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There’s been a period of relative calm in the world of accounting standards in recent years, however they quietly continue to evolve and reflect the dynamic nature of business, and the need for transparency and accuracy in financial reporting. Recently, several important changes have been made to New Zealand equivalents to International Accounting Standards (NZ IAS) to make financial statements clearer, comparable and relevant. Key updates have been made to: 1. material accounting policies for year ends from 31 December 2023 onward 2. accounting for estimates for year ends from 31 December 2023 onward 3. the presentation of current and non-current liabilities for year ends from 31 December 2024 onward Understanding the implications and significance for your business Changes to NZ IAS 1: Disclosure of material accounting policies A shift from the significant to the material The amendment to NZ IAS 1 emphasises the disclosure of material accounting policies. It requires entities to make material accounting policies prominent and easily accessible within financial statements. Previously, businesses were only required to disclose their significant accounting policies. The move to releasing material accounting polices was made to reflect the fact that term and its application is described in detail in accounting standards, where the term significant is not. How will this benefit my organisation and its stakeholders? Transparent disclosure of accounting policies is crucial for stakeholders to comprehend how financial information is prepared and to assess the reliability of financial statements. By explicitly stating material accounting policies, companies provide clarity on significant judgments and assumptions applied in financial reporting, enhancing the overall transparency, trustworthiness and comparability of financial statements for different entities. Investors and other stakeholders can make more informed decisions when they have a clearer understanding of the underlying principles and methodologies used in financial reporting. It encourages companies to critically evaluate their accounting policies, ensuring they accurately reflect the economic substance of transactions and events. Businesses are encouraged to review the significant accounting polices previously disclosed to determine how they stack up against the new guidance to disclose material accounting policies. Changes to NZ IAS 8: Accounting for Estimates More consistency and reliability on the horizon The revision to NZ IAS 8 addresses the accounting for estimates, emphasising the need for consistency and reliability when estimating uncertain future outcomes. Over time, a change in accounting estimates has become confused with a change in accounting policy. The amendment replaces the definition for a change in accounting estimate with the definition for an accounting estimate as monetary amounts that are subject to measurement uncertainty. Enhance the usefulness of your financial statements … Estimates play a crucial role in financial reporting, particularly in areas such as fair value measurements, provisions, and impairment assessments. Ensuring the reliability and consistency of estimates turns your financial statements into a tool stakeholders can use to assess the potential impact of uncertainties on an entity's financial position and performance. … And mitigate risk The revised standard prompts companies to exercise greater diligence and transparency when making and disclosing estimates. By providing insight into significant judgments and uncertainties, you can mitigate the risk of misinterpretation and enhance stakeholder confidence in the reliability of your financial information. Additionally, it encourages robust internal controls and processes for estimating, monitoring, and disclosing uncertainties, all of which improves risk management practices. Changes to NZ IAS 1: Presentation of Current and Non-current Liabilities What is changing? The amendment to NZ IAS 1 focuses on the presentation of current and non-current liabilities, requiring a liability to be classified as current if, among others, the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. The amendments to NZ IAS 1 clarify that the right to defer settlement must have substance, and it also discusses the impact of covenants on this assessment. Why is this important? Clearly presenting your current and non-current liabilities makes your liquidity and solvency position easier to understand. By segregating liabilities based on their maturity, financial statements provide valuable insights into an entity's short-term obligations and its ability to meet them, which helps stakeholders assess liquidity risk and financial health. The amendments state that at the reporting date, instead of considering covenants that will need to be complied with in the future, when considering the classification of the debt as current or non-current, the entity should disclose information about these covenants in the notes to the financial statements. The standard setter introduced these so investors can understand the risk that such debt could become repayable early and therefore improving the information being provided on the long-term debt. What is the impact on my business? The revised standard prompts entities to reassess their classification of liabilities, ensuring compliance with the new presentation requirements. By clearly delineating between current and non-current liabilities, businesses enhance the clarity and relevance of financial statements, enabling stakeholders to make more informed assessments of an entity's financial position and performance. It underscores the importance of effective liquidity management and strategic planning to meet short-term obligations and sustain long-term growth. What’s next? After a period of relative calm, we are expecting to see a minimum of two new accounting standards over the coming year. The first, IFRS 18, will impact the representation and disclosures of primary financial statements. Key changes include: • new required subtotals included in the statement of profit or loss such as operating profit, profit before financing and income taxes, • disclosures around management-defined performance measures (MPMs), and • enhanced requirements for aggregation and disaggregation (i.e., grouping of information). It is important to note that IFRS 18 is subject to consultation before the standard is adopted in New Zealand. We are also anticipating a new standard outlining disclosure requirements for subsidiary, and potentially other entities, who do not have obligations to produce financial statements. When and how this standard might be applied in New Zealand will be subject to XRB consultation.

