Printed from: http://www.seccom.govt.nz/publications/documents/cycle-3/06.shtml?print=true on Wed 25 November 2009

REVIEW OF FINANCIAL REPORTING BY ISSUERS - CYCLE 3


Minor Matters

75.
Various minor matters were identified which, although of lesser significance, warrant greater attention by those who prepare annual reports. Most of the matters are similar to those matters identified during Cycle 1 and 2. Details on these matters are available in the Cycle 1 and 2 reports.

Recurring minor matters

76.
The following matters have been recurring during the three cycle reviews.
Issue Details of FRS/SSAP requirement Details of findings
Disclosures relating to property, plant and equipment FRS-3: Property, Plant and Equipment A range of matters relating to revalued property, plant and equipment were identified. Examples are:
  • non-disclosure of the name and qualifications of the valuer;
  • non-disclosure of the bases and any significant assumptions or limiting conditions of the valuation.
General disclosures FRS-9: Information to be Disclosed in Financial Statements A number of instances of non-compliance with FRS-9: Information to be Disclosed in Financial Statements were noted.Examples are:
  • balance sheet items not disclosed in the broad order of their liquidity;
  • a very high percentage of operating expenses included as one figure in the Statement of Financial Performance and with no further analysis in the Notes.
The issuers need to comply fully with the requirements of FRS-9 so that readers of financial statements will have sufficient and appropriate information for decision making.
Foreign currency transactions

FRS-21: Accounting for the Effects of Changes in Foreign Currency Exchange Rates

SSAP-21: Accounting for the Effects of Changes in Foreign Currency Exchange Rates requires disclosures to be made in respect of foreign currency transactions.

 Cycle 3 found two instances related to non-disclosure. They were:
  • failure to disclose how any outstanding foreign currency transactions were valued, and where the resulting unrealised gain/loss appear in the financial statements.
  • failure to provide separate disclosure for the net exchange difference included in the statement of financial performance as required by FRS-21 paragraph 7.1 (b).
Disclosure about related parties SSAP-22: Related Party Disclosures requires disclosure of the relationships between the reporting entity and its related parties and of transactions with those parties. Similar to Cycle 1 & 2 the adequacy and quality of disclosure by issuers could be improved. The identification and disclosure of related party transactions are material matters for investors.

Most of the matters identified in this area related to the inadequacy of disclosures in respect of transactions between the parent entity and its subsidiaries and associates. For example:
  • a lack of detail about the identity of the related parties for which there have been transactions;
  • a total was given for related parties as a group rather than for each related party; and
  • the outstanding balance of transactions at balance date was not given.

SSAP-22 requires full disclosure of such transactions in the parent company accounts even though it acknowledges that eliminated group transactions are not required to be disclosed in the group accounts (SSAP-22, para. 4.17).
Employee share ownership plan (ESOP) disclosures Issuers should include all matters required by FRS-30: Reporting Share Ownership Arrangements Including Employee Share Ownership Plans. As in the Cycle 1 & 2 review, areas where disclosure of ESOP did not fully comply with the requirements of FRS-30 were identified in this review.
Financial instrument disclosures FRS-31: Disclosure of Information about Financial Instruments requires disclosures to be made in respect of financial instruments Findings similar to Cycle 1 & 2.

The review indicated that improvements could be made in the general quality of disclosures required by this standard. Some disclosures appeared to be fairly generic and sometimes incomplete. In many instances financial instrument disclosures for the issuers reviewed appeared to not comply with some of the detailed requirements of FRS-31.

Examples of findings in respect of financial instrument disclosures were:
  • the accounting policy disclosure on financial instruments did not cover the basic types of financial instruments; and
  • the fair values of financial instruments not being disclosed.
77.
Financial instruments are not well addressed by a lot of issuers, possibly because most of the requirements of the FRS-31 are disclosure-related. The present requirements should be met by issuers, but the obligations in respect of financial instruments under NZ IFRS will require issuers to know what is required, particularly as recognition and measurement issues will be involved.
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