Eye on Reporting

March 2014

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Welcome to the March edition of Eye on Reporting.

On 28 February 2014, the effective date for the Financial Reporting Act 2013 and the Financial Reporting (Amendments to Other Enactments) Act 2013 (the Acts) was established by Order in Council. The Acts make changes to the current statutory reporting framework, with the key changes impacting companies, partnerships and registered charities. The changes for companies and partnerships are effective for reporting periods beginning on or after 1 April 2014, i.e., from 31 March 2015 year-ends and onwards. The legislative changes for registered charities are effective for reporting periods beginning on or after 1 April 2015.

For many small and medium-sized companies, the Acts remove the statutory requirement to prepare general purpose financial reports (GPFRs) in accordance with accounting standards. Instead, these companies will need to comply with minimum reporting requirements established by the Inland Revenue Department (IRD), which are contained in an amendment to the Tax Administration Act 1994.

Our updated publication Navigating the new terrain - updated March 2014 summarises the main changes to the financial reporting framework and the key effective dates.

This month we also highlight:

  • The New Zealand Accounting Standards Board (NZASB), a sub-Board of the XRB, has issued a table of differences between the suites of standards for Tier 1 For-profit Entities and Tier 1 Public Benefit Entities (PBE). This document highlights the main differences in the recognition and measurement requirements between the two suites of standards.
  • Our latest edition of IFRS Developments: Boards back away from key aspects of leases proposal, which summarises the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) (collectively, the Boards) tentative decisions reached, as they look for ways to simplify their 2013 proposal on leases in response to feedback from constituents.
  • Our latest edition of Applying IFRS: Structured entities - considerations for fund managers, where we discuss the concept of a structured entity and how interests in structured entities may have disclosure impacts for fund managers.
  • The IASB’s redeliberations on the Exposure Draft (ED) Financial Instruments: Expected Credit Loss.

If you would like any further information on any of these topics or the topics below, please get in touch with our Financial Accounting Advisory Services Team.

    To find out more about the services we offer in this area please contact EY's Financial Accounting Advisory Services Team

     
     

    Kimberley Crook

    Partner, Auckland

    +64 274 899 535

    Graeme Bennett

    Partner, Auckland

    +64 274 899 943

    David Pacey

    Executive Director, Auckland

    +64 212 425 716

    Lara Truman

    Executive Director, Wellington

    +64 274 899 896

    David Bassett

    Manager, Auckland

    +64 274 899 883

    Kind regards
    Kimberley Crook
    Financial Accounting Advisory Services


    Hot topics

    • Financial Reporting Act 2013 effective 1 April 2014
      In February 2014, the effective date for the Financial Reporting Act 2013 and the Financial Reporting (Amendments to Other Enactments) Act 2013 (the Acts) was established by Order in Council.

      The key legislative changes impact on companies, partnerships and registered charities.  The legislative changes for companies and partnerships are effective for reporting periods beginning on or after 1 April 2014, i.e., from 31 March 2015 year-ends and onwards. For registered charities the legislative changes are effective a year later, being periods beginning on or after 1 April 2015, i.e., 31 March 2016 year-ends and onwards.

      Financial reporting for periods beginning before 1 April 2014 (e.g., 30 June 2014, 30 September 2014 and 31 December 2014 year-ends) will continue to be required to comply with the Financial Reporting Act 1993.

      Our updated publication Navigating the new terrain - updated March 2014 (pdf, 720.4kb) provides an overview of the new financial reporting framework, main changes and key effective dates.

    • Minimum reporting requirements for small and medium-sized companies
      Under the new legislation, many for-profit small and medium-sized companies will be no longer required to prepare GAAP-compliant financial statements from 1 April 2014. Instead these companies are required to prepare special purpose financial reports (SPFR) for other purposes, including for tax purposes. Amendments made to the Tax Administration Act 1994 require taxpayers to keep special purpose financial statements. The IRD minimum requirements for these financial statements are outlined by Tax Administration (Financial Statements) Order 2014, which was released in March 2014.

      Click here to access the Tax Administration (Financial Statements) Order 2014.
       

    • Legislative Update Package
      The Financial Reporting Act 2013 and Financial Reporting (Amendments to Other Enactments) Act 2013 have had consequential impacts on a number of existing External Reporting Board (XRB), New Zealand Accounting Standards Board (NZASB) and New Zealand Auditing and Assurance Standards Board (NZAuASB) standards. To reflect these legislative changes, a package of four standards and related documents was issued to amend standards published by the three Boards.

