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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)
4.1 Cover Memo Consider Paper 29
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
Est Time Item Topic Objective Page
For-profit and PBE Item for Consideration
10.45 am 5 Insurance: Reserve Bank Solvency Disclosures
(VSF)
5.1 Cover Memo Consider Paper 39
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)
7.1 Cover Memo Consider Paper 54
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)
8.1 Cover Memo Consider Paper 149
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
Est Time Item Topic Objective Page
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
Member Occupational Role Professional Affiliations For-Profit Entity Ownership/Governance Roles
PBE Ownership/ Governance Roles
Other Relevant Matters
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
Member Occupational Role Professional Affiliations For-Profit Entity Ownership/Governance Roles
PBE Ownership/ Governance Roles
Other Relevant Matters
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
Date: 1 September 2016
To: NZASB members
From: Aimy Luu Huynh
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
Agenda Item 2.5
Page 1 of 1
189754.1
Memorandum
Date: 2 September 2016
To: NZASB members
From: Aimy Luu Huynh
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
Date: 2 September 2016
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
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
Discussion of issues
Discussion of issues
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
2
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
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
3
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
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.
4
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
IASB narrow-scope amendments and IFRIC Interpretations
Disclosure Initiative4: Changes in accounting policies and estimates
Consider whether to comment
Clarifications Arising from Post-implementation Review IFRS 8
Consider whether to comment
Classification of Liabilities (Proposed amendment to IAS 1)
Approve amending standard
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
Approve amending standard
Transfers of Investment Property (Proposed amendments to IAS 40)
Approve amending standard
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
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
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
Date: 2 September 2016
To: NZASB Members
From: Aimy Luu Huynh
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
Date: 1 September 2016
To: NZASB Members
From: Aimy Luu Huynh
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.
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 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.
Components of Financial Statements
21. A complete set of financial statements comprises:
(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.
Agenda Item 3.1
Page 4 of 4 189757.1
Appendix A Extracts from PBE IPSAS 1 Presentation of Financial Statements
Components of Financial Statements
21. A complete set of financial statements comprises:
(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
Date: 2 September 2016
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
Agenda Item 4.2
Page 1 of 2 190251.1
Memorandum
Date: 1 September 2016
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
Date: 2 September 2016
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)
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.
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
Factors to consider in rebutting the presumption and/or deciding whether to make NZ amendments
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
Date: 2 September 2016
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
Date: 2 September 2016
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
Page 2 of 31 190348.1
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
R# Respondent Name Type Agenda item
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.
24. Question 4 from the ITC is shown below.
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
Partially agree (R15, R16) 2
Disagree (R1, R2, R4, R7, R9, R10, R11, R17, R18) 9
26. Comments from respondents classified as “Agree” and “Partially agree” included:
(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
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27. Comments from respondents classified as “Disagree” included:
(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
Agenda Item 7.1
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(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
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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.
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47. Question 2 from the ITC is shown below.
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.
48. 17 respondents answered Question 2. We have classified the responses as:
Agree (R2, R3, R5, R6, R7, R8, R9, R10, R11,
R12, R13, R14, R15, R16) 14
Partially agree (R17, R18) 2
Disagree (R1) 1
49. Comments from respondents classified as “Agree” and “Partially agree” included:
(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).
50. Comments from respondents classified as “Disagree” included:
(a) Should the information required be linked to the Mission Statement of the entity (R1)?
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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.
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57. 17 respondents answered Question 3. We have classified the responses as:
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).
59. Comments from respondents classified as “Disagree” included:
(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).
Moving forward Question 3
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
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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.
66. Question 5 from the ITC is shown below.
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?
67. 17 respondents answered Question 5. We have classified the responses as:
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)?
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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).
Moving forward Question 5
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).
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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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77. 17 respondents answered Question 6. We have classified the responses as:
Agree (R1, R3, R5, R7, R8, R10, R12, R13, R14, R17, R18) 11
Partially agree (R2, R11, R15, R16) 4
Disagree (R6, R9) 2
78. Comments from respondents classified as “Agree” and “Partially agree” included:
(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).
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(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.
79. Comments from respondents classified as “Disagree” included:
(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).
Moving forward Question 6
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
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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
85. Question 7 from the ITC is shown below.
Q7 Do you agree that a two year implementation period would be appropriate?
86. 17 respondents answered Question 7. We have classified the responses as:
Agree (R1, R2, R5, R7, R8, R9, R10, R11,
R12, R16)
10
Partially agree (R4, R13) 2
Disagree (R6, R14, R15, R17, R18) 5
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87. Comments from respondents classified as “Agree” and “Partially agree” included:
(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).
88. Comments from respondents classified as “Disagree” included:
(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).
Moving forward Question 7
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.
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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.
95. Question 8 from the ITC is shown below.
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.
