REVIEW OF FINANCIAL REPORTING BY ISSUERS - CYCLE 6
Incorrectly presenting a prior period error as an NZ IFRS transition adjustment
75. In the last three Cycles, the Commission's reviews have identified instances of incorrect accounting for reverse acquisitions under previous NZ GAAP by reviewing the issuers NZ IFRS transition adjustments. In this Cycle, a similar issue was identified. The issuer had incorrectly accounted for a reverse acquisition in a prior period under previous NZ GAAP but instead of presenting the change in accounting in the current period as a correction of prior period error the issuer has presented the change as a transition adjustment arising from the first-time adoption of NZ IFRS.
76. Reverse acquisitions are dealt with in FRS-36: Accounting for Acquisitions Resulting in Combinations of Entities or Operations (paragraphs 4.50 to 4.53). Reverse acquisition accounting under FRS-36 and NZ IFRS 3 Business Combinations are similar.
77. Applying FRS-36 should achieve the same reverse acquisition accounting results as under NZ IFRS 3. It should not result in an NZ IFRS transition adjustment in the consolidated financial statements.
78. The issuer also incorrectly made adjustments to the parent entity's financial statements when reverse acquisition accounting applies only to group accounts.
79. NZ IFRS 3, Appendix 2 (paragraph B8) notes that:
"Reverse acquisition accounting applies only in the consolidated financial statements. Therefore, in the legal parent's separate financial statements, if any, the investment in the legal subsidiary is accounted for in accordance with the requirements of NZ IAS 27 Consolidated and Separate Financial Statements on accounting for an investor's separate financial statements."
80. The Commission has decided to refer members involved in the preparation and audit of this issuer to NZICA.
Incorrect disclosure of earnings per share
81. One issuer disclosed earnings per share in a note to the financial statements instead of on the face of the Income Statement.
82. NZ IAS 33 Earnings Per Share (paragraph 66) states that "an entity shall present on the face of the income statement basic and diluted earnings per share".
83. We also queried another issuer about its earnings per share disclosures. The issuer's accounting policies included a note on basic and diluted earnings per share when the income statement only showed the basic earnings per share figure. It was not clear from the issuer's financial statements if the basic and diluted earnings per share are equal. In such instances we encourage issuers to clearly disclose the fact that the basic and diluted earnings per share figure is the same. NZ IAS 33 (paragraph 67) states that if basic and diluted earnings per share are equal, dual presentation can be accomplished in one line on the income statement.
Other matters
84. Other matters contained in letters to issuers adopting NZ IFRS included:
(a) non-disclosure of the application of Standards that have been issued but are not yet effective (NZ IAS 8 (paragraph 30));
(b) NZ IFRS financial statements still using SSAP-12: Accounting for Income Tax terminology and presentation for reporting of income tax; and
(c) non-disclosure of certain requirements of NZ IFRS 2 Share-based payments.
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