Six things to remember for 31 December 2023 annual and half-year reporting

Six things to remember for 31 December 2023 annual and half-year reporting

This article highlights six things to remember when preparing 31 December 2023 financial statements.
  1. Hot topics
  2. Climate-related matters
  3. New standards
  4. IFRIC agenda decisions
  5. Hyperinflationary economies
  6. Changes to classification requirements for liabilities under IAS 1


1. Hot topics

Accounting in times of uncertainty
Preparers must consider ongoing global economic and political uncertainty that could affect the measurement of items in their 31 December 2023 financial statements. Have the Russia-Ukraine and Israel-Gaza conflicts had a direct impact on your business? How do persistent increases in energy prices, interest rates and inflation, exchange rate volatility, and supply shortages, affect the measurement of your transactions and balances? Our publication on accounting in times of uncertainty contains more information about areas to watch out for when preparing your December 2023 financial statements.

Impact of interest rate increases compared to 2022
The increased interest rates in New Zealand compared to 2022, will have a direct impact on discount rates used to measure certain assets and liabilities.

Increasing discount rates affect:

  • Impairment of assets (IAS 36 Impairment of Assets)
  • Fair value of financial assets and financial liabilities (IFRS 7 Financial Instruments: Disclosures and IFRS 9 Financial Instruments)
  • Fair value of investment property (IAS 40 Investment Property)
  • Fair value of biological assets (IAS 41 Agriculture)
  • Leases (IFRS 16 Leases)
  • Long service leave and other long-term benefits liability (IAS 19 Employee Benefits)
  • Defined benefit retirement obligations (IAS 19 Employee Benefits)
  • Fair value of options issued (IFRS 2 Share-based Payment)
  • Appropriate measurement of provisions, including restoration provisions (IAS 16 Property, Plant and Equipment and IAS 37 Provisions, Contingent Liabilities and Contingent Assets).
Please refer to our February 2023 article for more information on this topic.

Impairment testing where a cash-generating unit (CGU) contains right-of-use (ROU) assets
Many entities continue to perform impairment testing on CGUs that contain ROU assets using the old ‘IAS 17’ method. The new leases standard, IFRS 16 Leases has been effective for four years, and entities using the ‘IAS 17’ method should adapt impairment testing models as shown in the table below.


Correct method (IFRS 16)

Incorrect method (IAS 17)

Carrying amount

ROU assets included in the carrying amount of CGU assets

ROU assets and liabilities are not included as part of the carrying amount of CGU

Cash flows

  • Don’t deduct lease payments included in lease liabilities as cash outflows because they are financing cash flows

  • Deduct lease payments not included in lease liabilities (variable lease payments, short-term and low-value leases

  • Deduct estimated lease payments after conclusion of leases (cost to replace ROU assets)

Cash flows assume lease payments are an operating expense and deducted from CGU cash flows

Discount rate

The lease liability is a financing liability – the discount rate should include the impact of additional gearing (expected to be lower than discount rate under IAS 17 because leases are secured borrowings)

No adjustment to the discount rate

Our June 2020 article and publication contain examples to illustrate appropriate impairment testing methodology for CGUs with ROU assets.

2. Climate-related matters

The move to a more sustainable world is gaining momentum. The New Zealand Government has committed to reducing New Zealand’s greenhouse gas emissions by 50% below 2005 levels by 2030 and achieving net zero emissions by 2050. In light of these developments, preparers need to consider the implications of climate-related matters when preparing 31 December 2023 financial statements. IASB educational materials summarise how companies must consider climate-related issues when applying IFRS. This includes when determining values for assets, liabilities, and provisions, and making disclosures regarding estimates and judgements.
Please refer to our publication for a summary of these educational materials.