96. 17 respondents answered Question 8. We have classified the responses as:
Agree (R1, R5, R9, R11, R13, R14, R15, R16, R17, R18) 10
Partially agree (R2, R3, R8, R12) 4
Disagree (R6, R7, R10) 3
97. Comments from respondents classified as “Agree” and “Partially agree” included:
(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).
98. Comments from respondents classified as “Disagree” included:
(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).
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Moving forward Question 8
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
104. Question 9 from the ITC is shown below.
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.
Moving forward Question 9
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?
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Question 10: Other comments
111. Question 10 from the ITC is shown below.
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).
Moving forward Question 10
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
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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.
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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
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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
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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.
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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
130. We recommend that the Board:
(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
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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?
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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.
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
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
Performance Reporting.
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
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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.
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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
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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
Performance Reporting.
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
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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R # C # Responses to Question 1 (Dimensions)
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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R # C # Responses to Question 1 (Dimensions)
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”
Agenda Item 7.2
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R # C # Responses to Question 1 (Dimensions)
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
Agenda Item 7.2
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R # C # Responses to Question 1 (Dimensions)
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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R # C # Responses to Question 1 (Dimensions)
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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R # C # Responses to Question 1 (Dimensions)
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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R # C # Responses to Question 1 (Dimensions)
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
Page 24 of 64
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
Total of those providing comments 17
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
Page 25 of 64
R # C # Responses to Question 2 (QCs)
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
balancing of the pervasive constraints on information will result in appropriate and
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
balancing of the pervasive constraints on information will result in appropriate and
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
Page 26 of 64
R # C # Responses to Question 2 (QCs)
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
Page 27 of 64
R # C # Responses to Question 2 (QCs)
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
Page 28 of 64
ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by
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
C – Disagree (R1, R9) 2
Total of those providing comments 17
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
Page 29 of 64
R # C # Responses to Question 3 (Appropriate and Meaningful)
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
Page 30 of 64
R # C # Responses to Question 3 (Appropriate and Meaningful)
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
Page 31 of 64
ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by
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
Total of those providing comments 17
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
Page 32 of 64
R # C # Responses to Question 4 (Information to be Reported)
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
Page 33 of 64
R # C # Responses to Question 4 (Information to be Reported)
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
Page 34 of 64
R # C # Responses to Question 4 (Information to be Reported)
• 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
Page 35 of 64
R # C # Responses to Question 4 (Information to be Reported)
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
R # C # Responses to Question 4 (Information to be Reported)
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%
R18 C R18 endorses the comments made by R17.
Agenda Item 7.2
Page 37 of 64
ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by
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
Total of those providing comments 17
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
Page 38 of 64
R # C # Responses to Question 5 (Cross-referencing)
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
Page 39 of 64
R # C # Responses to Question 5 (Cross-referencing)
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?
R18 A R18 endorses the comments made by R17.
Agenda Item 7.2
Page 40 of 64
ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by
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
C – Disagree (R6, R9) 2
Total of those providing comments 17
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
R # C # Responses to Question 6 (Scope)
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
R # C # Responses to Question 6 (Scope)
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
R # C # Responses to Question 6 (Scope)
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
R # C # Responses to Question 6 (Scope)
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
R # C # Responses to Question 6 (Scope)
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
R # C # Responses to Question 6 (Scope)
R17 A Yes.
R18 A R18 endorses the comments made by R17.
Agenda Item 7.2
Page 47 of 64
ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by
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
Total of those providing comments 17
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
R # C # Responses to Question 7 (2 year implementation)
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
R # C # Responses to Question 7 (2 year implementation)
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.
R18 C R18 endorses the comments made by R17.
Agenda Item 7.2
Page 50 of 64
ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by
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
Total of those providing comments 17
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
Page 51 of 64
R # C # Responses to Question 8 (Changes to PBE IPSAS 1)
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
Page 52 of 64
R # C # Responses to Question 8 (Changes to PBE IPSAS 1)
R17 A Yes
R18 A R18 endorses the comments made by R17.
Agenda Item 7.2
Page 53 of 64
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?
Total of those providing comments 17
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
Page 54 of 64
R # Responses to Question 9 (Guidance)
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
Page 55 of 64
R # Responses to Question 9 (Guidance)
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
Page 56 of 64
R # Responses to Question 9 (Guidance)
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
Page 57 of 64
ED NZASB 2016-6 Service Performance Reporting – Summary of submissions received by
question
Question 10
Do you have any other comments on ED NZASB 2016-6?
Total of those providing comments 12
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
Page 58 of 64
R # Response to Question 10 (Other Comments)
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
Page 59 of 64
R # Response to Question 10 (Other Comments)
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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R # Response to Question 10 (Other Comments)
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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R # Response to Question 10 (Other Comments)
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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R # Response to Question 10 (Other Comments)
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
Page 63 of 64
R # Response to Question 10 (Other Comments)
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
Page 64 of 64
R # Response to Question 10 (Other Comments)
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
Date: 2 September 2016
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
Do you agree that no substantive changes to IPSAS 36 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.
