New Zealand Accounting Standards Board issues new standards
The New Zealand Accounting Standards Board has issued two new standards and one new interpretation for Tier 1 and Tier 2 for-profit entities, which are those entities reporting under New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”) and NZ IFRS Reduced Disclosure Regime:
- NZ IFRIC 22 Foreign Currency Transactions and Advance Consideration
- Transfers of Investment Property (Amendments to NZ IAS 40)
- Annual Improvements to NZ IFRSs 2014-2016 Cycle.
Each of the three introduces minor changes to NZ IFRS.
NZ IFRIC 22 Foreign Currency Transactions and Advance Consideration
NZ IAS 21 The Effects of Changes in Foreign Exchange Rates requires an entity to initially record a foreign currency transaction at the spot rate at the date of the transaction. The date of the transaction is the date on which the transaction first qualifies for recognition in accordance with NZ IFRS.
When an entity pays or receives consideration in advance in a foreign currency, it generally recognises a non-monetary asset or non-monetary liability before the recognition of the related asset, expense or income. NZ IFRIC 22 Foreign Currency Transactions and Advance Consideration (“NZ IFRIC 22”) clarifies that, in such instances, the date of the transaction for the purpose of determining the exchange rate to use is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. NZ IFRIC 22 is effective for annual reporting periods beginning on or after 1 January 2018, with earlier adoption permitted.
As an example of how NZ IFRIC 22 will work in practice, assume that a company enters into a contract with a supplier for the purchase of inventory. Under the contract the company is required to pay the supplier the full purchase price of AUD 150,000 on the date that the inventory is loaded onto the ship that will transport it to New Zealand. The voyage takes 14 days. Title of the inventory does not pass until the inventory is delivered to the company. The company will recognise a non-monetary asset (such as prepaid inventory) on the date that the inventory is loaded onto the ship. That recognition will be at the spot rate on the date of loading of the ship. When the inventory is received, the non-monetary asset will be derecognised and the inventory will be recognised. This transaction will also be recognised at the spot rate on the date of loading of the ship.
Transfers of Investment Property (Amendments to NZ IAS 40)
The standard amends NZ IAS 40 Investment Property (“NZ IAS 40”) to clarify that a property must only be transferred into, or out of, investment property when there is a change in use and evidence of that change in use. The changes made to NZ IAS 40 include:
- The addition of a specific statement that, in isolation, a change in management’s intentions for the use of a property does not provide evidence of a change in use
- Clarification that commencement of development of an investment property with a view to owner occupation is an example of evidence for a change in use from investment property to owner occupied property.
Annual Improvements to NZ IFRSs 2014-2016 Cycle
This standard makes the following minor amendments to existing NZ IFRSs:
- NZ IFRS 1 First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards – the amendments delete a small number of short-term exemptions that had been provided to first-time adopters of NZ IFRS. These short-term exemptions related to disclosures about financial instruments, employee benefits and investment entities. These amendments are effective for annual reporting periods beginning on or after 1 January 2018.
- NZ IFRS 12 Disclosure of Interests in Other Entities (“NZ IFRS 12”) – the amendment clarifies the scope of NZ IFRS 12. The amendment is effective for annual reporting periods beginning on or after 1 January 2017.
- NZ IAS 28 Investments in Associates and Joint Ventures – where an investment in an associate or a joint venture is held by, or is indirectly held through, a venture capital organisation, a mutual fund, a unit trust, or a similar entity, the holder can elect to measure that investment at fair value through profit or loss (in accordance with NZ IAS 39 Financial Instruments: Recognition and Measurement or NZ IFRS 9 Financial Instruments). The amendment clarifies that this election can be made separately for each associate or joint venture. The amendment is effective for annual reporting periods beginning on or after 1 January 2018, with earlier adoption permitted.
For further information please contact your local BDO representative.