisions in the trust deed.

In many cases, the trust deed is silent on whether any changes can be made to the

trust deed. In our view, the conclusion for Example 29A would not change if the

second sentence of the second paragraph simply stated: “The trustees are not able to

significantly change the objects or purposes of the trust, for example to providing

services that are unrelated to Entity A or its clients.”

The fourth paragraph states that if the trust is wound up, surplus assets must be

transferred to Entity A or, subject to Entity A’s approval, a charitable body with similar

objectives.

Again, we see few autopilot arrangements where the wind up clause requires the

controlling entity’s approval to transfer any surplus assets to a charitable body with

similar objectives. In our view, the conclusion for Example 29A would not change if the

fourth paragraph simply stated: “If the trust is wound up, surplus assets must be

transferred to a charitable body with similar objectives.”

R4 Establishment of entities and predetermination of activities

The standard is unclear about whether a controlling entity itself must establish a

controlled entity in order for predetermination to apply. In order for an autopilot

arrangement to apply, the controlling entity needs to have determined the purpose

and design of the controlled entity, and, in so doing, established significant restrictions

on the relevant activities of the controlled entity, which limit the ability of others to

make decisions about those relevant activities and ensure that the establishing entity

receives the significant benefits from those activities.

The wording appears to indicate that so long as in substance the controlling entity has

determined the purpose and design of the controlled entity, whether or not they have

actually established the controlled entity themselves is not important. That is, if

someone else has established the controlled entity on behalf of the controlling entity,

this is essentially the same as the controlling entity establishing the controlled entity

Agenda Item 8.2

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itself.

For example, there are some trusts in the public sector that we believe are controlled

by an entity under an autopilot arrangement, whereby the trust has been established

by a settlor who was a board member of the entity. However, in substance, the entity

has determined the purpose and design of the trust, even if the board itself is not

listed as the ‘settlor’ of the trust. It would be helpful if the standard was clear about

this one way or the other, because it can be an area of confusion and contention.

R4 Benefits or significant benefits?

Paragraph AG8.1 implies that there is a requirement for benefits to be ‘significant’,

although this concept of ‘significant benefits’ does not seem to appear elsewhere in

the standard. It would be less confusing for users if the word ‘significant’ is removed

from the second sentence of AG8.1, and simply states: ‘….receives benefits from those

activities.’

R4 Exclusion of proposed modification paragraphs in some references

Paragraph 20, part (a) refers to paragraphs 23-29 for guidance on power over the

other entity. This excludes paragraph 29.1 which discusses predetermination.

Paragraph AG19 refers to paragraphs AG5–AG8 for discussion about the purpose and

design of the other entity. This excludes paragraph AG8.1 which discusses

predetermination.

R5 A We are comfortable with the other proposed modifications to IPSAS 35. Guidance on

mixed groups is important in New Zealand as the issue is likely to be pervasive in both

the public sector and for NFPs.

R6 A Yes, agree. We are particularly pleased to see the inclusion in PBE IPSAS 35 of guidance

on the application of consistent accounting policies in the consolidated financial

statements and when the financial statements of a for-profit entity in a PBE group

need to be restated in the preparation of consolidated financial statements.

Agenda Item 8.2

Page 16 of 25 190361.1

ED NZASB 2016-3 PBE IPSAS 36 Investments in Associates and Joint Ventures

Question 6




Category (C#) Total

A – Agree 5


C – Disagree




R3 A Yes, we agree. We have no further comments and we are supportive of the removal of

proportionate consolidation as a policy choice in accounting for joint ventures.

Auckland Council Group does not apply this accounting treatment to the joint

ventures.

R4 A We agree that no substantive changes are required.

R5 A Yes, we agree that there should be no substantive changes to IPSAS 36 for PBE’s in

New Zealand.

R6 A Yes, agree.

Agenda Item 8.2

Page 17 of 25 190361.1

ED NZASB 2016-4 PBE IPSAS 37 Joint Arrangements

Question 7

Do you agree with the proposed modifications to IPSAS 37 in PBE IPSAS 37? If you disagree, please

provide reasons and indicate the nature of any additional modifications that you consider to be

appropriate.

Category (C#) Total

A – Agree 5


C – Disagree



R2 A Yes, we agree with the proposed modifications.

R3 A We agree with the XRB in adding additional guidance on “Accounting for Acquisitions

of Interests in Joint Operations” because this is also applicable to Auckland Council

Group.

We have no further comments as we recognise the consistency between PBE IPSAS 37

and NZ IFRS 11 Joint Arrangements, which is applicable to for-profit entities. This will

reduce potential issues for mixed groups.

R4 A We support the proposed modifications to IPSAS 37 in PBE IPSAS 37.

R5 A Yes, we agree with the proposed modifications to IPSAS 37. We see no reason why the

NZASB should not amend PBE IPSAS 37 to include the latest guidance on accounting

for the acquisition of an interest in a joint operation that constitutes a business. The

guidance will ensure consistence in accounting for such transactions.

R6 A Yes, agree.

Agenda Item 8.2

Page 18 of 25 190361.1

ED NZASB 2016-5 PBE IPSAS 38 Disclosure of Interests in Other Entities

Question 8




Category (C#) Total

A – Agree 4


C – Disagree




R3 A Based on our understanding, the new concept of “structured entity” will have limited

impact to public benefit entities in New Zealand. However, we can envisage such an

entity being established, e.g. captive insurance vehicle.

We have no further comments on the proposed ED.

R4 A We agree that no substantive changes are required.

R5 A Yes, we agree that there should be no substantive changes to IPSAS 38 for PBEs in New

Zealand

R6 B We believe the definition of structured entities is confusing. The definition refers to

entities where administrative or legislative factors, or voting or similar rights are

normally the deciding factor in determining control, but where the structural design of

the entity avoids those factors, for example by relying on binding arrangements.

Our confusion arises because:

In the New Zealand public sector, binding arrangements are an administrative

mechanism. Using binding arrangements in the structural design of an entity

therefore does not avoid administrative factors being a deciding factor.

We struggle with what is considered normal and what is abnormal. While a

majority of public sector entities are established by legislation, it is fairly

common for public sector entities not to have establishing legislation, for

example the Treasury.

Having said that, the Treasury considers the administrative arrangements and

legislation for accountability in the New Zealand government effectively resolve this

problem. The schedules of entities in the Public Finance Act 1989 (PFA), Crown

Entities Act 2004 and the State-Owned Enterprises Act 1986, while being legislative

Agenda Item 8.2

Page 19 of 25 190361.1


arrangements, apply generally accepted accounting practice (GAAP) to determine

whether entities are controlled, no matter how they are structured. Given these

schedules (and the “catch all” PFA section 27(3)(f) with reference to GAAP for entities

not listed in these schedules) are used for determining the entities to be consolidated

by the Government Reporting Entity, we believe there will be no structured entities for

the New Zealand Government.

Based on that reasoning, and conscious of the merits of limiting the differences with

IPSAS, the Treasury is not opposed to the inclusion of disclosure requirements on

structured entities being retained in a PBE IPSAS 38. However, we believe the

confusion should be highlighted to IPSASB and that this should be an area of focus for

any post implementation review of the standard.

Agenda Item 8.2

Page 20 of 25 190361.1

RDR

Question 9

Do you agree with the Reduced Disclosure Regime concessions proposed in the EDs? If you disagree,

please provide reasons and indicate any additional concessions that you consider would be

appropriate.

Category (C#) Total

A – Agree 5


C – Disagree



R2 A Yes, we agree with the Reduced Disclosure Regime concessions.

R3 A We agree with the RDR concessions because these will benefit those medium sized

entities when they adopt the PBE standards and, therefore need only to disclose what

is required relative to their size.

R4 A We agree with the Reduced Disclosure Regime concessions proposed in the EDs.

R5 A We agree with the proposed disclosure concessions. We agree with aligning the

disclosure concessions to the for-profit accounting standards. This should be kept

consistent until the NZASB has completed its review of the RDR regime.

[See also R5’s editorial comment under Question 11]

R6 A Yes, agree.

Agenda Item 8.2

Page 21 of 25 190361.1

Effective Date

Question 10

Do you agree with the proposal that the final PBE Standards should have an effective date of

1 January 2019, with earlier application permitted?

Category (C#) Total

A – Agree 5


C – Disagree



R2 A Yes, we agree with an effective date of 1 January 2019.

R3 A We agree with the proposed date with earlier application permitted.

R4 A We agree with the proposal that the final PBE Standards should have an effective date

of 1 January 2019, with earlier application permitted.

R5 A Yes, we agree with the proposed timing of adoption of the PBE Standards. In

responding to this question, we have assumed that the NZASB will aim to issue the

final standards as soon as possible, hopefully during 2016. This will give entities

sufficient time to understand the implications and apply them to their opening

balance sheet positions (i.e. 1 January 2018). Public sector entities with 30 June

balance dates will get an added 6 months. Therefore, on the assumption the final

standards are issued during 2016, the effective date seems reasonable.

R6 A We have no objection to this effective date, with earlier application being permitted.

Agenda Item 8.2

Page 22 of 25 190361.1

Other Comments

Question 11

Do you have any other comments on the EDs?

R # Response Question 11

R1 Parent Column

It would be good if you could have a really clear statement as to whether entities should

include a Parent and a Group column in their statements. From my reading, I understand the

standard does not require a Parent column, but I think entities should be required to have

both sets. Otherwise, I think the consolidation actually hides information rather than

enhances it.

R1 Definition of Control

I think that as a result of IPSAS 6, all of the entities that have the appetite to consolidate will

have done so under this standard, and that IPSAS 35 will convince very few additional

organisations to consolidate.

In my opinion the rewording of the definition of control will do little to persuade those

charities that ought to be consolidating to do so. There may be the odd entity that previously

fell out of the definition because they only entitled the charities to the losses they made, but

the majority of charities that don’t consolidate, choose to stay separate for practical reasons

rather than out of a motivation to hide something.

In contrast to a corporate model where businesses are acquired over time and then

consolidated, national charities often arose from grass roots movements where various

organisations appeared in various locations in order to meet a specific need in the

community. Over time, they realise they have similar objectives, and begin to work together

under an agreed operational model. However, each individual location may be a separate

legal entity, have its own assets gained through support of local communities, and have its

own way of doing things. For those entities, perceived loss of autonomy and control of assets

through financial consolidation is a genuine concern and it can also be an administrative

nightmare to get the physical consolidation process to work given different financial systems.

I can think of one large charity in particular that probably should be consolidating under both

the old and new definitions, but it has been resisting for the aforementioned reasons. In

these cases, the new definition may be slightly clearer, however the entity would probably

have come to the same conclusion about whether they should be consolidating under either

standard. Therefore, I think the wording of the standard is an improvement, however, if

these charities haven’t consolidated by now, then it is likely the only way to get them to do

so will be by coercion.

R4 (a) The discussions around the importance of considering the purpose and design of an

entity are helpful. It is also helpful that the standard acknowledges that, in many

cases, there will be more than one party with decision-making rights, and it is

necessary to weigh up the relative significance of those decision-making rights.

Agenda Item 8.2

Page 23 of 25 190361.1


R4 (b) There is a small typo in paragraph 21. The last sentence, where it refers to how

decisions about the relevant activities are made, misspells the word “activities”.

R4 (c) The overall structure of the standard is very complex, resulting in the reader having to

flick backwards and forwards to find all the relevant information and ‘piece together’

the concepts. There is also a lot or repetition of the same concepts but in slightly

different ways. The language is not always clear, precise, and consistent. Some

examples of this are given below.

(i) The references to ‘entity’, ‘other entity’, ‘controlling entity’, ‘entity being

assessed for control’ when there is more than one entity could be confusing to

users. If the entities were named ‘Entity A’ and ‘Entity B’, it might be clearer as

to which entity is being referred to.

R4 (ii) Paragraph 31 explains that ‘Non-financial benefits include advantages arising

from scarce resources that are not measured in financial terms and economic

benefits received directly by service recipients of the entity.’ It would be helpful

to be clear about who the ‘service recipients’ are, which entity they are

receiving services from, and the sort of advantages and economic benefits they

would receive.

To illustrate, here is an example: Entity A is a school board, and Entity B is a

charitable trust that Entity A has established. Entity B’s objects are to promote,

advance and develop education at Entity A, and to promote and assist Entity A,

its students and staff members. In this situation, who are the ‘service recipients’

of Entity B? Which entity are they receiving services from, and what economic

benefits would they receive?

R4 (iii) Paragraph 31 refers to ‘congruent activities’ and later ‘complementary

objectives’. It is unclear whether or not these are two different concepts. Also,

paragraph 36 refers to ‘congruent objectives’. ‘Activities’ implies day-to-day

operations, whereas ‘objectives’ is a broader concept, and can imply the

parameters that an entity can operate within. ‘Financial policies’ and ‘financial

activities’ are also used interchangeably as if they are the same.