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.
• General support.
ED PBE IPSAS 38 Disclosure of Interests in Other Entities
Question 8
Do you agree that no substantive changes to IPSAS 38 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.
• 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.
• General support.
• 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
• General support.
• 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.
• General support.
• 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 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.
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 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, 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.
Q6. Do you agree that no substantive changes to IPSAS 36 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.
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.
Moving forward – ED PBE IPSAS 36
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
that you consider to be appropriate.
29. Five respondents answered Question 7. We have classified the responses as:
Agree (R2, R3, R4, R5, R6) 5
Moving forward – ED PBE IPSAS 37
30. We plan to bring a standard to the next meeting for approval.
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.
Q8. Do you agree that no substantive changes to IPSAS 38 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.
32. Five respondents answered Question 8. We have classified the responses as:
Agree (R2, R3, R4, R5) 4
Partially agree (R6) 1
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.
Moving forward – ED PBE IPSAS 38
34. Does the Board agree that we should forward the comments about the term structured entity
to the IPSASB?
35. We plan to bring a standard to the next meeting for approval.
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.
37. Five respondents answered Question 9. We have classified the responses as:
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?
41. Five respondents answered Question 10. We have classified the responses as:
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, please explain why.
49. Five respondents answered Question 2. We have classified the responses as:
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, please explain why.
54. Five respondents answered Question 4. We have classified the responses as:
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
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63. Question 3 from the ITC is shown below.
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.
64. Five respondents answered Question 3. We have classified the responses as:
Agree (R2, R3, R6) 3
Partially agree (R5) 1
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
that you consider to be appropriate.
68. Five respondents answered Question 5. We have classified the responses as:
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.
Moving forward – ED PBE IPSAS 35
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
76. Question 11 from the ITC is shown below.
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
89. We recommend that the Board:
(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
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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
Page 1 of 25 190361.1
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
Cover letter or opening comments
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
Page 3 of 25 190361.1
Cover letter or opening comments
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
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.
Category (C#) Total
A – Agree 4
B – Partially agree 1
C – Disagree
Total of those providing comments 5
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
Page 5 of 25 190361.1
R # C # Response Question 1
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
Page 6 of 25 190361.1
ED NZASB 2016-2 PBE IPSAS 35 Consolidated Financial Statements
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
Total of those providing comments 5
R # C # Response Question 2
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
Page 7 of 25 190361.1
R # C # Response Question 2
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
Page 8 of 25 190361.1
ED NZASB 2016-2 PBE IPSAS 35 Consolidated Financial Statements
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
agree, please explain why.
Category (C#) Total
A – Agree 3
B – Partially agree 1
C – Disagree 1
Total of those providing comments 5
R # C # Response Question 3
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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R # C # Response Question 3
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
Page 10 of 25 190361.1
ED NZASB 2016-2 PBE IPSAS 35 Consolidated Financial Statements
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
B – Partially agree
C – Disagree
Total of those providing comments 5
R # C # Response Question 4
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
Page 11 of 25 190361.1
ED NZASB 2016-2 PBE IPSAS 35 Consolidated Financial Statements
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
B – Partially agree
C – Disagree 1
Total of those providing comments 5
R # C # Response Question 5
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
Page 12 of 25 190361.1
R # C # Response Question 5
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
Page 13 of 25 190361.1
R # C # Response Question 5
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
Agenda Item 8.2
Page 14 of 25 190361.1
R # C # Response Question 5
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
Page 15 of 25 190361.1
R # C # Response Question 5
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
Do you agree that no substantive changes to IPSAS 36 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.
Category (C#) Total
A – Agree 5
B – Partially agree
C – Disagree
Total of those providing comments 5
R # C # Response Question 6
R2 A Yes, we agree that no substantive changes to IPSAS 36 are required.
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
B – Partially agree
C – Disagree
Total of those providing comments 5
R # C # Response Question 7
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
Do you agree that no substantive changes to IPSAS 38 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.
Category (C#) Total
A – Agree 4
B – Partially agree 1
C – Disagree
Total of those providing comments 5
R # C # Response Question 8
R2 A Yes, we agree that no substantive changes to IPSAS 38 are required.
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
R # C # Response Question 8
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
B – Partially agree
C – Disagree
Total of those providing comments 5
R # C # Response Question 9
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
B – Partially agree
C – Disagree
Total of those providing comments 5
R # C # Response Question 10
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
R # Response Question 11
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
R # Response Question 11
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
R # Response Question 11
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
Agenda Item 11.1
Page 2 of 6
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
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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
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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
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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
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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
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
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