      The amendments made by the Legislative Update Package are not expected to have a significant impact on reporting entities. The amendments include:
      • Changes in references – e.g., replace references to “pronouncements that have authoritative support” with references to “authoritative notices”.
      • Changes in definitions – e.g.,  changes the definition of “public accountability” to align the entities deemed to have “public accountability” with the terminology used in the amendments to the Financial Markets Conduct Act 2013.
         
      The package also introduces a new standard, XRB A2 Meaning of Specified Statutory Size Thresholds. The purpose of XRB A2 is to define, for the purposes of the Financial Reporting Act 2013, and the consequential amendments to other legislation, the meaning of the terms (total assets, total revenue, total operating payments and total operating expenditure) used to specify size thresholds that are required to be applied by an entity to determine whether a particular statutory provision applies.

      As part of the package the XRB has also taken the opportunity to remove restrictions on a for-profit entity when moving between Tiers to better align the requirements in XRB A1 with recent amendments made to NZ IFRS 1 First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards.

      This Legislative Update Package includes the following standards:
      • Amendments to External Reporting Board Standard A1 Accounting Standards Framework: Omnibus Amendments (Legislative Update)
      • External Reporting Board Standard A2: Meaning of Specified Statutory Size Thresholds
      • Amendments to Accounting Standards: Omnibus Amendments (Legislative Update); and
      • Amendments to Auditing and Assurance Standards: Omnibus Amendments (Legislative Update).
         
      The Package also includes:
      • Explanatory Guide A1: Accounting Standards Framework (For-profit Entities plus Public Sector Public Benefit Entities Update) (with legislative compilation);
      • Explanatory Guide A1: Accounting Standards Framework (For-profit Entities plus Public Sector Public Benefit Entities plus Not-For-Profit Entities Update) (with legislative compilation); and
      • Feedback Statements relating to submissions on the exposure drafts for each of the four standards outlined above.
         
      The amendments to standards in the Package are effective for periods beginning on or after 1 April 2014.

      Please refer to the XRB’s website for the Legislative Update Package.

    • Table of Differences between Tier 1 NZ IFRSs and Tier 1 PBE Standards finalised
      In December 2013 NZASB finalised and approved a Table of Differences between Standards for Tier 1 NZ For-Profit Entities and Tier 1 Public Benefit Entities (PBE). This document has been developed to assist entities implementing Tier 1 PBE Standards, including those entities that are mixed groups (i.e., a group that comprises of both for-profit entities and PBEs). The table does not provide a detailed paragraph-by-paragraph comparison between the standards. It only highlights key differences in the recognition and measurement requirements.

      This table is now available on the XRB website.
       

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      Other IFRS news and other updates

      • IFRS Developments: Boards back away from key aspects of leases proposal
        In March 2014, the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) (collectively, the Boards) redeliberated key aspects of the leases proposal.

        The IASB supported a single on-balance sheet model for lessee accounting while the US Financial Accounting Standards Board (FASB) supported a dual on-balance sheet model. Despite this fundamental difference, the Boards reiterated their commitment to seek a converged solution.

        The Boards indicated that they do not intend to significantly change lessor accounting. Instead, they support the retention of a dual classification model. The Boards also reached tentative decisions on lease term, a short-term lease exception and other ways to simplify their 2013 proposal.

        Our IFRS Developments publication tells you what you need to know about the decisions.
         

      • Applying IFRS: Structured entities - considerations for fund managers
        Our latest edition of Applying IFRS explores the impact of IFRS 12 Disclosure of Interests in Other Entities on fund managers that manage investment funds within the definition of a structured entity. IFRS 12 states that some investment funds may be structured entities. This publication looks at what a fund manager needs to consider in the assessment of whether an investment fund is a structured entity. It also gives examples of the required disclosures for interests in an unconsolidated structured entity.

      • IFRS Developments: IASB completes redeliberations on expected credit loss model; sets 2018 effective date
        The International Accounting Standards Board (IASB) completed its redeliberations on the proposed expected credit loss model. The Board plans to issue the completed version of IFRS 9 Financial Instruments, including the impairment requirements, in the second quarter of 2014, with an effective date from 1 January 2018.

