Financial viability requirements for TEC-funded PTEs

Te whaihuatanga ā-pūtea mō ngā PTE whiwhi pūtea mai i TEC

Last updated 26 October 2017
Last updated 26 October 2017

New financial viability requirements for all TEC-funded  took effect from July 2014.

To receive funding, a PTE must demonstrate to us that it provides quality assured qualifications which align to the and are delivered through a financially viable entity. Financial viability is a standard for assessing PTE . The approach and methodology outlined below describes the assessment we use for the Investment Plan and other assurance purposes.

Key benefits of the new approach

Our financial viability approach, methodology and prudential standards are intended to move the PTE sector onto a more robust financial footing which:

  • creates an environment that minimises any future failures
  • provides additional assurance to students that the PTEs they enrol in are viable
  • provides greater assurance and security over the use of public funding.

Solvency and financial viability defined

In terms of solvency, the Companies Act 1993 focuses on whether an entity:

  • is able to meet its bills as they fall due and
  • has assets that exceed its liabilities ie, whether the entity has positive shareholders’ equity.

We have adopted the definition of financial viability set out in the Australian Skills Quality Authority’s (ASQA’s) financial viability requirements (refer to the ASQA promulgated Financial Viability Risk Assessment Requirements 2011):

‘Financial viability is defined as the ability of an organisation to generate sufficient income to meet operating payments, debt commitments and, where applicable, to allow growth while delivering quality training and assessment services and outcomes’.

Financial viability requirements

We undertake a limited scope desk-based review of the financial viability of the private training establishments (PTEs) we fund, based on the financial accounts and other information they provide. We use financial indicators to perform the assessment then classify PTEs on a three-point scale (A to C).

We have a graduated approach to risk assessment, monitoring and reporting which depends on the amount of TEC funding a PTE receives and its assessed financial viability risk rating. This approach allows us to focus on PTEs of greatest significance from an educational, funding and financial viability perspective.

The new process

and the TEC have agreed that we will take over the responsibility for monitoring TEC-funded PTEs. This new process applied to reporting periods ending on or after 31 December 2015.

Annually, PTEs are required to prepare historical financial statements and prospective financial information for the next 12-month period. The financial accounts and the prospective financial information should include:    

  • a statement of comprehensive income
  • a statement of financial position
  • a statement of cash flows (where prepared) and
  • any associated notes to the accounts.

We expect all PTEs to meet the minimum prudential financial standards – six indicators that are used to assess a PTE’s financial viability. PTEs are required to use their financial statements and prospective financial information to calculate the indicators as at balance date and for the next 12-month period.

The new financial viability requirements

The new requirements for PTEs we fund are:

  • PTEs receiving $4 million or more in TEC funding are required to have their accounts audited.
  • PTEs receiving between $2 million and $4 million in TEC funding are required to have their accounts reviewed by an independent Chartered Accountant. We will also risk assess these PTEs. Any PTE that fails to meet the minimum prudential financial standards, or is assessed as risk category D or E, may also be asked to have its accounts audited. Where an audit is required we will advise the PTE of this in writing.
  • PTEs receiving under $2 million in TEC funding are required to engage an independent Chartered Accountant to carry out:
    • an assurance engagement (audit or review) over the financial statements
    • an agreed-upon procedures (AUP) engagement in respect of the prudential financial standards calculations prepared by the PTE
      • as at balance date on the basis of the audited or reviewed financial statements
      • for the next 12-month period based on the prospective financial information.

 The AUP engagement must include the following procedures:

  • as at balance date:
    • re-perform the prudential financial standards calculations prepared by the PTE
    • check each component of those calculations agrees to the audited or reviewed financial statements.

For the prospective financial information:

  • re-perform the prudential financial standards calculations prepared by the PTE
  • compare the prospective financial information to the assumptions set out by the PTE
  • determine whether the accounting policies and management estimates used for the prospective financial information are the same as those used in the audited or reviewed financial statements
  • check the prospective financial information has been approved by the PTE’s governing body.