Why would a business ever choose to invest more time and money in financial reporting? You might think it’s always better to just do the minimum and stick to the usual special purpose reporting that most Kiwi company’s produce. But when your company is serious about achieving a higher profile on an international stage, there could be some unexpected upsides to stepping up to more rigorous financial reporting. Instead of special purpose reporting, a company could benefit from adopting International Financial Reporting Standards (IFRS). Put simply, it’s an international accounting language that crosses borders so investors or shareholders who have a reasonable level of financial knowledge can compare listed companies across the globe. The standards are comprehensive, consistent, transparent and universal. Different jurisdictions have their own versions of IFRS and Aotearoa is no exception. We have NZ IFRS, a local version of IFRS which includes domestic requirements for our market while ensuring we comply with IFRS. The standards are updated regularly. NZ IFRS and which companies must comply Naturally, NZ IFRS is required for publicly listed companies, whether they’re based here or internationally. For some businesses, especially household names, you’ll often see the complying information packaged up in the financial section of a glossy annual report. For other businesses, the information will be available on the Companies Office website. Privately owned New Zealand companies with assets totalling more than $66 million or revenue over $33 million must also comply with NZ IFRS. Other entities deemed ‘publicly accountable’ may also need to report under NZ IFRS, for example regulated entities such as banks or insurers. Adopting IFRS sends a clear message your company is ready for the big leagues If your company doesn’t meet the threshold for mandatory adoption of IFRS, why would you choose to opt into the standards? Attracting the right buyers at the right price The first and biggest motivator is the prospect of a sale. Reporting under IFRS makes a company more attractive in the international marketplace. If your company has the potential to be purchased by a global corporation as a subsidiary, that potential buyer will be an IFRS reporter. By stepping up to IFRS, your company can be assessed more easily and accurately by the prospective purchaser. We’ve seen many Kiwi companies sold overseas in recent years, from huge sales like Vend ($455 million) and Timely (around $100 million), through to high-performing SMEs and farms. IFRS shows you’re speaking the same language, and that your company can easily slot into their own reporting regime. It also demonstrates that your business has the capability and capacity to comply with IFRS. Because this level of reporting is more complex, and requires a higher level of sophistication, it shows a purchaser that your company has the acumen and expertise to be a major asset on the balance sheet. Stepping up your capital raising game Another important motivator of switching to NZ IFRS early is fundraising. If your business is seeking to raise money from the capital markets, adopting higher-level reporting can help investors make a more informed decision. It can give them confidence in your company and allows them to have a more in-depth understanding of precisely how the company is performing. And, if your company is dealing in complex financial instruments such as hedging, foreign exchange or derivatives, there is no information in special purpose reporting that tells you how to treat these. NZ IFRS provides clear guidance about reporting on these types of activities. IFRS produces higher-quality financial statements Financial statements produced under NZ IFRS are considerably more accurate than those produced under the special purpose financial reporting framework. A higher level of scrutiny is applied across your organisation’s financials, and the standards themselves provide guidance about how to improve the accuracy of your statements. Here’s some examples to highlight how they differ: If your company has $1m debtors owing at the end of the financial year, special purpose reporting will value that at $1m. That’s a straightforward way to account for those monies owed. In contrast, NZ IFRS demands a closer look at the outstanding invoices. If the company historically sees a 5% rate of default, your NZ IFRS financial statements will provision for that and value the accounts receivable at $950k. This is a more accurate valuation of the receivable invoices. When a business exports goods, once the goods are on a ship and on their way overseas, they are invoiced and recorded as a sale. Under NZ IFRS, those goods might not actually be sold until they land at the receiving port – the sale would be reversed back into inventory until the product arrives and ownership passes. Unlike special purpose reporting, NZ IFRS requires right-of-use values for leased assets, which needs some detailed calculations to capture. There are hundreds more rules like these that contribute to IFRS providing much more detailed and accurate accounts. If you adopt IFRS, the quality of your accounts is going to be significantly higher, and it could change your final numbers quite substantially. Making a decision about whether to adopt NZ IFRS Adopting NZ IFRS does involve extra work and higher costs. You certainly wouldn’t adopt these standards lightly. Ideally, you should consider the costs and benefits to the business – is it worthwhile? If IFRS statements could make the difference between a sale or no sale, or maximise the value of your company, it could be an investment with a very impressive return. It won’t be right for every business, but for up-and-coming companies with great acquisition prospects, NZ IFRS can show you’re ready for the big stage.

