Transitioning from SPFR to NZ IFRS: Why it matters and how to get it right

Transitioning from SPFR to NZ IFRS: Why it matters and how to get it right

As businesses grow, so do their financial reporting obligations. For many New Zealand organisations, a key milestone is the transition from special purpose financial reporting (SPFR) to New Zealand equivalents of International Financial Reporting Standards (NZ IFRS). While this shift is often triggered by size or ownership changes including foreign control, the complexity, time and risk of transition is often underestimated.

In practice, many businesses reach the threshold requiring transition before they have the internal capability or experience to manage the process smoothly. This is where proactive planning and specialist support can make the difference.

When does the transition to NZ IFRS occur?

The move from SPFR to NZ IFRS is often triggered when an entity becomes “large” under the financial reporting act 2013 or when it becomes publicly accountable. Public accountability can arise, for example, when an entity issues securities to the public or holds assets in a fiduciary capacity. Transition may also be required for overseas controlled entities if they meet the thresholds for a “large overseas company”. Rapid growth, acquisitions, or changes in funding can further accelerate the need for transition.

A New Zealand business is “large” if for each of the two preceding accounting periods, it meets either of the following:

• Total Assets > $66 Million (NZD)
• Total Revenue > $33 Million (NZD)

If an entity is not “large”, transition may still be required if it becomes publicly accountable or if legislation, constitution, shareholders agreements or lending covenants mandate the use of NZ IFRS.

Overseas controlled companies may require transition if they are classified as “large overseas companies” with significantly lower size thresholds:

• Total Assets > $22 Million (NZD)
• Total Revenue > $11 Million (NZD)

For closely held businesses, the trigger often comes as a surprise. Financial reporting that was previously fit for purpose, largely for tax and internal decision-making is suddenly required to meet much higher compliance standards.

Why the transition is more than a technical exercise

At first glance, moving to NZ IFRS may appear to be a simple matter of adjusting policies and adding additional disclosures. In reality, it is a shift to how financial information is recognised, measured and presented. Areas that require significant adjustment include:

• Recognition of revenue – particularly where contracts contain performance obligations, variable consideration, or timing differences under NZ IFRS 15.
• Leases – requiring recognition of right-of-use assets and corresponding lease liabilities on the statement of financial position under NZ IFRS 16.
• Fixed assets – including recognition, depreciation, and revaluation considerations.
• Financial instruments – encompassing classification, measurement, impairment, and disclosure requirements under NZ IFRS 9.
• Deferred tax – often materially different due to the balance sheet approach and recognition of temporary differences.
• Comparatives – prior period balances must be restated to comply with NZ IFRS.

These changes go beyond technical compliance. They affect accounting policies, internal controls, systems, and reporting processes. Businesses with banking covenants, investors, or offshore stakeholders, the implications can extend beyond mere compliance.

Common challenges businesses face

In my experience, businesses transitioning to NZ IFRS often encounter the following challenges;

• Limited in-house expertise – many capable finance teams are experienced in SPFR but have limited experience with NZ IFRS in practice.
• Capability gaps – in some cases, businesses rely on external accountants who are well suited to tax compliance work, but do not have experience with NZ IFRS first time adoption.
• Understanding the workload – Transition adjustments, opening balance sheet restatements, and expanded disclosures are time consuming.
• Poor documentation – NZ IFRS requires robust accounting policy documentation and support for key judgements.

Without proper planning, the transition can become reactive, costly, and disruptive to operations.

How the right advisor can help

For many businesses, engaging an external accountant or advisor with NZ IFRS transition experience is both practical and cost effective. An experienced advisor can work alongside internal finance teams, filling capability gaps and ensuring transition is completed effectively. This support can range from targeted advice on specific standards, through to full spectrum transition management.

Final thoughts

Transition to NZ IFRS is a significant step in a business’s growth journey. While often triggered by success, it brings a range of new risks and financial reporting responsibilities. With the right planning and support, businesses can navigate the transition smoothly, meet their compliance obligations and strengthen the quality of their financial reporting.

Talk to our experts

Speak with your local Nexia advisor today to make sure your transition from SPFR to NZ IFRS is well planned, compliant, and managed with confidence.