The Impact of Tier Changes on Audit Fees: Evidence From New Zealand Not-for-Profits

Abstract

Tiered reporting frameworks are commonly justified by regulators on cost–benefit grounds, particularly where reporting threshold adjustments reduce compliance burdens for smaller organisations. Whether these anticipated savings actually materialise in practice has received limited attention, with a focus on not-for-profit contexts. This thesis examines this question using New Zealand’s February 2024 updated revision to Public Benefit Entity (PBE) tier size thresholds, which allowed not-for-profits with expenditure between $2 million and $5 million to shift from Tier 2 International Public Sector Accounting Standards Reduced Disclosure Regime to Tier 3 Public Benefit Entity Simple Format Reporting – Accrual simplified reporting. Analysis uses 212 New Zealand not-for-profits (424 entity-year observations) across 2023 and 2024. The findings provide no evidence of audit fee reductions following tier migration during the first year of adoption, and only 15.6% of eligible non-for-profits voluntarily shifted to simplified reporting. The evidence further suggests that not-for-profits maintain more comprehensive reporting practices to satisfy stakeholder expectations, despite having regulatory permission to adopted simplified reporting. Overall, the results suggest regulatory relaxation does not lead to immediate audit cost reductions, with low voluntary adoption indicating that stakeholder expectations constrain the practical use of regulatory flexibility. These results have important implications for policymakers evaluating the effectiveness of tiered reporting frameworks.