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Welcome to the EY Eye on Reporting newsletter, providing you with the latest insights in financial reporting.
This issue includes useful information on a number of current issues, including:
- The IASB has issued IFRS 18 Presentation and Disclosure in Financial Statements. We have produced a publication summarising the key requirements of this newly issued standard, which becomes effective for reporting periods beginning on or after 1 January 2027. IFRS 18 introduces new requirements on presentation within the statement of profit or loss, including specified totals and subtotals. It also requires disclosure of management-defined performance measures, and includes new requirements for the aggregation and disaggregation of financial information based on the identified ‘roles’ of the primary financial statements and the notes. There are also consequential amendments to other accounting standards.
- Tax legislation that removes the ability for entities to obtain tax deductions for depreciation on certain buildings was substantively enacted on 28 March 2024. We have produced a publication detailing this change. NZ IAS 12 Income Taxes requires an entity to measure current and deferred tax at rates that have been enacted or substantively enacted. This change will need to be reflected in the financial statements of an entity with a reporting date ending on or after 31 March 2024.
- International GAAP® 2024 – We have issued a detailed guide to interpreting and implementing International Financial Reporting Standards (IFRS). This is now available free of charge. In light of our commitment to carbon neutrality, this will be published exclusively in a user-friendly, easy-to-browse and searchable digital format.
- The December 2023 to March 2024 reporting seasons would have seen climate reporting entities begin to report in accordance with the External Reporting Board’s (XRB’s) Climate-related Disclosure Standards. Here is a link to the XRB’s climate standards for further details. We have also produced a publication outlining the potential impacts of climate change on financial statements.
- The XRB has issued amendments to the disclosure requirements for fees paid to an entity’s audit firm. These amendments are applicable from 1 January 2024 and will require detailed disclosures around the fees paid to an entity’s auditor for different types of services received. Find more information here.
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IFRS 18 Presentation and Disclosure in Financial Statements
The newly issued IFRS 18 standard replaces IAS 1, and is aimed at improving comparability and transparency of communication of financial statements. Several sections have been brought forward from IAS 1; however, IFRS 18 introduces new requirements to respond to investors demands for better information about companies’ financial performance. Some requirements previously included in IAS 1 have been moved to IAS 8 and limited amendments have been made to IAS 7 and IAS 34. IFRS 18 is effective for reporting periods beginning on or after 01 January 2027, with earlier application permitted. A retrospective application is required for both interim and annual financial statements.
Deferred tax update - Removal of tax depreciation on commercial and industrial buildings (April 2024)
We have prepared a publication outlining the legislative changes that remove an entity’s ability to obtain deductions for depreciation on commercial and industrial buildings for tax purposes. The legislation was substantively enacted prior to 31 March 2024; therefore, entities will be required to include the impact of the changes in financial statements with a reporting date ending on or after 31 March 2024.
We are anticipating the change will have a significant impact on deferred tax balances for entities that own qualifying buildings. The specific impacts depend on factors such as the date that the building was acquired; whether it was acquired directly or via a business combination; the expected manner of recovery of the building and, any accounting policy choices the entity made when legislation changed in 2020.
Alert on FICE
The IASB has published an exposure draft on its financial instruments with characteristics of equity (FICE) project. The exposure draft proposes enhanced presentation and disclosure requirements for financial liabilities and equity instruments and aims to improve the information provided about features of financial liabilities and equity instruments that would not otherwise be apparent from their classification. Click here to learn more.
The debt vs. equity classification rules can be complex and judgement is often required. Our publication provides insights on the common pitfalls of applying the current NZ IAS 32 Financial Instruments: Presentation and how the FICE project could change some of the requirements.
Climate change – consider the impact on your financial statements
The XRB has issued Aotearoa New Zealand Climate Standards (NZ CSs) to provide a framework for entities to consider climate-related risks and opportunities. NZ CS’s outline the disclosure requirements for climate reporting entities as well as a limited number of adoption provisions. Click here to access the standards and to understand the potential impact on your financial statements. These amendments are effective for annual reporting periods beginning on or after 1 January 2023.
We have also issued a publication that provides guidance on the impact of climate change on an entity’s financial statements.
Applying IFRS – Accounting for payments from suppliers
We have released a publication on the accounting for payments received (or receivable) from suppliers under NZ IFRS. While NZ IFRS accounting standards specifically address payments made by an entity to its customers, there is no one standard that addresses payments received by an entity from its suppliers. Instead, there are several requirements that might be applicable, depending on the specific facts and circumstances. This publication outlines the steps to apply to payments received (or receivable) from suppliers, highlights where judgement may be needed and indicates the potential accounting consequences under IFRS.
Disclosure of fees paid to audit firms
The XRB has issued enhanced disclosures about fees paid to an entity’s audit or review firm for different types of services. The intention is that these disclosures will improve the transparency of the different services an audit firm provides to its clients as well as enhancing the consistency of disclosures. The XRB has issued amendments in this regard to FRS 44 for for-profit entities and the equivalent amendments to PBE IPSAS 1 for public benefit entities. These amendments are effective for annual reporting periods beginning on or after 1 January 2024, with early application permitted.
International GAAP 2024 – 2024 access
International GAAP® 2024 is available online and is now also available offline as a downloadable PDF, free of charge to clients and non-clients alike, and provides insights on how complex practical issues should be resolved in the real world of financial reporting. This publication includes a wealth of information and examples on complex accounting issues. Upholding the EY commitment to carbon neutrality, this has been published digitally.
Supplier finance arrangements
Additional disclosures are required for accounting periods beginning 1 January 2024 regarding an entity’s supplier finance arrangements. Amendments have been made to the NZ IAS 7 Statement of Cash Flows and NZ IFRS 7 Financial Instruments: Disclosure to enhance the transparency and, thus, the usefulness of the information provided by entities about supplier finance arrangements.