Publication:: REVIEW OF FINANCIAL REPORTING BY ISSUERS - CYCLE 6


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REVIEW OF FINANCIAL REPORTING BY ISSUERS - CYCLE 6

EXECUTIVE SUMMARY

Financial Reporting Surveillance Programme

The Securities Commission of New Zealand has established a Financial Reporting Surveillance Programme to review financial reporting practices of issuers. The aim of this programme is to encourage New Zealand issuers to improve the quality of their financial reporting. The Commission believes the quality of financial reporting is inextricably linked to the fairness, efficiency and transparency of securities markets.

Findings from Cycle 6

In Cycle 6 the Securities Commission reviewed the financial reports of 30 issuers with balance dates from 31 December 2006 to 30 April 2007.

The Commission's review of financial statements prepared in accordance with New Zealand financial reporting requirements covers compliance with Financial Reporting Standards and other sources of NZ GAAP with the purpose of assessing the overall quality of financial reporting.

The reports of 20 of the 30 issuers reviewed had matters that prompted the Commission to write to the issuer. In some cases the Commission asked issuers to revise or enhance disclosures in future financial statements.

The Commission is encouraged by the fact that few matters were identified in the review of financial statements of first-time adopters of NZ IFRS and congratulates those issuers on their preparedness.

Some of the matters found in our review of issuers were:

NZ IFRS

Inadequate disclosures relating to goodwill, including disclosures on cash-generating units, recoverable amount and impairment.
Incorrectly presenting a prior period error as an NZ IFRS transition adjustment.
Incorrect disclosure of earnings per share.

Previous NZ GAAP

Non-consolidation of a wholly owned subsidiary.
Non-disclosure of fees paid to the auditor for other services.
Omission of signing and dating of financial statements included in the annual report.
Inaccuracies and non-disclosures related to the statement of cash flows.
Inadequate disclosure of related party transactions.
Incorrect revenue for a subsidiary was reported in the registered prospectus.

The Commission also raised matters relating to disclosures in respect of substantial security holder information, director share dealings and non-compliance with NZX Listing Rules. Issuers should review their compliance with statutory requirements as a critical step in the preparation and finalisation of an annual report.

Substantial security holders should be aware of changes to the Securities Markets Act 1988 relating to disclosure of changes in a substantial security holding. The legislative changes are effective from 29 February 2008.

The Commission also reminds issuers that changes to the Financial Reporting Act 1993, effective from 22 November 2006, now require all issuers to prepare consolidated financial statements.

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

The Commission will continue to review issuers' financial reporting as part of the Financial Reporting Surveillance Programme and to take any appropriate steps to encourage compliance with Financial Reporting Standards and other aspects of NZ GAAP.

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