What changes to the ‘large’ definition of for-profit New Zealand entities mean for Australian groups

The definition of a ‘large’ for-profit entity in New Zealand has changed. Australian groups with New Zealand subsidiaries should be aware of these changes because they may fast-track New Zealand general purpose financial reporting obligations for their New Zealand subsidiaries.

For-profit New Zealand entities must prepare general purpose financial reports if they meet either the revenue or asset threshold test, with the thresholds varying depending on whether the entity is foreign-owned or not. To assess whether an entity met either of the tests, it includes all of its interests in other entities such as subsidiaries, joint arrangements and associates (i.e. on a consolidated or equity-accounted basis), and calculates amounts applying New Zealand equivalents to IFRS Accounting Standards (NZ IFRS) or New Zealand equivalents to IFRS Accounting Standards Reduced Disclosure Regime (NZ IFRS RDR).

Previously, general purpose reporting was only required if the thresholds were breached for the previous two reporting periods. In other words, newly formed entities and small entities that have become large had a two-year ‘grace period’ before having to step up and apply NZ IFRS/NZ IFRS RDR.

What’s changing?

The Regulatory Systems (Economic Development) Amendment Act 2025 (Act) received Royal Assent on 29 March 2025. It applies for reporting dates beginning on or after 29 September 2025, and amends section 45 of the Financial Reporting Act 2013 (FRA) as follows:

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 automatically meet the definition of ‘large’.

What does this change mean in practice?

There are significant implications for small entities that acquire a large entity during a reporting period that commences on or after 29 September 2025.

Although the size threshold test is conducted on a consolidated basis, up to now, there has been a two-year grace period for preparing general purpose financial statements. So, for example, if an entity that is by itself small acquires a large entity, the acquirer would only have to prepare general purpose financial statements, applying NZ IFRS/NZ IFRS RDR in the third year. Moving forward, this is not the case.

Previously:

  • Acquiring entity: Had a two-year grace period from having to itself step-up to general purpose reporting applying NZ IFRS/NZ IFRS RDR.
  • Acquired entity: Continued with its current reporting requirements as a large entity (i.e., the “top-co” requirements of section 200 of the Companies Act 1993).

For reporting periods beginning on or after 29 September 2025 (for example, 30 September 2026 year-ends), under the new FRA requirements, there is no longer a two-year grace period for the acquiring entity. As such, the acquiring entity would have to immediately step up into NZ IFRS/NZ IFRS RDR at its next reporting date.

As detailed in the examples below, this will have a significant, immediate impact on foreign entities that acquire New Zealand entities (groups) by establishing a New Zealand holding company immediately above the existing structure.

Scenario

Explanation

Overseas Company A acquires a ‘large’ New Zealand entity, NZ Company S, via a new NZ holding company.

Overseas Company A is a company incorporated in Australia, and has a 31 March year end.

On 31 Jan 2027, Overseas Company A incorporates NZ Company P, a New Zealand entity, which then acquires 100% of the shares in NZ Company S for cash.

NZ Company S has been a ‘large’ New Zealand entity and has been preparing its own general purpose financial statements in accordance with NZ IFRS, and meets the definition of a ‘business’ in NZ IFRS 3 Business Combinations.

For its 31 March 2027 reporting date, NZ Company P will be considered to be ‘large on account of NZ Company S’s ‘large’ status.

Accordingly, for its 31 March 2027 financial statements, NZ Company P will need to:

  • Apply acquisition accounting (NZ IFRS 3) to its acquisition of NZ Company S, and
  • Prepare consolidated financial statements (i.e. for the two-month period 31 January 2027 to 31 March 2027).

Overseas Company A acquires a ‘non-large’ New Zealand Entity, NZ Company S, via a new NZ holding company (where NZ Company S breaches the (lower) thresholds that apply to overseas entities)

Overseas Company A is a company incorporated in Australia, and has a 31 March year end.

On 31 Jan 2027, Overseas Company A incorporates NZ Company P, a New Zealand entity, which then acquires 100% of the shares in NZ Company S for cash.

NZ Company S has not been a ‘large’ New Zealand entity previously, but it would be ‘large’ under the (lower) thresholds that apply to overseas entities.

NZ Company S meets the definition of a ‘business’ (per NZ IFRS 3).

For its 31 March 2027 reporting date, NZ Company P will be considered to be ‘large’ on account of NZ Company S breaching the ‘large’ (lower) 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.

This applies irrespective of the fact that the subsidiary may not have previously been ‘large’ under the higher thresholds for non-overseas entities.

Accordingly, for its 31 March 2027 financial statements, NZ Company P will need to:

  • Apply acquisition accounting (NZ IFRS 3) to its acquisition of NZ Company S, and
  • Prepare consolidated financial statements (i.e. for the two-month period 31 January 2027 to 31 March 2027) (which will require NZ Company S to transition its accounting policies to NZ IFRS/NZ IFRS RDR).

More information

Our previous article contains more information about these changes.

Need help?

Please contact our IFRS & Corporate Reporting team if you have operations in New Zealand and require more information about your New Zealand reporting obligations.