Changes to the application of the “large” definition for for-profit reporting entities

In New Zealand, for-profit entities are scoped into general purpose financial reporting (i.e., in accordance with NZ IFRS-based standards) once they meet the definition of “large” – as prescribed by section 45 of the Financial Reporting Act 2013 (‘FRA’) as well as XRB A2 Meaning of Specified Statutory Size Thresholds.

Currently, a for-profit entity is considered “large” if, for the previous two reporting periods, it breaches either of the below thresholds depending on the type of entity (i.e. whether foreign owned, or not):

  Revenue Assets
A New Zealand entity
(i.e., not foreign owned)		 $33m $66m
An overseas entity
(i.e., a foreign owned NZ-based entity)		 $11m $22m

The above is based on:
  • A for-profit entity together with all its interests in other entities such as subsidiaries, joint arrangements, and associates (i.e., on a consolidated and/or equity accounted basis).
  • The application of NZ IFRS in determining Revenue and Asset threshold values

In summary, what this has meant is that (typically) all entities have had a 2-year “grace period” before having to step-up to prepare NZ IFRS-based standards.

 

Change introduced: Regulatory Systems (Economic Development) Amendment Act 2025

The Regulatory Systems (Economic Development) Amendment Act 2025 (the ‘Act’) received Royal assent on 29 March 2025, and applies for reporting dates beginning on or after 29 September 2025.

The Act is an omnibus bill that amends 24 other pieces of legislation, including the FRA.

Section 45 of the FRA has been amended such that if an entity (e.g. a company) has a subsidiary that meets the definition of “large” per section 45, then the entity is also considered to meet the definition of “large”.

While this may seem intuitive, the difference from the status quo has significant implications for entities that themselves may not have met the large criteria, but who may acquire an entity (group) who has previously been large.
Currently, the acquiring entity would have a 2-year grace period from having to itself step-up into NZ IFRS-based financial reporting (and the acquired entity would continue with its current reporting requirements (i.e., the “top-co” requirements of section 200 of the Companies Act 1993).

However, now under the new FRA requirements, there is no longer a 2-year grace period for the acquirer entity. As such the acquiring entity would have to immediately step-up into NZ IFRS-based financial reporting at its next reporting date.

As detailed in the examples below, this will have a significant, immediate impact for foreign entities who acquire New Zealand entities (groups) by establishing a New Zealand Holding Company immediately above the existing structure.

 

Examples

Below we provide some examples of how the new requirements will be required to be applied in practice.

Note: While the examples below have been provided in good faith, an entity’s legal financial reporting obligations are ultimately a question of law, and therefore entity’s must always confirm their legal financial reporting obligations with their legal advisers.
 
Scenario Explanation
Scenario 1 – NZ Entity acquires a “large” NZ Entity

NZ-CO-A is a New Zealand company who is not itself “large” and has a 31 March year end.

On 31 Jan 2027 it acquires 100% of the shares in NZ-CO-B, a New Zealand company who is currently “large” and has been preparing its own NZ IFRS financial statements, and meets the definition of a “business” (per NZ IFRS 3).
 

For its 31 March 2027 reporting date, NZ-CO-A will be considered to be “large” on account of NZ-CO-B’s “large” status.

Accordingly, for its 31 March 2027 Financial statements, NZ-CO-A will need to:

  1. Transition to NZ IFRS (from 1 April 2025).
  2. Apply acquisition accounting (NZ IFRS 3) to its acquisition of NZ-CO-B.
  3. Prepare consolidated financial statements.
Scenario 1A - NZ Entity acquires a “large” NZ Entity via a new NZ Holding Company

NZ-CO-A is a New Zealand company who is not itself “large” and has a 31 March year end.

On 31 Jan 2027 it incorporates NZ-CO-X, a New Zealand entity, who then acquires 100% of the shares in NZ-CO-B, a New Zealand company who is currently “large” and has been preparing its own NZ IFRS financial statements, and meets the definition of a “business” (per NZ IFRS 3).

