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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.

Whether you want to communicate your organisation’s purpose and objectives, or to attract new sources of funding, your annual financial statements are a powerful tool for telling your story, but all too often the opportunity for making an impact is lost.