These terms could be interpreted by some people as two different concepts. In

our view, it would be helpful if the standard used the same term consistently

where it has the same meaning. If there are different terms used deliberately, it

would be helpful to be clear why different terms are used by explaining that

these are both relevant in different ways and at different times.

R4 (iv) Paragraph AG27 includes: ‘Usually, to be substantive, the rights need to be

currently exercisable. However, sometimes rights can be substantive, even

though the rights are not currently exercisable.’ This sentence is unclear

because it is not explicit about the circumstances where rights can be

substantive, even though these are not currently exercisable, and it does not

explain how you tell the difference.

Agenda Item 8.2

Page 24 of 25 190361.1


R5 We have the following additional comment on the proposals. Our experience to date has

highlighted the difficulty in determining control in the NFP sector. This difficulty can arise for

a number of reasons including confusion or uncertainty around the structure of a group of

related entities given there is often no direct ownership, the founding documents may be

outdated or unclear, or the operations of the entity do not reflect the actual requirements of

the founding documents.

Prior to the recent change to the financial reporting framework in New Zealand, many NFP

entities have not had to consider whether they control other entities they are involved with.

However, now that many of these entities have a requirement to prepare financial

statements in accordance with PBE Standards, they are struggling to determine who to

include within the reporting entity.

In introducing PBE IPSAS 35, we see this as an opportunity to look to address some of the key

areas of confusion that NFPs currently face. The key areas where we see entities struggle

include:

The NFP entity believing that a governing body (for example a national body) does

not control the local entities; instead the local entities control the governing body via

their ability to vote and appoint members to the governing body. In this situation,

the NFP entity might argue there is no control and thus consolidated financial

statements should not be prepared.

A belief that when local or regional entities, for example, have a high degree of

autonomy in the day-to-day decision making of the entity, they are determining their

own objectives (including determining their own relevant activities) and thus are not

controlled by the national governing body. The local entity may determine how local

funding is sourced, the day-to-day activities they will complete and how to spend

money. Yet the overarching governing body may have established the overall

objectives that entity must achieve and a governance framework for achieving those

objectives (including key financial and operating policies), with the day-to-day

activities restricted to achieving that goal within the established governance

framework. What is essentially taking place is a group of entities are working

towards a common goal and the best way to achieve this is through local entities.

The overarching governing body is seen as just an administrative body, established to

assist the local entities operate effectively and that governing body has no decision

making power, yet it is this governing body that has the ability to establish and

remove the local entities.

Often a group of NFP entities are acting as one economic entity, with the same

objectives and goals, however there may be no ‘parent’ or controlling entity.

R5 We believe the NZASB should consider the points raised above and determine whether

additional guidance could be included to ensure these issues are clearly articulated. We

note that the inclusion of the predetermined activities’ guidance will be useful in certain

situations in assisting entities to determine control, however, we believe additional examples

could be useful to make it clear.

Agenda Item 8.2

Page 25 of 25 190361.1


PBE IPSAS 6 included specific guidance around a youth group and this provided useful

guidance given it highlighted the link between the common objectives of the local entities.

We suggest something similar to the youth group or even a church may be useful.

R5 Further, a discussion of situations where there is a group of entities with no ‘parent’ entity

could be useful to assist NFP entities understand when consolidated financial statements

should be prepared.

R5 We note that additional guidance in PBE IPSAS 6 also included consideration of Trusts and

determining whether control existed or not. The guidance on the role of settlor and

beneficiary is useful in the New Zealand context as these terms are well understood by

preparers. Therefore, we suggest including this in PBE IPSAS 35 also.

R5 Minor edits

We note that paragraph 2.2 is added and refers to disclosure concessions. However the

concession in PBE IPSAS 35 is to the presentation of consolidated financial statements. We

believe the wording should be amended to refer to presentation rather than disclosure.

Agenda Item 11.1

Page 1 of 6

190369.1

Memorandum

Date: 29 August 2016

To: NZASB Members

From: Judith Pinny

Subject: Environment Update

Action required

1. To NOTE the update on the international and domestic environment.

International

IASB: Trademark Guidelines

2. The IASB has issued guidelines relating to how its various bodies and standards should be

referenced. IFRS should be used as an adjective, and the first time it appears in a document

the registered trade mark symbol should be used e.g. IFRS® Standards. These Standards

should only be referred to as IFRS Standards and not IFRS or IFRSs.