We may risk assess these PTEs if they exhibit financial or educational risks. Where a PTE is assessed as failing the minimum standards we may seek additional information to confirm the PTE’s current financial position. 

Chartered accountant independence and standards

To be independent, the Chartered Accountant must not prepare the financial statements or the prospective financial information. They must also not carry out the initial calculations of the prudential financial standards. The independent Chartered Accountant must carry out the engagements and report in accordance with the following professional standards:



Issuing body


International Standards on Auditing (New Zealand) (ISAs (NZ) (Suite of 36 standards)

New Zealand Auditing and Assurance Standards Board (NZAuASB)


ISRE (NZ) 2400 Review of Historical Financial Statements Performed by an Assurance Practitioner

New Zealand Auditing and Assurance Standards Board (NZAuASB)

Agreed-upon procedures

APS-1 Statement of Agreed-upon procedures engagement standard

New Zealand Institute of Chartered Accountants (NZICA)

The independent Chartered Accountant will provide the PTE with an Assurance Report (either an Independent Auditor’s Report or an Independent Assurance Practitioner’s Review Report) and an AUP Report. We should be noted as an ‘intended user’ on these reports.

Refer to the Illustrative agreed-upon procedures report (DOCX 724 KB) (Word, 724 Kb). This provides an example of how the report can be drafted that complies with the requirements of the standard (APS-1).  

Documents to be sent to us

PTEs must send us a copy of the following documentation within five months of their balance date:

  • The audited or reviewed financial statements and the Assurance Report
  • The prudential financial standard calculations as at balance date and for the next 12-month period, the prospective financial information and the AUP Report.

Please email your documents to or post to:

The Manager
Monitoring & Crown Ownership
Tertiary Education Commission
PO Box 27048
Wellington 6141

PTE financial viability graduated information and monitoring arrangements (PDF 78 KB) (PDF, 80 Kb) provides further details on our assessment and monitoring approach with the different categories of PTEs.

Prudential financial standards

Since 31 December 2014, we have used a set of prudential financial standards to show what we consider to be ‘minimum’ and ‘recommended’ financial performance from a financial viability perspective.

The requirement for PTEs to meet the minimum standards is part of our funding requirements and part of the Plan assessment criteria. This requirement also extends to PTEs that apply for TEC funding.

Assigning risk categories

We use financial indicators to assess the financial viability of the private training establishments (PTEs) we fund. The indicators allow us to assess operating performance, profitability, liquidity, cashflows, balance sheet strength, organisational capability, trends in funding and other factors.

We identify, from the values calculated for each indicator, whether a PTE’s financial performance exhibits characteristics that could be considered high risk or that indicate issues with ongoing solvency. 

Each PTE receives a score against each indicator (which ranges from strong through to extreme risk) and an overall score. This allows us to place the PTE into one of the following three categories:

Financial viability category                                  

PTE characteristics

Low (A)

Meets expectations against most financial viability indicators and does not raise any major concerns in terms of ongoing viability.

Medium (B)

Exhibits some poor financial results which bear on currently assessed viability. Some increased monitoring may be required to ensure Crown funding and quality of provision is not at risk.

High (C)

Not performing well against all the financial viability benchmarks and the TEC has concerns. In some instances there may be indications of insolvency, and it is not clear from the financial accounts provided whether the PTE will be solvent in the future. TEC funding or student delivery may be at risk and immediate actions are required to meet our financial requirements.

Process for assigning risk rankings (DOCX 29 KB) (Word, 29 Kb) comprises three tables that describe the following indicators and calculations:

  • Table 1 – Prudential financial standards 
  • Table 2 – Further financial indicators used 
  • Table 3 – Calculating the overall financial viability risk score

Action plan content requirements

The purpose of the action plan is to set out the short-term and long-term steps you will take to address any financial viability issues identified with your PTE.

