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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 XRB has issued proposals to amend NZ CS 2 Adoption of Aotearoa New Zealand Climate Standards in response to application challenges faced by climate reporting entities. The proposed amendments provide relief from disclosure of specific information for an additional year. The proposals also delay the requirement for assurance over scope 3 GHG emissions by one year. Click here to learn more about the proposed amendments.
- The IASB has issued an exposure draft proposing amendments to Equity Method of Accounting - IAS 28 Investments in Associates and Joint Ventures to improve understandability and reduce diversity in practice by answering application questions about the equity method of accounting. For more information, click here.
- The IASB has issued an exposure draft proposing amendments to the accounting for power purchase agreements in IFRS 9 Financial Instruments and IFRS 7 Financial Instruments Disclosures. These amendments aim to more accurately reflect the effects of renewable electricity contracts on an entity’s financial statements. The proposals consider the scope of IFRS 9 and the own use exemption as well as when hedge accounting can be applied for renewable energy contracts. We have released a publication that summarises these amendments.
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Consultation on Transitional Adjustments to the New Zealand Climate Reporting Regime
The XRB has published a consultation document proposing amendments to the New Zealand Climate Standards, specifically, NZ CS 2 Adoption of Aotearoa New Zealand Climate Standards. The amendments propose delaying the disclosures of Scope 3 emissions, anticipated financial impacts, and transition planning by another year to provide relief for Climate Reporting Entities. The proposals also recommend delaying assurance over scope 3 emissions for an additional year.
The proposals have a very short consultation period with responses due 30 October 2024. The proposals are expected to be available for adoption by December 2024 and be applicable for financial years commencing on or after 1 January 2024. For further information, click here.
Applying IFRS – A Closer Look at NZ IFRS 18
The XRB issued NZ IFRS 18 Presentation and Disclosure in Financial Statements, which replaces NZ IAS 1 for reporting periods beginning on or after 1 January 2027. Whilst most NZ IAS 1 principles and requirements are carried forward to NZ IFRS 18 with limited wording changes, the new standard introduces several new presentation and disclosure requirements that are expected to impact most, if not all, entities upon adoption. The new requirements include classifying all income and expense into specified categories and provide specified totals and subtotals within the statement of profit or loss; mandatory disclosure of management-defined performance measures; and enhanced requirements for the aggregation and location of information in the primary financial statements and the notes.
We have issued a detailed publication that discusses the new requirements of NZ IFRS 18, and the consequential amendments to other IFRS Standards, including IAS 7 Statement of Cash Flows.
Amendments to Classification and Measurement of Financial Instruments
The XRB has issued amendments to NZ IFRS 9 Financial Instruments and NZ IFRS 7 Financial Instruments: Disclosures on the classification and measurement of financial instruments. These amendments are a result of the post implementation review of IFRS 9. The amendments clarify that a financial liability is derecognised on the ‘settlement date’ and introduce an accounting policy choice to derecognise financial liabilities settled using an electronic payment system before the settlement date.
The amendments also clarify the classification of financial assets with ESG-linked features by providing guidance on contingent features. Finally, the amendments introduce additional disclosure requirements for financial instruments with contingent features and equity instruments classified at fair value through other comprehensive income.
The amendments are effective for annual periods beginning on or after 1 January 2026, with early adoption permitted. Click here to access the amendments to NZ IFRS 9 and NZ IFRS 7. We have also summarised the amendments in our publication here.
Proposed Amendments to the Equity Method of Accounting
The IASB has issued an exposure draft on the Equity Method of Accounting under IAS 28 Investments in Associates and Joint Ventures. The proposed changes aim to clarify and amend the requirements of IAS 28, with new disclosure requirements intended to enhance the information provided about equity accounted investments. In addition, the proposed amendments aim to reduce diversity in practice by answering application questions about the equity method. Click here to learn more.
Proposed Amendments to IFRS 9 and IFRS 7 for Renewable Energy Contracts
The IASB has issued an exposure draft proposing amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments Disclosures, for contracts for renewable energy. The proposed amendments are to the own-use requirements, hedge accounting requirements and related disclosures. The proposals related to hedge accounting are expected to be more relevant for New Zealand entities that use virtual Power Purchase Agreements (vPPAs) as a way of managing their exposure to price fluctuations in the electricity market. We have released a publication outlining the proposed amendments, as well as the rationale behind the proposed amendments.
Australian Sustainability Reporting Standards approved by the Australian Accounting Standards Board (AASB)
The AASB has issued the Australian Sustainability Reporting Standards on 20 September 2024, which are broadly aligned with the IFRS Sustainability Disclosure Standards. Click here for a detailed update and summary of the mandatory climate related financial disclosures.
Reporting Climate Related and Other Uncertainties in Financial Statements
The IASB has published an exposure draft on Climate-related and Other Uncertainties in the Financial Statements, aimed at improving the application of the existing requirements in IFRS accounting standards related to reporting the effects of climate-related risks and other uncertainties in the financial statements. The exposure draft includes illustrative examples highlighting material judgements, assumptions and other sources of estimation uncertainty and aggregation and disaggregation. Whilst they illustrate climate-related risks, the examples are expected to provide entities with relevant guidance for other types of uncertainties. Click here to learn more.
