As noted, an entity may be publicly accountable and also for-profit rather than for public benefit - for example, banks, insurance and superannuation providers, publicly listed companies and others that trade debt or equity instruments to the public.
These entities are by default Tier 1, required to comply with full NZ IFRS standards. Also, as per the PBE rules, anything with a total expenditure of over $33 million in the 2 preceding periods will fall into this tier, whether publicly accountable or not, captured by their sheer economic weight.
Tier 2 - How large is large?
Similarly to the PBE branch, Tier 2 is only to be applied to non-publicly accountable entities, but the size criteria are a little more complex, and some other factors are considered. For Tier 1 economic impact is measured in terms of expenditure, but Tier 2 uses a definition of size based on a combination of revenue and assets. Additionally, the thresholds for assets and revenue differ depending on whether the Company (and these are likely to be companies) are locally or overseas owned.
To be “large” in terms of Tier 2, a locally owned entity must have assets exceeding $66 million or revenue exceeding $33 million in each of the two preceding periods. These thresholds must be reached at the balance date of each of the 2 preceding accounting periods to apply. The thresholds for an overseas-owned company are lower - presumably because there is perceived to be a higher risk. Assets exceeding $22 million or revenue exceeding $11 million at the balance date of each of the 2 preceding accounting periods will trigger the “large” switch in this case.
That’s not all though… if the entity is not large in the terms above but has 10 or more shareholders it is also caught in Tier 2 - unless 95% of the shareholders agree to opt-out. Remember that as with PBE entities, regardless of size and type, FPEs will by default go into the Tier 1 bin unless they elect to adopt another category.
The other 90%
Up to 31 March 2015 we had the brief Tier 3 and 4 regime for the remainder so that the status quo was maintained for these smaller/exempt entities (estimated up to 90% of companies) for a short time.
Tier 3 was able to use “old” NZ IFRS Differential (hardly old!), and Tier 4 the “old” GAAP - our FRS’s and SSAP’s. The difference between Tier 3 and 4 was the requirement for these entities to file financial statements. This all became irrelevant after 1 April 2015. After that, they could use NZ IFRS RDR or so long as IRD and internal management requirements are met they are free to do what works best for them.
In effect, this means that most small NZ companies, partnerships and sole traders do not need to prepare financial statements that comply with General Purpose Accounting Principles (GAAP). Of course, IRD requires reports and banks need helpful information. To meet this need NZICA has issued some optional guidelines (the SPFR for FPE framework). Companies that do not use these guidelines must still comply with IRD minimum reporting requirements.
Is an audit required?
Tier 1 entities always require an audit, which makes sense, as do "large" overseas companies that are Tier 2. "Large" local companies may, in terms of Tier 2, opt-out of the requirement for audit, as may smaller entities with 10 or more shareholders. Under 10 shareholders may opt-in to be audited.