If we identify your PTE as being of higher risk financially then we will advise you of the issues that led to our concerns; the financial assessment methodology we use to assess a PTE’s financial viability and future solvency, and the steps that may be required to address the financial viability issues raised.

Your PTE’s governing body (i.e. shareholders/trustees) will need to prepare an action plan to describe how it will address these issues and meet the minimum prudential financial standards by year end.

Where you have already taken action to address these concerns or expect to change your PTE’s financial situation through producing and retaining operating surpluses then the changes made should be described in the action plan, including a conservative estimate of the likely financial results. You should separately identify all changes and reflect them in an updated financial forecast.

The action plan is a condition of future TEC funding. The action plan for your PTE, at a high level, should set out:

1.   The identified issues and their causes.

2.   The actions and strategies you will undertake to address the causes of the problems identified.

3.   Any additional capability or resources required by the PTE to help it with these tasks.

4.   A timetable for when key decisions and actions will be undertaken and a target date to implement the chosen options. Any issues will need to be effectively addressed this year.

5.   Confirmation from your governing body that the action plan will be put into effect, any changes undertaken will be maintained over the year and that the indicative prudential financial standards will be achieved and maintained on an ongoing basis in future.

6.   An updated financial forecast (Profit & Loss and Balance Sheet) which incorporates the effects of any planned changes.

 Your PTE’s governing body will need to ensure the action plan is put into effect and report on the achievement of the action plan activities.

There may be various ways in which the issues identified can be addressed. Your organisation should choose how it will address any issues. Any proposed solution must, however, be effective and maintained over future periods.

Should you have any questions about the action plan requirements, or seek feedback on the acceptability of a draft plan before your directors formally adopt it, then email

Our acceptance of your action plan

We will confirm acceptance of the plan. We will let you know if the plan needs amendments for any reason.

When making future funding decisions we will consider the action plan, and information covering achievement of performance against the action plan.

We may need you to provide progress reports on the achievement of the plan, and the achievement of any key milestones. We may also propose follow-up financial monitoring arrangements with you to see that the plan is achieved and the prudential standards are maintained.

We will accept a letter from your governing body that confirms it will continue to commit to meeting the TEC prudential financial standards for PTEs on an ongoing basis where you can demonstrate that actions already taken address the financial viability issues we identified.

Our approach with high risk PTEs

We will follow up with any private training establishment (PTE) in the 'high' risk category (category 'C') to clarify why it has been assessed as 'high' risk and to show its performance against our prudential financial standards. Discussions will centre on how the PTE can move to a stronger financial footing. We may require the PTE to enter into an action plan to address our areas of concern.

We will exercise judgement in determining whether a risk exists and whether the PTE has adequately mitigated that risk. We will determine this on a case-by-case basis. These decisions will be made by qualified accountants based on a suitable evidence base.

If you initially meet the prudential financial standards but subsequently fail to meet the standards in the normal course of business, you are expected to keep us informed and take action to ensure ongoing compliance with the prudential financial standards.

In making decisions about the funding for a PTE that exhibits poor financial performance we will take account of the PTE’s situation, the reason for the poor performance, and the ability of the PTE’s management to rectify the situation within a short time period (i.e. typically within one year).

PTEs need to be aware that failure to meet the prudential financial standards may affect funding allocations in future funding periods. We reserve the right to take action, at any time, to protect student interests and public funds.

Allowing for the financial viability of a parent company

We require any entity we fund to operate in a financially viable and sustainable manner.

In most cases we will expect to see evidence of TEC funding in the financial statements of the legal entity we fund. We will take into account the financial viability of a parent company when doing our assessment where the parent entity is financially viable in its own right, provides us with a copy of its latest financial statements (and any other relevant information), and provides us with guarantees in support of the funded PTE.

Questions and answers

PTE financial viability requirements: Questions and answers (PDF 113 KB) (PDF, 113 Kb) provides some common questions and answers about these financial viability arrangements.

Any further questions can be sent to: