NZ company disclosure improving, but same mistakes repeated, regulator says

Wednesday 19th August 2009

New Zealand company disclosure in annual reports has improved as new accounting standards and requirements become embedded in reporting practices, but some mistakes still need attention, according to the Securities Commission.

The regulator has seen improvements in the level of disclosure coming from company reports since the introduction of International Financial Reporting Standard in 2007. Still, it continued to find short-falls in its latest report on financial statements, relating mainly to disclosure for financial instruments around risks to a company’s liquidity and fair value assumptions. The review covered company reports during the nine months through December.

“We’re happy to see attitudes (to the new standards) changing, with closer attention to detail in company reports – it seems to be working,” said chief accountant Alastair Goult. “People struggle with financial instrument disclosure as they can be quite complex” for both readers and writers of reports, he said.

The Securities Commission raised similar concerns in its previous review, and has found a number of common non-disclosures since IFRS were introduced in New Zealand. The major issue for the regulator around financial instruments was “inadequate disclosures relating to liquidity risk,” it said in the report.

While companies would detail The Commission was also unhappy with the level of disclosure around companies’ assumptions in deciding on the level of impairment for marginalised assets and measuring fair value on the balance sheet.

“In the current economic environment, people need to know how well a company is doing, and needs information disclosed as to the assumptions” used to assess any impaired assets or how the value of a balance sheet is measured, Goult said.

The regulator reiterated the need for companies to explain their assumptions for fair value and their tests for impairments in their reports.

Overstating impairments was just as bad as understating them, as it didn’t give a fair indication of the company’s position, Goult said.

An issue not flagged in the review was that some companies were still resisting changes in segment reporting. Under the new standards, companies are required to disclose advice at a management or board level in the segment breakdowns, but there was some resistance by companies that deemed the information “commercially sensitive,” Goult said.

The Securities Commission is currently reviewing reports up to March of this year, and hopes to cut the lag time between the publication of company reports, and its review of them. The regulator is facing a major shake-up later this year when Commerce Minister Simon Power releases a discussion document proposing changes to the Securities Act.

Businesswire.co.nz

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