(i.e., the same as Scenario 1, except there is an intermediate parent (NZ-CO-X) between NZ-CO-A and NZ-CO-B)		 For its 31 March 2027 reporting date, NZ-CO-X will be considered to be “large” on account of NZ-CO-B’s “large” status.

This will also be the case for NZ-CO-A.

Accordingly, for its 31 March 2027 Financial statements, NZ-CO-A will need to:
  1. Transition to NZ IFRS (from 1 April 2025).
  2. Apply acquisition accounting (NZ IFRS 3) to its acquisition of NZ-CO-B.
  3. Prepare consolidated financial statements.
So long as NZ-CO-A complies with the above, NZ-CO-X will be able to use the “Top-co” exemption in section 200 of the Companies Act to not have to prepare its own NZ IFRS financial statements.
Scenario 1B - NZ Entity acquires a “large” NZ Entity that was previously part of a NZ Group

NZ-CO-A is a New Zealand company who is not itself “large” and has a 31 March year end.

On 31 Jan 2027 acquires 100% of the shares in NZ-CO-B, a New Zealand company who is currently “large”, and meets the definition of a “business” (per NZ IFRS 3).

NZ-CO-B was previously part of a Group where the NZ Company at the top of the New Zealand group structure prepared consolidated NZ IFRS financial statements (i.e., including the results of NZ-CO-B).

Accordingly, NZ-CO-B applied the Top-Co exemption under the Companies Act and did not prepare its own NZ IFRS financial statements.		 For its 31 March 2027 reporting date, NZ-CO-A will be considered to be “large” on account of NZ-CO-B’s “large” status (irrespective of the fact that NZ-CO-B has not had to previously prepare its own NZ IFRS financial statements).

Accordingly, for its 31 March 2027 Financial statements, NZ-CO-A will need to:
  1. Transition to NZ IFRS (from 1 April 2025).
  2. Apply acquisition accounting (NZ IFRS 3) to its acquisition of NZ-CO-B.
  3. Prepare consolidated financial statements (which will require NZ-CO-B to transition its accounting policies to NZ IFRS).
Scenario 1C - NZ Entity acquires substantially all of the trade and net assets of a “large” NZ Entity

NZ-CO-A is a New Zealand company who is not itself “large” and has a 31 March year end.

On 31 Jan 2027 it acquires substantially all of the trade and net assets in NZ-CO-B (i.e., not the shares).

The size of the trade and net assets breach the thresholds for the “large” criteria, and meets the definition of a “business” (per NZ IFRS 3).		 For its 31 March 2027 reporting date, NZ-CO-A will NOT be considered to be “large” on account of acquiring substantially all of the trade and net assets in NZ-CO-B.

The changes to the FRA only relate to a having acquired a “subsidiary” -  the trade and net assets in NZ-CO-B do not meet the definition of subsidiary under the FRA.

Accordingly, NZ-CO-A would only become large in the reporting period after it has breached the “large” thresholds for two reporting periods in a row (i.e., the earliest being 31 March 2029).
Scenario 1D - NZ Entity acquires a “large” OVERSEAS Entity

NZ-CO-A is a New Zealand company who is not itself “large” and has a 31 March year end.

On 31 Jan 2027 it acquires 100% of the shares in NZ-CO-B, who was previously owned by an overseas company.
Previously, NZ-CO-B, breached the (lower) “large” thresholds that apply to overseas entities and has been preparing its own NZ IFRS financial statements, but it is below the (higher) “large” thresholds that apply to NZ-CO-A (i.e., as a New Zealand entity).

NZ-CO-B meets the definition of a “business” (per NZ IFRS 3).		 For its 31 March 2027 reporting date, NZ-CO-A will NOT be considered to be “large” on account of acquiring NZ-CO-B, who was previously a “large” overseas entity.