You have completed your due diligence, signed all the paperwork, and have officially acquired an entity or a business. You might think all the hard work is done, but accounting for it may be harder than you think. Here’s some key questions you need to consider.

Many businesses continue to recover from the physical effects of extreme weather events experienced throughout the year, and will be dealing with the subsequent year-end reporting challenges. And some will also be going through the process of claiming insurance for physical loss or business interruption.

Service reporting is all about your non-financial performance – the data that showcases the most meaningful parts of what your entity does. The standard is designed to help everyone see the fantastic work your charity is doing, and you might be surprised at the potential benefits of non-financial reporting. This service report tells all of your stakeholders:

NZ IFRS 16 is applicable to all large-for profit entities and aims to improve transparency and comparability in financial reporting by requiring these entities to recognise the full extent of their lease obligations on their balance sheets.

With interest rates on the rise there are more considerations than ever when it comes to preparing your New Zealand International Financial Reporting Standards (NZ IFRS) financial statements. Here’s four key areas CFOs and Directors need to be aware of when preparing their statements this year.

From asset impairment and future operating losses to insurance recoveries and everything in between, a host of additional financial reporting challenges now faces many businesses after NZ’s recent natural disasters. David Pacey takes you through many of the issues you need to take into consideration and how to ease any year-end accounting headaches early.

While we grapple with the threat of sustained environmental challenges, corporates and other reporting entities need to consider how the impact of climate change on their organisations is reflected in their financial statements. The key challenge is assessing this within our current accounting framework even when don’t yet have specific climate accounting standards. David Pacey addresses these challenge and how you can report the impact of climate change in your financial statements.

Step 6 of applying the guidance in IAS 36 as set out in our article ‘Insights into IAS 36 – Overview of the Standard’ relates to recognising or reversing and impairment losses. This article focuses on part of this step; reversing impairment losses. For recognising impairment losses refer to our article ‘Insights into IAS 36 – Recognising impairment losses’.

The new Trusts Act 2019, which came into force on 30 January 2021, was one of the biggest changes for Trusts for quite some time. Now, Inland Revenue has also introduced further reporting and disclosure requirements. Here's what you need to know.

Mandatory climate related reporting on the way for some NZ businesses. The Government is establishing a standardised approach to climate-related reporting for certain entities to disclose their progress on emission reduction in a way that’s transparent and consistent.

For well over 100 years the Incorporated Societies Act 1908 has enabled community related organisations to become incorporated for a wide variety of purposes. However, this Act is now outdated and deficient in many respects.

The economic impacts of COVID-19 will continue to persist well into 2021. Our borders remain substantively closed and the nationwide roll out of a COVID-19 vaccine is yet to commence in New Zealand. This means that teams which perform inhouse impairment testing need to consider how the ripple effects of the pandemic will influence their financial statements over the next 12 months.

In October 2018, the IASB issued ‘Definition of a Business’ making amendments to IFRS 3 ‘Business Combinations’. The amendments are a response to feedback received from the post-implementation review of IFRS 3 (‘the Standard’). They clarify the definition of a business, with the aim of helping entities to determine whether a transaction should be accounted for as an asset acquisition or a business combination.

The requirements of Public Benefit Entities International Public Sector Accounting Standards (PBE IPSAS) for Not-for-Profit reporting entities are continuing to change. Navigating the Changes to PBE IPSAS for Not-for-Profits gives chief financial officers, and audit and risk committee members a high-level awareness of these recent changes to PBE IPSAS. It covers both brand new standards, and changes that have been made to existing ones.