The Commission has reviewed 21 first-time adopters of NZ IFRS, 9 in Cycle 4 and 12 in Cycle 5. In Cycle 5, early-adopters showed improvement in some disclosures required by NZ IAS 1 and NZ IAS 8.

The Commission noted fewer instances of non-disclosure in this cycle with only one issuer failing to provide all of the following disclosures;

• a statement as to whether an entity is a profit-oriented entity or a public benefit entity (NZ IAS 1: NZ13.1(b));
• a statement that the financial statements have been prepared in accordance with NZ GAAP, together with a description of the financial reporting standards applied by that entity (NZ IAS 1: NZ13.1(d));
• for an entity whose financial statements comply with IFRS, an explicit and unreserved statement of such compliance in the notes (NZ IAS 1.14);
• each component of the financial statements to be identified clearly, in particular, the name of the reporting entity or other means of identification, which has to be repeated if necessary (NZ IAS 1.46(a));
• the entity's presentation currency and the level of rounding used in presenting amounts in the financial statements (NZ IAS 1.46(d) and (e));

The Commission encourages issuers preparing financial statements under NZ IFRS to be well informed about the new reporting requirements, especially for their first set of NZ IFRS financial statements.

NZ IAS 8 (para. 30) states that "when an entity has not applied a new Standard or Interpretation that has been issued but is not yet effective, the entity shall disclose this fact and known or reasonably estimable information relevant to assessing the possible impact that application of the new standard or interpretation will have on the entity's financial statements in the period of initial application."

In Cycle 5, 6 of the 12 issuers reviewed did not provide this disclosure compared with all nine issuers not making this disclosure in Cycle 4.

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

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

Significant matters were raised in relation to FRS-7 and impairment of investments.

FRS-7 (para. 4.2) defines an error as fundamental where it is so significant that it destroys the fair presentation of the financial report taken as a whole.

One issuer has reported the expensing of an item in the prior period as a fundamental error. After further investigation the Commission concluded that the fundamental error adjustment was not warranted. The issuer's parent agreed to pay for these costs, but only subsequent to the issuer's 2005 balance date. The Commission considers that the correct accounting treatment would have been for the issuer to recognise this recovery as part of its 2006 results.

FRS-7 (para. 4.3) explains that errors in the financial statements result from, among other things, the oversight or misuse of facts that existed at the time the financial statements were prepared. In the case of this issuer the likelihood of recovery of items expensed was not known at the time the financial statements were prepared. Such items cannot be treated as a fundamental error.

The Commission raised a significant matter with an issuer regarding their assessment of impairment to an investment in an associate. The associate had negative equity and several years of continuing losses.

FRS-38 (para. 5.42) requires that if the recoverable amount of an investment in an associate is less than its carrying amount, the carrying amount of the investment must be written down to its recoverable amount.

The Standard explains that the carrying amount of an investment in an associate should not exceed its recoverable amount. A comparison of carrying amount and recoverable amount should therefore be made at each reporting date (FRS-38 (para. 5.44)).

The Commission asked the issuer to clarify the reasons for assessing that there was no impairment in the value of its investment in the associate. Although the issuer has responded to the initial query, the Commission have been prompted to ask more general questions relating to impairment of investments held by the issuer. At the date of publication of this report these matters were not resolved to the satisfaction of the Commission.