At the date of publication of this report the Commission agreed to refer two matters identified in Cycle 5 to NZICA.

Work on another matter is ongoing.

FRS-41: Disclosing the Impact of Adopting New Zealand Equivalents to International Financial Reporting Standards disclosures showed improvement from previous cycles. In Cycle 5 all issuers made some disclosure explaining the impact of transition to NZ IFRS in their financial statements.

The Commission was disappointed to find that 32% of issuers (9 out of 28) were still unable to identify key changes that may result from adoption of NZ IFRS.

Given the date of transition to NZ IFRS is imminent, it was also surprising to note that approximately 18% of issuers reviewed in this Cycle had not yet undertaken any formal exercise to identify the key accounting policy differences that may arise from the adoption of NZ IFRS.

While many issuers have already adopted NZ IFRS, those that are still to adopt are encouraged to consider early their planning and approach to transitioning to NZ IFRS. Entities should not underestimate the business implications and the amount of work involved. There are a number of significant changes from previous NZ GAAP, some of which will have a wider impact than on the entity's financial statements alone.

The findings of the review of financial statements prepared in accordance with NZ IFRS is separated into:

In addition we make comments on improvements in disclosures noted through the review.

Significant matters were raised in relation to NZ IFRS 1 transition adjustments and NZ IAS 7.

NZ IFRS 1 (para. 38) requires an entity to explain how the transition from previous NZ GAAP to NZ IFRS affected its opening financial position, financial performance and cash flows. To comply with this paragraph an entity's first NZ IFRS financial statements are required to include reconciliations of equity, profit and loss and cash flows reported under previous NZ GAAP to that reported under NZ IFRS.

All twelve issuers reviewed provided reconciliations required under NZ IFRS 1.

However, two issuers incorrectly included the correction of prior period errors in their transition reconciliation.

One issuer recognised an executory contract on the balance sheet in its previous NZ GAAP accounts. In the first set of NZ IFRS financial statements this treatment was changed, the contract derecognised, and disclosed as a transition adjustment. The Commission is of the view that the recognition of executory contracts on the balance sheet did not ever comply with previous NZ GAAP and, as a result, the change in accounting policy for executory contracts is not a transition adjustment but the correction of a prior period error.

Another issuer that prepared their consolidated financial statements using reverse acquisition accounting disclosed an adjustment when transitioning to NZ IFRS. Accounting for reverse acquisitions under previous NZ GAAP and NZ IFRS are sufficiently similar that there should be no transition adjustment when adopting NZ IFRS. From further investigation the Commission was of the view that the issuer's accounting for a reverse acquisition did not comply with previous NZ GAAP. Therefore, the change made when transitioning to NZ IFRS, was not a transition adjustment but the correction of a prior period error.

The Commission highlighted in its Cycle 4 Report that this practice of including the correction of prior period errors as transition adjustments is not acceptable. The Commission reminds issuers that only adjustments arising from a change in accounting policy as a result of applying NZ IFRS for the first time should be included in the reconciliations required under NZ IFRS 1.

All adjustments that are not transition adjustments, including those arising from the correction of prior period errors or change in accounting estimates, must be clearly distinguished and disclosed in a separate note.

The Commission reminds issuers that while the transition to NZ IFRS is a good opportunity to review reporting practices and compliance with the relevant accounting standards, issuers must not portray the correction of errors as NZ IFRS transition adjustments.

One early adopter incorrectly labelled its comparatives as prepared under previous NZ GAAP.

An entity's first NZ IFRS financial statements are required to include at least one year of comparative information under NZ IFRS (NZ IFRS 1 (para.36)).

The issuer did explain that the change to NZ IFRS had not resulted in a restatement of comparative figures and the effect of moving to NZ IFRS had not resulted in a material change in accounting treatment. However, given the specific NZ IFRS 1 requirement and for greater clarity to readers of the financial statements, the Commission is of the view that the comparatives should have been labelled as prepared under NZ IFRS with no reference to previous NZ GAAP.