3. Similar requirements apply to the use of IAS® Standards, IFRIC® Interpretations and

SIC® Interpretations. IAS and IASs should not be used.

4. The IASB should be written out for its first use (with a trademark symbol). Thereinafter it

should be referred to as “the Board”. Because many standard-setters have their own Board(s)

this particular guideline will be difficult to implement. A pragmatic solution is to continue

referring to the IASB to avoid any confusion1.

5. From this meeting onwards staff intend to apply these guidelines in Board papers. The XRB

has received approval from the IASB to continue using “IASB” as an abbreviation for clarity

when there is a possibility of confusion, such as when more than one Board is referred to in a

document.

FASB: Agenda Consultation

6. The FASB issued its Invitation to Comment: Agenda Consultation in August 2016. Comments

are due on 17 October 2017. The FASB has recently surveyed a range of stakeholders to

identify areas of financial reporting in need of improvement. The four stakeholder groups

were preparers, users, practitioners and academics/other. From the results of the survey, the

FASB has identified four major financial reporting topics:

(a) intangible assets (including research and development); 1 http://www.ifrs.org/Documents/Legal/IFRS-Foundation-trade-mark-guidelines.pdf

http://www.ifrs.org/Documents/Legal/IFRS-Foundation-trade-mark-guidelines.pdf


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Agenda Item 11.1

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190369.1

(b) pensions and other post-retirement benefit plans;

(c) distinguishing liabilities from equity; and

(d) reporting performance and cash flows (including income statement, segment reporting,

other comprehensive income (OCI) and statement of cash flows)

7. For each topic the FASB outlines the background and relevant history, perceived issues and

possible standard-setting alternatives.

8. For OCI the issues are perceived to be difficulty understanding:

(a) what OCI means in terms of an entity’s performance; and

(b) what reclassified amounts mean in terms of an entity’s performance?

9. Proposed solutions to OCI issues included:

(a) minimise the use of reclassification adjustments;

(b) remove the option for presenting OCI over two statements, and so having one

statement of comprehensive income;

(c) emphasise other earnings per share measures, such as total comprehensive income per

share; and

(d) categorise the income statement into operating and non-operating activities.

FASB: Not-for-profit Reporting

10. On August 18, 2016, the FASB issued Accounting Standards Update 2016-14, Presentation of

Financial Statements for Not-for-Profit Entities (ASU), which makes targeted improvements to

the not-for-profit (NFP) financial reporting model. The new ASU marks the completion of the

first phase of a larger project aimed at improving NFP financial reporting. The ASU is effective

for reporting periods beginning after 15 December 2017.

11. The ASU’s scope includes all NFPs that apply ASC 958, Not-for-Profit Entities, or the not-for-

profit provisions of ASC 954, Health Care Entities. Mutual entities, cooperatives, and similar

organisations organised as NFP corporations are outside the scope of the ASU.

12. The existing three-category classification of net assets (i.e., unrestricted, temporarily

restricted, and permanently restricted) will be replaced with a simplified model that combines

temporarily restricted and permanently restricted into a single category called “net assets

with donor restrictions.” Differences in the nature of donor restrictions are required to be

disclosed in the notes, with an emphasis on how and when the resources can be used.

13. New disclosures will highlight restrictions on the use of resources that make otherwise liquid

assets unavailable for meeting near-term financial requirements. Entities will be required to

disclose (on the face of the statement or in notes) the extent to which the balance sheet

http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498

http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498

Agenda Item 11.1

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190369.1

comprises financial assets, the extent to which those assets can be converted to cash within

one year, and any limitations that would preclude their current use.

14. The ASU imposes several new requirements related to reporting expenses. In addition to

reporting expenses by functional classifications (i.e., programmes and supporting activities) as

is currently required, all NFPs must provide an analysis showing how the nature of their

expenses relates to their programmes and supporting activities. Enhanced disclosures about

the methods used to allocate costs among programme and support functions will also be

required.

15. Investment return will continue to be presented net of investment expenses. However, the

expenses that can be netted will be limited to external investment expenses and direct

internal investment expenses, which is narrower than what is currently allowed.

16. A second phase of the project will address more controversial NFP-specific areas and

potentially, more far-reaching changes that could be driven by the financial performance

reporting project for business entities currently on the FASB’s research agenda.

EFRAG: Joint2 Roundtable on Leasing

17. The EFRAG roundtable with financial analysts to discuss IFRS 16 Leases was held in Belgium on

5 July 2016. Key points to emerge from the discussion were:

(a) The biggest disadvantage of IFRS 16 was lack of convergence with US GAAP.

(b) IFRS 16 would probably lead to a trend away from lease contracts towards service

contracts.

(c) IFRS 16 will change the calculation of non-GAAP measures.

(d) IFRS 16 is not likely to cause a significant reduction in the use of leases.

(e) IFRS 16 is not expected to have a significant effect on loan covenants and access to

financing for entities.

(f) There is a lack of clarity as to why capacity contracts (where the asset is not physically

distinct) are excluded from the scope of IFRS 16 when the customer does not take

substantially all of the capacity of the asset.

Recent developments in Integrated Reporting (<IR>)

18. Two research reports on integrated reporting have recently been commissioned by the IIRC,

IAAER and ACCA3.

(a) Meeting users’ information needs: The use and usefulness of Integrated Reporting4 is

the result of interviews with senior capital market participants. The report highlights

2 Other participants were EFFAS (European Federation of Financial Analysts Societies, and the Belgian Association of Financial Analysts. 3 International Integrated Reporting Council, International Association for Accounting Education and Research and Association of

Chartered Certified Accountants. 4 http://www.accaglobal.com/content/dam/ACCA_Global/Technical/integrate/pi-use-usefulness-ir.pdf

http://www.accaglobal.com/content/dam/ACCA_Global/Technical/integrate/pi-use-usefulness-ir.pdf


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190369.1

investor information needs and identifies challenges to the widespread adoption

of <IR>.

(b) Factors affecting preparers’ and auditors’ judgements about materiality and conciseness

in Integrated Reporting5. This report explores issues in <IR> from the perspectives of

preparers, auditors and users of financial reports.

19. The IAASB’s6 Integrated Reporting Working Group which focuses on emerging forms of

external reporting has released a discussion paper: Supporting Credibility and Trust in

Emerging Forms of External Reporting: Ten Key Challenges for Assurance Engagements7. This

paper looks at the type of professional services that are most relevant to emerging forms of

external reports and the challenges that this type of reporting bring to assurance

engagements.

Recent Developments in Sustainability Reporting

20. The Global Sustainability Standards Board of the Global Reporting Initiative (GRI) has

published a draft of its future work programme for the next three years and invites feedback

on this. The comment period closes on 28 September 2016.

21. The Carbon Disclosure Project (CDP) reports that a record number of cities are now measuring

and disclosing environmental data annually to manage emissions, build resilience and protect

them from the growing impacts of climatic change89.

Domestic

BDO: Not-for-Profit Reserves Policy Survey

22. BDO recently undertook a short online survey of not-for-profit entities’ reserves policies. They

received 471 responses from a wide range of groups, in which social services, and culture and

recreation predominated. 70% of respondents had turnover of less than $500,000 p.a.

23. 94% of respondents received regular financial reporting on their organisation. 62% of

respondents had a financial policy for reserves, and 74% understood how their organisation’s

reserves would be utilised in the future10.

NZ Herald Opinion: Alternative Performance Measures

24. Christopher Niesche’s article entitled “Mind the GAAP when judging results” provides some

examples of Australian companies that use alternative performance measures such as

“underlying profit”, “cash profit” and “recurring earnings”. It was based on research by

Stephen Taylor, University of Technology, Sydney into earnings reports by Australia’s 500

largest listed companies. They found that in 2000, slightly more than 20% of them reported

non-GAAP after-tax earnings measures. By 2014 more than 40% of entities were doing this.

5 http://www.accaglobal.com/content/dam/ACCA_Global/Technical/integrate/pi-materiality-conciseness-ir-.pdf 6 International Auditing and Assurance Standards Board. 7 https://www.ifac.org/publications-resources/discussion-paper-supporting-credibility-and-trust-emerging-forms-external 8 https://www.cdp.net/en-US/News/CDP%20News%20Article%20Pages/global-rise-in-cities-disclosing.aspx 9 https://www.cdp.net/Documents/cities/cities-infographic-2015.pdf 10 BDO Financial Reserves survey

http://www.accaglobal.com/content/dam/ACCA_Global/Technical/integrate/pi-materiality-conciseness-ir-.pdf

https://www.ifac.org/publications-resources/discussion-paper-supporting-credibility-and-trust-emerging-forms-external

https://www.cdp.net/en-US/News/CDP%20News%20Article%20Pages/global-rise-in-cities-disclosing.aspx

https://www.cdp.net/Documents/cities/cities-infographic-2015.pdf

http://huie.us2.list-manage.com/track/click?u=ae7fd61b1cffe1e37eea1e607&id=662647789f&e=e3caabea94

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190369.1

60% of the 2014 entities analysed disclosed non-GAAP after tax earnings measures which

were more favourable than the corresponding GAAP figures. The research said that the rising

use of non-GAAP results “represents a significant challenge to accounting standard-setters,

and more broadly, regulators of financial markets”11.

Stuff: Availability of Xero templates for Charities

25. The NZ Association of General Surgeons (NZAGS) has gone public with its concerns that

charities using Xero for their accounting have been denied access to the Xero templates which

comply with the new reporting requirements for charities. Accountants have access to the

higher-grade product. A spokeswoman from Xero said that “they were actively looking for a

solution for their clients, including the possibility of offerings for charities and not-for-profits

to access the Xero reporting templates.”12

NZ ETS Review 2015/16: Stage One Priority Issues

26. Submissions on this stage of the NZ ETS review closed on 19 February 2016. Consultation took

place from November 2015 to February 2016 and included information sessions, hui and

targeted meetings. 278 submissions were received. Key themes from the submissions were:

(a) the need for regulatory or policy certainty;

(b) design issues under review will be influenced by priority matters and should be viewed

together;

(c) the need for a long term plan for how the NZ ETS will help New Zealand meet its

international obligations; and

(d) the importance of New Zealand’s main policy tool for reducing emissions being well-

connected with Government’s other policies for climate change, including adaptation.

27. Submissions on other matters closed on 30 April 2016 and included business responses to ETS,

managing price stability, and operational and technical matters.13

NZ Herald: Carbon Emissions14

28. "Carbon" is shorthand for the six greenhouse gases (carbon dioxide, methane, nitrous oxide,

hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride) released by human activity

into the atmosphere, and measured as carbon dioxide-equivalents. According to the official

Greenhouse Gas Inventory in 2014, New Zealand released more than 81 megatonnes of these

greenhouse gases, giving the country one of the highest per-capita emissions rates in the

world.

29. Almost half (49 per cent) of these emissions were from agriculture, 40 per cent came from

energy (heat and transport), 6 per cent came from industrial processes (metals, minerals and

chemicals) and 5 per cent came from decomposing waste in landfills.

11 http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11701273&ref=newsemail 12 http://www.stuff.co.nz/business/industries/83515268/charity-accuses-xero-of-being-condescending-over-reporting-template 13 http://www.mfe.govt.nz/climate-change/reducing-greenhouse-gas-emissions/new-zealand-emissions-trading-scheme/about-nz-ets 14 http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11683043

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11701273&ref=newsemail

http://www.stuff.co.nz/business/industries/83515268/charity-accuses-xero-of-being-condescending-over-reporting-template

http://www.mfe.govt.nz/climate-change/reducing-greenhouse-gas-emissions/new-zealand-emissions-trading-scheme/about-nz-ets

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11683043

Agenda Item 11.1

Page 6 of 6

190369.1

30. For several years, the low price of carbon meant there was little incentive to cut emissions,

but that's rapidly changing. In January last year, spot NZUs (the domestic carbon unit which is

now the only credit that can be used under the ETS to offset emissions) were $6. Now they are

trading in the $18 range, and are expected to hit $20 by the end of 2016.

31. But the real game-changer for business is the Paris Agreement on climate change, negotiated

in December last year, signed by 174 countries in New York in April and expected to be in

force by December 2016.

32. New Zealand has made a conditional commitment to cut greenhouse gas emissions by 11 per

cent on 1990 levels by 2030, and will come under pressure to increase this.

Jane Taylor: Chair of NZ Post

33. Jane Taylor, member of the XRB Board and former member of the NZASB, has been appointed

as the new Chair of NZ Post taking effect from 1 October 2016. Jane takes over from Sir

Michael Cullen.

34. Jane is also Chair of Landcare Research, and Deputy Chair of Radio New Zealand. She is a

director of Silver Fern Farms, Hirepool Group and OTPP NZ Forest Investments15.

MBIE: Review of XRB Levy

35. MBIE has recently consulted on a range of fees, including the XRB levy (submissions closed on

22 August 2016)16. Under Section 52 of the Financial Reporting Act 2013 the levy covers a

portion of the costs of the XRB in performing its functions and duties and exercising its

powers. The objectives for the levy model are:

(a) administrative simplicity, low transaction costs in collection and avoidance of large over

or under-collection; and

(b) those benefiting from the XRB’s functions, or who contribute to risks that warrant a

regulatory response, should bear the costs of these.

36. The Companies Office collects the levy from companies, limited partnerships, building

societies, credit unions and friendly societies by the. For the first three years the levy has

recovered approximately $2.3 million more than estimated. MBIE is looking at whether it

should do something about this, including reducing the current levy from $8.70 to $7.70.

15 http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11685089 16 http://www.mbie.govt.nz/info-services/business/business-law/review-of-fma-funding-levies-and-fees

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11685089

http://www.mbie.govt.nz/info-services/business/business-law/review-of-fma-funding-levies-and-fees


Pencil

ASAF Meeting

Date 29 September 2016

ASAF AGENDA [as at 12 August 2016] Location IASB

Boardroom, First Floor, 30 Cannon Street London EC4M 6XH, UK

Page 1 of 2

Thursday 29 September 2016

UK time Agenda No.

Agenda item Presenter Input required from ASAF members

Closed session

09.00-09.10 1A Administration session Michelle Sansom / Anna Hemmant

To discuss with ASAF members the feedback to July 2016 ASAF meeting.

Connection and let observers in

09.15-10.00 2 Information Needs of Users of New Zealand Capital Markets Entity Reports

New Zealand To discuss with ASAF members the Research Report on Information Needs of Users of New Zealand Capital Markets Entity Reports and its implications to the International Accounting Standards Board’s (Board) Disclosure Initiative. The report can be accessed here.

10.00-10.15 Break

10.15-12.15 3 Rate-regulated Activities Canada

Korea

To discuss with ASAF members the results of the research undertaken on the economic value of financial information on rate-regulated activities.

To discuss with ASAF members accounting for Rate-regulated Activities from a conceptual perspective.

12.15-12.45 Lunch

https://www.xrb.govt.nz/includes/download.aspx?EMAIL=25430262&ID=142955

ASAF Meeting

29 September 2016

Page 2 of 2

UK time Agenda No.

Agenda item Presenter Input required from ASAF members

12.45-15.15 4 Conceptual Framework – Measurement

Conceptual Framework – Measurement

Conceptual Framework – Financial Performance and Measurement

Conceptual Framework – Other Comprehensive Income

Andrew Watchman

Andrew Lennard

Yukio Ono

Yulia Feygina

To obtain input from ASAF members on guidance for the selection of a relevant measurement basis.

To obtain input from ASAF members on how the Measurement Chapter of the Conceptual Framework should discuss the factors that assist in the selection of a relevant measurement basis.

To seek ASAF members views on the linkage between financial performance and measurement.

To provide an update to ASAF members on the Board’s tentative decisions on Profit and Loss and Other Comprehensive Income.

15.15-15.30 Break

15.30-16.45 5 Definition of a Business Jim Kroeker

Leonardo Piombino

Update on the FASB’s proposed Accounting Standards Update, Business Combinations (Topic 805): Clarifying the Definition of a Business.

To obtain input from ASAF members on the definition of a business set out in the Exposure Draft Definition of a Business and Accounting for Previously Held Interests (Amendments to IFRS 3 and IFRS 11).

16.45-17.30 6 Project updates and agenda planning Michelle Sansom To discuss the agenda for the December 2016 meeting.

Feasibility Studies Peter Clark To discuss the role and scope of Feasibility Studies

Working with National Standard-setters (NSS)

Michelle Sansom / Anna Hemmant

To discuss how NSS may support the IASB Work Programme.

Working with National Standard-setters and the Disclosure Initiative

Mariela Isern To discuss how NSS can help identify examples of financial reports to support the Disclosure Initiative.

17.30 End of meeting