3. New standards

The main changes in Accounting Standards for 31 December 2023 financial statement preparers impact insurers, and non-insurers that issue insurance contracts. All entities must ensure they comply with the new rules regarding disclosing material accounting policy information, and accounting for deferred tax related to assets and liabilities in a single transaction – this mainly affects leases and restoration provisions. Lastly, country-by-country reporting entities also need to take note of mandatory exemptions for deferred tax relating to Pillar Two income taxes and additional disclosures.
For 31 December 2023 annual financial statements, all entities will need to undertake an exercise to streamline their accounting policies. In particular, accounting policies should be deleted for:
  • Non-existent transactions or balances
  • Immaterial transactions and balances
  • Matters that merely duplicate or summarise the requirements of Accounting Standards and do not involve the exercise of judgement (i.e. remove boilerplate policies). An example would be removing accounting policy information that explains how increases or decreases in the carrying amount of property, plant and equipment measured at revalued amounts are accounted for.
We also recommend moving remaining material accounting policy information to the relevant financial statement note.

Our November 2023 article will help you through the process of cleaning up your accounting policies.

A summary of new standards applying to Tier 1 and Tier 2 reporters for the first time to 31 December 2023 annual and half-year periods is outlined in the table below. Please refer to the resources listed for more information or contact our IFRS Advisory team for assistance.

For-profit entities

Standard Topic Applies to periods Annual periods Resources
NZ IFRS 17 Insurance Contracts Beginning on or after 1 January 2023 July 2023 article

NZ IAS 1 Amendments
Disclosure of Accounting Policies and Definition of Accounting Estimates Beginning on or after 1 January 2023 November 2023 article
March 2021 article
March 2021 article

NZ IAS 12 amendments
Deferred Tax related to Assets and Liabilities arising from a Single Transaction Beginning on or after 1 January 2023 June 2021 article
July 2021 article

NZ IAS 12 amendments
Pillar Two Model Rules Beginning on or after 1 January 2023 that end on or after 30 June 2023 August 2023 article
Note: Finland has published legislation which is not yet in force at time of writing. Check date of substantive enactment if your group has operations in Finland.

Public Benefit Entities (PBEs)

Standard Topic Applies to periods Annual periods Resources
PBE IFRS 17 (NFP only) Insurance Contracts Beginning on or after 1 January 2023 July 2023 article

Public Sector Specific Financial Instruments (Non-Authoritative Amendments to PBE IPSAS 41)
Non-authoritative amendments for Public Sector financial instruments Beginning on or after 1 January 2023  

2022 Omnibus Amendments to PBE Standards
Various minor amendments to PBE Standards Beginning on or after 1 January 2023  

Please ensure you have considered the impact of these standards in your 31 December 2023 annual financial statements.

Standards issued but not yet effective
Entities preparing Tier 1 general purpose financial statements must disclose the anticipated effect of new standards issued, which are not effective at the reporting date (refer to IAS 8, paragraph 30) (PBEs: refer PBE IPSAS 3, paragraph 35). These include:


Standard number Topic Applies to periods beginning Resources
Amendments to NZ IAS 1 Classification of liabilities as current or non-current 1 January 2024 March 2023 article
December 2022 article
Refer to Hot Topic #6 for more information.
Amendments to NZ IAS 1 Non-current Liabilities with Covenants 1 January 2024 March 2023 article

Amendments to IFRS 16
Lease liability in a sale and leaseback 1 January 2024 November 2022 article
Amendments to NZ IAS 7 and NZ IFRS 7 Supplier finance arrangements 1 January 2024 June 2023 article
May 2023 article
May 2021 article
Amendments to NZ IAS 21
Lack of exchangeability 1 January 2025 September 2023 article
Amendments to FRS 44 Disclosure of Fees for Audit Firms' Services 1 January 2024 May 2023 article

Public Benefit entities

Standard number Topic Applies to periods beginning Resources
Amendments to PBE IPSAS 1 Disclosure of Fees for Audit Firms' Services 1 January 2024 May 2023 article


Disclosure is not required if the anticipated effect is not material, or the change relates to transactions and balances which the entity does not have.

4. IFRIC agenda decisions

IFRS Interpretations Committee (IFRIC) agenda decisions are those issues the Committee decided not to take onto its agenda. Although not authoritative guidance, these decisions are regarded as being highly persuasive in practice. All entities reporting under IFRS should be aware of these decisions, as they could impact how particular transactions and balances are accounted for. While agenda decisions have no start date, they are expected to be applied as soon as possible, usually by the next reporting date. Agenda decisions merely clarify existing accounting principles. Therefore, any adjustments required are generally treated as a voluntary change in accounting policy (with retrospective restatement), rather than an error.

