54. In this sub-part, we draw general conclusions about the application of the indicators and whether entities should therefore be required to prepare GPFR, have an assurance engagement completed and distribute or publish the GPFR. Those high level conclusions are then applied more specifically to each entity type in Parts 5-8 and the Appendix.
Applying the Indicators to preparation and publication or distribution
55. Preparation and publication/distribution are discussed together because preparation serves no purpose (in terms of accountability or economic decision making by external users) unless the preparer has obligations to ensure that the external users have access to the GPFR. In this context:
• “Publication” means a general requirement to make the GPFR available to the New Zealand public. Examples of publication are filing with a statutory officer (e.g. the Registrar of Companies or the Registrar of Incorporated Societies), forwarding them to a government department (e.g. the Ministry of Education in relation to schools and the Department of Internal Affairs for local authorities) and to forwarding them to a Minister of the Crown for tabling in Parliament (e.g. crown entities and government departments); and
• “Distribution” means, at minimum, making the user aware that the GPFR are available (e.g. alerting users by email that the GPFR appear on a specified website). It can also mean sending the GPFR to users by post, attaching them to an email or making them available at a meeting of the entity.
56. Our preliminary views in relation to preparation and publication or distribution are as follows:
56.1. For entities that are publicly accountable:
56.1.1. Issuers and public sector non-profit entities should be required to prepare and publish GPFR;
56.1.2. Private non-profit entities which have charitable purposes and are not small should be required to prepare and publish GPFR;
56.1.3. Small private non-profit entities which have charitable purposes should not have preparation requirements because the financial reporting costs outweigh the benefits to users; and
56.1.4. Unincorporated private non-profit entities which have charitable purposes should not have preparation requirements because enforcement is impractical.
56.2. Most economically significant entities should be required to prepare and publish GPFR;
56.3. The default position for entities with a significant degree of separation between management and the owners or members should be a requirement to prepare GPFR and to distribute them to owners or members. However, the owners or members should be able to opt out of the requirements to prepare; and
56.4. The default position for entities that do not fall within the definition of any of the Indicators should be to have no preparation requirements. However the owners or members of the entity should be able to require the preparation and distribution of GPFR and determine which tier of financial reporting standards will be used.
Applying the indicators to assurance
57. The purpose of an assurance engagement is to enhance the degree of confidence of intended users in the financial statements. This is achieved by the expression of an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.16 In general, misstatements, including omissions, are considered to be material if, individually, or in the aggregate, they could reasonably be expected to influence the economic decisions of users.17 In other words, without assurance GPFR are of less value because users do not know whether they can rely on them. Therefore their information needs are not being fully met.
58. There are two forms of assurance engagement. IFAC defines them as follows: • Reasonable assurance (i.e. an audit): The objective is a reduction of
assurance engagement risk to an acceptably low level in the circumstances of the engagement, as a basis for a positive form of expression of the practitioner’s conclusion; and
• Limited assurance (i.e. a review engagement): The objective is a reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement but where that risk is greater than for a reasonable assurance engagement, as the basis for a negative form of the expression of the practitioner’s conclusion.18
59. Our preliminary views in relation to assurance are as follows:
59.1. Public sector and for-profit entities that are publicly accountable should be required to have an assurance engagement completed;
59.2. Private non-profit entities that are publicly accountable and have preparation requirements should be required to complete an assurance engagement unless their small size means that the assurance-related benefits to users are likely to be outweighed by the costs of a review engagement;
59.3. All economically significant entities should be required to have an assurance engagement completed;
59.4. Assurance should be the default position for entities with a significant degree of separation between management and the owners or members. However, the owners or members should be able to opt out;
16 “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with
International Standards on Auditing” (ISA 200) in Handbook of International Auditing, Assurance
and Ethics Pronouncements¸ International Federation of Accountants, April 2009 edition,
paragraph 3 , page 78.
17 ib id, page 79.
59.5. If the owners or members of an entity that does not fall within the definition of any of the Indicators decide that the entity will prepare GPFR, then the owners or members will also be able to require an assurance engagement to be carried out. The owners or members will be able to specify either an audit or a review engagement; and
59.6. The XRB would determine the level of assurance (i.e. audit or review) that should apply to entities required to have an assurance engagement completed.