      • IFRS Developments: IASB begins public consultation on the post-implementation review of IFRS 3
        The IASB recently issued a Request for Information – Post-implementation Review: IFRS 3 Business Combinations. This request for information is intended to formally gather feedback from constituents on a broad range of implementation issues for IFRS 3.

      • IFRS Developments: The IASB issues IFRS 14 - Interim standard on regulatory deferral accounts
        On 30 January 2014, the IASB issued IFRS 14 Regulatory Deferral Accounts. This interim standard provides first-time adopters of IFRS with relief from derecognising rate-regulated assets and liabilities until a comprehensive project on accounting for such assets and liabilities is completed by the IASB. This interim standard is intended to encourage rate-regulated entities to adopt IFRS while bridging the gap with entities that already apply IFRS, but do not recognize regulatory deferral accounts.

        Our IFRS Developments publication tells you what you need to know about the new standard.
         

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      Industry in focus

      Insurance

      • IASB sets 2018 effective date for IFRS 9, FASB scales back scope of its insurance project
        The IASB decided that the mandatory effective date of IFRS 9 will be for annual periods beginning on or after 1 January 2018. This new effective date allows more opportunity to progress its insurance contracts project and potentially provide greater alignment between IFRS 9 and the new insurance contracts standard.
        The FASB tentatively decided to scale back the scope of its insurance project to focus on targeted improvements to the current guidance for long-duration contracts and disclosures for short-duration contracts. It was also tentatively decided that contracts written by non-insurance entities will not be subject to the guidance for insurance.
        .

        Real Estate

      • Good Real Estate Group (International) Limited
        Good Real Estate Group (International) Limited contains an illustrative annual consolidated financial statements of Good Real Estate Group (International) Limited for the period ended 31 December 2013.


        Note that this set of illustrative financial statements relates to ‘pure’ IFRS and therefore does not include additional New Zealand material.

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      On the horizon

      Below are recent EDs which are currently open for comment to the NZASB, IASB and/or International Public Sector Accounting Standards Board (IPSASB). Please refer to the current exposure draft section on the XRB website for more details (www.xrb.govt.nz).
        

       

      Standard/Exposure Draft
      Comments due to NZASB by
      Comments due to IASB by
      Comments due to IPSASB by
      ED NZASB 2013-6 Proposed Disclosure Concessions for Tier 2 For-profit Entities: IASB ED/2013/6 Leases
      31 March 2014
       
       
      Exposure Draft ED NZASB 2014-1 Proposed Disclosure Concessions for Tier 2 For-profit Entities: Hedge Accounting
      2 May 2014
         
      Exposure Draft ED NZASB 2014-1 Proposed Disclosure Concessions for Tier 2 For-profit EntitieED NZASB 2013-5 Enhancements to the PBE Standards for Not-for-Profit Entities: Hedge Accounting
      2 May 2014
         
      RFI Post-implementation Review: IFRS 3 Business Combinations
      2 May 2014
      30 May 2014  
      IPSASB Exposure Draft 54 Recommended Practice Guideline on Reporting Service Performance 24 April 2014   31 May 2014

       

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      Events and Webcasts

      • Hedge accounting for non-financial entities (archived webcast)

        EY held a webcast on hedge accounting on 28 January 2014 that was aimed at CFOs, finance directors, audit committee members, accounting staff and controllers from non-financial entities.

        Topics discussed include:

        • The current status of the IFRS 9 Financial Instruments project after the hedge accounting requirements were issued
        • The main aspects of the new hedge accounting model and how it would be applied to hedging strategies commonly used by non-financial entities, including transition from IAS 39 to IFRS 9
        • The main considerations for deciding when to apply the new hedge accounting requirements

        Access the archived webcast here

        Archived recordings of all our previous webcasts are available here.

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      Contacts

       For more information on any of the points raised in this newsletter, please contact a member of EY’s Financial Accounting Advisory Services Team.

      To find out more about the services we offer in this area please contact EY's Financial Accounting Advisory Services Team
       

      Kimberley Crook

      Partner, Auckland

      +64 274 899 535

      Graeme Bennett

      Partner, Auckland

      +64 274 899 943

      David Pacey

      Executive Director, Auckland

      +64 212 425 716

      Lara Truman

      Executive Director, Wellington

      +64 274 899 896

      David Bassett

      Manager, Auckland

      +64 274 899 883

       

        


      The information contained in this newsletter does not constitute advice and should not be relied upon as such.  Professional advice should be sought prior to action being taken on any of the information.