Over the past twelve months, the IFRIC has issued the following agenda decisions:
  • Guarantee over a derivative contract – IFRS 9 Financial Instruments (October 2023)
  • Homes and home loans provided to employees (October 2023)
  • Premiums receivable from an intermediary (IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments) (October 2023)
  • Substitution rights in a lease (April 2023).
You can find more information about these agenda decisions in our two previous articles:  

5. Hyperinflationary economies

New Zealand has experienced low inflation levels for decades, and many entities may need to be aware of special accounting requirements when an entity operates in countries whose economy and functional currency are considered hyperinflationary.

Why does hyperinflation matter for your financial statements?

When an entity’s functional currency is ‘hyperinflationary’, IAS 29 Financial reporting in hyperinflationary economies requires the financial statements (including any comparative periods) to be stated in terms of the measuring unit current at the end of the applicable reporting period. This is because the currency of a hyperinflationary economy loses a significant amount of purchasing power from period to period, such that presenting financial information based on historical amounts, even if only a few months old, does not provide relevant information to users of financial statements.
Economies which were hyperinflationary at 31 December 2022
Economies which have become hyperinflationary during 2023 Watchlist for the future
  • Argentina
  • Ethiopia
  • Iran
  • Lebanon
  • South Sudan1
  • Sudan
  • Suriname
  • Turkey
  • Venezuela
  • Yemen
  • Zimbabwe
  • Ghana2
  • Haiti3
  • Sierra Leone2
  • Angola
  • Lao People’s Democratic Republic
  • Liberia
  • Malawi
  • Pakistan
  • Sri Lanka4
  • Syria
1: South Sudan is no longer hyperinflationary by 31 December 2023
2: Ghana and Sierra Leone are considered hyperinflationary at 31 December 2023 and beyond
3: Haiti is considered hyperinflationary at 30 June 2023 and beyond
4: Sri Lanka is not currently hyperinflationary but its status should continue to be monitored

6. Changes to classification requirements for liabilities under IAS 1

Although these changes only become effective for the 31 December 2024 financial year, you must restate your opening balance sheet on 1 January 2024. For Tier 1 reporters IAS 8, paragraph 30 requires disclosure of the effect of accounting standards issued but not yet effective.
If you have any liabilities whose classification as current or non-current on 31 December 2023 will change due to these amendments, you will need to describe and quantify the impact in your 31 December 2023 financial statements.

Classification of your liabilities may be impacted by one or more of the changes to IAS 1, namely:
  1. The right to defer settlement need not be unconditional and must exist at the end of the reporting period
  2. Classification is based on rights to defer, not intention
  3. Early conversion options for convertible notes that can be settled before maturity by issuing the entity’s own equity instruments will result in the underlying liability being classified as CURRENT if the conversion feature is classified as a liability/derivative liability rather than as equity.  
Regarding 1, if your entity has loan arrangements subject to covenants, the amendments clarify when the covenants affect classification at the reporting date. This is illustrated in the diagram below.

Complications arise when the entity must comply with a covenant before the reporting date:
  • In anticipation of a breach, an entity may seek approval from its lender to waive the covenant test before the reporting date. The next covenant test will be performed sometime after the reporting date (i.e. the entity must comply with a future covenant test). The loan will be classified as a NON-CURRENT liability because the entity was not in breach of a loan covenant at the reporting date. It does not matter whether the next covenant test is in three months or twelve months.
  • However, if the entity breaches a loan covenant before the reporting date, IAS 1, paragraphs 74 and 75 apply. For the loan to be classified as a NON-CURRENT liability, the lender must provide a period of grace whereby it agrees not to test the covenant for at least twelve months after the reporting date.
  • Sometimes, there may be a breach, and the lender legally waives its rights to recall the loan until an additional (new) covenant test is performed in say six months. The profession is still considering the appropriate classification for this and other complex scenarios.
Please refer to our publication for more information.

Need assistance?

Please contact our IFRS Advisory team  if you require assistance with any financial reporting matters for your 31 December 2023 annual reports.

For more on the above, please contact your local BDO representative.

This article has been based on an article that originally appeared on BDO Australia, read the article here.