The changes to the FRA (para 45(2A)(a)) make it clear that if an entity is a New Zealand entity, it applies the (higher) “large” thresholds that apply to a New Zealand entity when assessing its subsidiaries (i.e., irrespective of the fact that the subsidiary may have previously been a “large” overseas entity (under the lower “large” thresholds)).

Going forward, NZ-CO-A will need to continuously reassess at which reporting date (if ever) its consolidated results start to breach the “large” thresholds that apply to New Zealand entities.
Scenario 1E – NZ Entity acquires multiple NZ Entities that are not individual “large”, but are “large” in aggregate

NZ-CO-A is a New Zealand company who is not itself “large” and has a 31 March year end.

On 31 Jan 2027 it acquires 100% of the shares in NZ-CO-B1 and NZ-CO-B2, two New Zealand companies who are not currently “large” individually, but would be “large” in aggregate.

Both NZ-CO-B1 and NZ-CO-B2 each meet the definition of a “business” (per NZ IFRS 3).		 For its 31 March 2027 reporting date, NZ-CO-A will NOT be considered to be “large” on account of acquiring NZ-CO-B1 and NZ-CO-B2, as neither are individually “large” in their own right.

The changes to the FRA (para 45(2A)(a)) make it clear that there must be an individual entity that is “large”.

Going forward, NZ-CO-A will need to continuously reassess at which reporting date its consolidated results start to breach the “large” thresholds that apply to New Zealand entities.
Scenario 2 - OVERSEAS Entity acquires a “large” NZ Entity via a new NZ Holding Company

OS-CO-A is a company incorporated in a foreign jurisdiction, and has a 31 March year end.

On 31 Jan 2027 it incorporates NZ-CO-X, a New Zealand entity, who then acquires 100% of the shares in NZ-CO-B who has been a “large” New Zealand entity and has been preparing its own NZ IFRS financial statements, and meets the definition of a “business” (per NZ IFRS 3).
 		 For its 31 March 2027 reporting date, NZ-CO-X will be considered to be “large” on account of NZ-CO-B’s “large” status.

Accordingly, for its 31 March 2027 Financial statements, NZ-CO-X will need to:
  1. Apply acquisition according (NZ IFRS 3) to its acquisition of NZ-CO-B.
  2. Prepare consolidated financial statements (i.e. for the 2-month period 31 January 2027 to 31 March 2027).
Scenario 2A - OVERSEAS Entity acquires a “non-large” NZ Entity via a new NZ Holding Company (where the NZ Entity breaches the (lower) thresholds that apply to overseas entities

OS-CO-A is a company incorporated in a foreign jurisdiction, and has a 31 March year end.

On 31 Jan 2027 it incorporates NZ-CO-X, a New Zealand entity, who then acquires 100% of the shares in NZ-CO-B who has not been a “large” New Zealand entity previously, but who would be “large” under the (lower) thresholds that apply to overseas entities (which NZ-CO-X is).

NZ-CO-B meets the definition of a “business” (per NZ IFRS 3).		 For its 31 March 2027 reporting date, NZ-CO-X will be considered to be “large” on account of NZ-CO-B’s breaching the “large” thresholds for an overseas entity.

The changes to the FRA (para 45(2A)(b) make it clear that if an entity is an Overseas entity, it applies the (lower) “large” thresholds that apply to an overseas entity when assessing its subsidiaries (i.e., irrespective of the fact that the subsidiary may not have previously been a “large” New Zealand entity (under the higher “large” thresholds)).
Accordingly, for its 31 March 2027 Financial statements, NZ-CO-X will need to:
  1. Apply acquisition according (NZ IFRS 3) to its acquisition of NZ-CO-B.
  2. Prepare consolidated financial statements (i.e. for the 2-month period 31 January 2027 to 31 March 2027) (which will require NZ-CO-B to transition its accounting policies to NZ IFRS).
 

Need help

Please contact our Financial Reporting Advisory team for assistance in considering the financial reporting outcomes and consequences of acquisitions, mergers, and restructures in light of the coming changes detailed above.

For more on the above, please contact your local BDO representative.
 

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