Discussion Documents: REVIEW OF FINANCIAL REPORTING BY ISSUERS


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REVIEW OF FINANCIAL REPORTING BY ISSUERS - CYCLE 3

EXECUTIVE SUMMARY

The Commission has established a financial reporting surveillance programme to review financial reporting practices of issuers. The aim is to encourage New Zealand issuers to improve the quality of their financial reporting.

In Cycle 3 the Commission reviewed the financial reports of 45 issuers with balance dates from 31 March 2005 to 30 September 2005. The purpose of the Cycle 3 review was to identify the level of compliance with Financial Reporting Standards and other elements of Generally Accepted Accounting Practice and to assess the overall quality of financial reporting.

This report on the Cycle 3 Review provides market participants with the Commission's findings from this review, and gives some guidance on the Commission's expectations of disclosure by issuers.

Cycle 3 findings were similar to Cycle 1 & 2 results in that few serious problems were identified, but a number of issuers need to raise the standard of their financial reporting. Reports of 19 issuers of the 45 reviewed had matters that needed to be addressed. The Commission wrote to these issuers.

The key issues amongst the significant matters found were:

omission of disclosures required by FRS-41: Disclosing the Impact of Adopting New Zealand Equivalent to International Financial Reporting Standards;
parent financial statements materially incorrect;
retention of a provision where no present obligation existed;
classification of convertible instruments insufficiently clear;
non-disclosure of an actual versus prospective financial information comparison;
lack of a total recognised revenues and expenses line in the Statement of Movements in Equity; and
failure to date the financial statements.

The Commission has been pleased with the cooperation from issuers and their willingness to improve the quality of their financial reporting.

The review also identified some issues relating to continuous disclosure notices that have been referred to NZX for their consideration.

The Commission will continue its Financial Reporting Surveillance Programme. The financial reports of early adopters of New Zealand Equivalents to International Financial Reporting Standards with a 31 December 2005 balance date are currently being reviewed. This is part of the Commission's plan to review disclosures and adjustments made by issuers as they move to NZ IFRS.

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