The Commission has noted improvement in disclosures by issuers reporting under previous NZ GAAP.

Only two issuers failed to disclose the total recognised revenues and expenses line in the Statement of Movement in Equity (FRS-2 (para. 7.3(a)). This is an improvement on earlier cycles.

As stated earlier, the Commission regards financial reporting by issuers to be fundamentally important to the fairness, efficiency and transparency of New Zealand's securities markets.

Issuers are reminded that the objective of financial statements as defined in the NZ Framework is to provide information about the financial position, performance, and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.

The NZ Framework states that financial statements also show the results of the stewardship/accountability of management for the resources entrusted to it.

Throughout the year, considerable effort is applied by management in ensuring an entity operates efficiently and profitably. Errors, inconsistencies and inadequate disclosures in the published financial statements undermine these efforts as they give readers and investors a negative impression of the entity.

The financial statements of two issuers in this cycle contained numerous clerical errors and inconsistencies.

Errors and inconsistencies in the financial statements can be easily eliminated by incorporating a thorough internal review process and taking greater care in the preparation of the financial statements.

Fifty four percent of matters raised by the Commission (including 10 significant matters) were resolved in correspondence with the issuer. This indicates that questions would not have been raised had the issuer's original disclosure been clearer or more transparent.

The Commission recommends issuers review information provided in the financial statements with reference to the four attributes of useful information (understandability, relevance, reliability and comparability) defined by the NZ Framework.

Non-GAAP measures or alternative performance measures can provide investors with appropriate additional information if properly used and interpreted.

In Cycle 5, the Commission noted one issuer's EBITDA figure could not be reproduced using the NZ GAAP figures reported in the financial statements. On investigation the entity confirmed that an error had been made in the calculation.

This example highlights the importance of ensuring appropriate quality assurance over the calculation of such figures.

Some issuers provide alternative non-GAAP performance measures such as EBITDA (earnings before interest, taxation, depreciation and amortisation) to supplement statutory earnings information when they communicate to the market.

The Commission supports additional disclosures that improve investors' understanding of financial statements, as long as they are properly communicated and consistently applied year on year and are not attempting in any way to be a substitute for the statutory financial information that is required by NZ GAAP.

The Committee of European Securities Regulators (CESR) has addressed this concern about non-GAAP measures by publishing certain guidelines for the use of alternative non-GAAP performance measures for issuers in Europe. The Financial Services Authority (FSA) has recommended these guidelines as best practice for UK issuers.

The CESR recommendation:

This CESR recommendation is available on the CESR website, www.cesr-eu.org.

To date the Commission has made or has decided to make the following referrals under the Financial Reporting Surveillance Programme.