EXECUTIVE SUMMARY
Financial Reporting Surveillance Programme
The Securities Commission of New Zealand has established a Financial Reporting Surveillance Programme to review financial reporting practices of issuers. The aim of this programme is to encourage New Zealand issuers to improve the quality of their financial reporting. The Commission believes the quality of financial reporting is inextricably linked to the fairness, efficiency and transparency of securities markets.
Findings from Cycle 5
In Cycle 5 the Securities Commission reviewed the financial reports of 40 issuers with balance dates from 31 March 2006 to 30 September 2006. This review comprised 12 financial statements prepared in accordance with NZ IFRS and 28 prepared under previous NZ GAAP.
The Commission's review covers compliance with Financial Reporting Standards and other sources of NZ GAAP with the purpose of assessing the overall quality of financial reporting.
The reports of 16 of the 40 issuers reviewed had matters that prompted the Commission to write to the issuer requesting additional information. In some cases the Commission asked issuers to revise or enhance disclosures in future financial statements.
Key issues identified in the application of NZ IFRS included presenting the correction of prior period errors as transition adjustments, the incorrect labelling of comparatives and the treatment of GST in the preparation of the cash flow statement.
The application of previous NZ GAAP raised key issues on the treatment of an item as a fundamental error and reviewing investments for impairment.
Recent reviews have identified two specific areas of divergence from NZ GAAP: the accounting for reverse acquisitions and the consolidation of securitisation trusts. The issuers involved informed the Commission that the treatment adopted in these areas is 'common practice' albeit non-compliant with NZ GAAP. The Commission is of the view that common practice does not justify a departure from NZ GAAP.
The Commission has been pleased with the cooperation from issuers and their willingness to improve the quality of their financial reporting.
The Commission will continue its Financial Reporting Surveillance Programme.