Year-end financial reporting focus areas: New Zealand regulator perspectives

The Financial Markets Authority (FMA) has released its report (click here) of findings from reviews of 60 audited financial statements and the lodgement behaviour of FMC reporting entities between 2022 and 2025, as well as detailing future focus areas. 

Accordingly, Audit committees, CFO’s, and their finance teams (whether FMA regulated entities, or not – see below) should take note of these to ensure that they look to proactively address these in the lead up to the 31 March and 30 June financial reporting season. 

As noted by the FMA, entities should look to engage the expertise of financial reporting specialists where necessary. 

Note: While the remit of the FMA is limited to only certain entities, its observations from its report remain relevant to all: 

  • For-profit entities that report in accordance with NZ IFRS and NZ IFRS (RDR) financial reporting standards
  • Public benefit entities (including not-for-profits) that report in accordance with PBE IPSAS and PBE IPSAS (RDR) financial reporting standards.  
 

Key points from the FMA’s report are detailed below 

  • Common issues that cause delays in finalising the financial statements 
  • Recurring issues in financial statements – General 
  • Recurring issues in financial statements – Specific 
  • Areas of future focus.

Common issues that cause delays in finalising the audited financial statements 

The FMA noted the following underlying issues attributed to delays in finalising audited financial statements: 
  • Finalising going concern assessments of the entity
  • Late completion of certain complex asset valuations
  • Incomplete or inadequate accounting records
  • Insufficient or incomplete disclosures requiring last-minute adjustments. 
Note: Accordingly, entities would be encouraged to ensure adequate planning and suitable resourcing is put in place to ensure that the audit, and ultimate finalisation of the financial statements is smooth and timely. 
 

Recurring issues in financial statements - General 

Accounting records and documentation  
The FMA once again highlighted the (legal) need for entities to maintain sufficient and supportable accounting records, which includes documentation (i.e., Internal accounting position papers and memos). 

Regular readers of our monthly Financial Reporting Insights articles will recall that in 2023 the FMA released its formal Guidance document (Guidance and expectations for keeping proper accounting records – Feb 2023), which became a “best-practice” guide for all entities where there are: 
  • Complex technical accounting issues, and/or 
  • Complex, or new, accounting standards and requirements (including accounting standards that have been issued but are not yet effective). 

For further information, links to our previous Financial Reporting Insights articles regarding the FMA Guidance document and accounting position papers are provided below: 
  • Summary of the FMA’s guidance document, examples of complex transaction where accounting position papers are generally required (click here) 
  • Example structure of accounting position papers, further examples of complex transaction where accounting position papers are generally required, common mistakes in practice in preparing accounting position papers (click here)
  • Commentary on the true value of a good accounting position paper, pros and cons of undertaking preparing internally versus engaging external financial reporting specialists (click here). 
  
Note: Accordingly, entities would be recommended to consider engaging external financial reporting specialists where needed to ensure accounting position papers are sufficiently thorough, complete, and accurate such that they are “robust” from any potential future review and critique. 
 

Recurring issues in financial statements - Specific 

The FMA noted the following underlying issues attributed to delays in finalising audited financial statements (Note: Due to its limited and specific scope application, comments with respect to Insurance Contract accounting (NZ IFRS 17) have been excluded: 
 

Financial reporting area

FMA comments and observations

BDO guidance
Revenue recognition 
[NZ IFRS 15] 
  • Ensuring sufficient documentation and audit rail support for key considerations, judgements and estimates in applying areas of revenue recognition requirements. 
  • Ensuring reported revenue is adequate disaggregated such that it provides transparent and useful information. 
  • Ensuring performance obligations (and details regarding their revenue recognition) are clearly described. 
  • Ensuring that overall, revenue disclosures should provide meaningful insights into an entity’s revenue streams (i.e., accurately reflect the nature, timing and amount of revenue, with appropriate aggregation or disaggregation).   
 BDO’s comprehensive IFRS In Practice publication regarding IFRS 15 Revenue from Contracts with Customers. 
Impairment of non-financial assets 
[NZ IAS 36] 		 Ensuring there is sufficient internal documentation regarding key assumptions and judgements used in impairment models. 

Ensuring there is clear and supportable evidence for:  
  • the identification of cash-generating-units (“CGUs”); and,
  • Allocation of assets to identified CGUs. 
 
Ensuring there are sufficient and complete disclosures made with respect to: 
  • Key assumptions and judgements, and sensitivity analysis thereof,  
  • Useful lives and amortisation rates of intangible assets. 
 BDO’s comprehensive IFRS In Practice publication regarding IAS 36 Impairment of Assets. 
Going concern 
[NZ IAS 1] 		 Ensuring there are sufficient and complete disclosures made with respect to: 
  • Significant judgements made in applying accounting policies. 
  • Estimation uncertainty, and clear communication with respect to future assumptions that could reasonably change. 
  • Nature and extent of going concern risks, as well as any mitigating actions and/or any dependencies on future events or conditions. 
 BDO’s Financial Reporting Insight article regarding amendments to FRS-44 New Zealand Additional Disclosures (Going Concern Disclosures). 
Impairment of receivables (expected credit losses) 
[NZ IFRS 9] 		 Ensuring there are sufficient and complete disclosures made with respect to: 
  • Credit risk assessments. 
  • Granularity of entity-specific information that is aligned with the substance of the underlying credit risk exposures. 
  • Nature and extent of going concern risks, as well as any mitigating actions and/or any dependencies on future events or conditions. 
 BDO’s comprehensive IFRS In Practice publication regarding IFRS 9 Financial Instruments. 

 

Areas of future focus - FMA’s recommendations to entities  

The FMA has made the following recommendations to preparers, directors and audit committees with respect to the preparation of financial statements: 
  • Where there are gaps in internal resource and expertise with respect to technical and complex accounting areas, engage external financial reporting specialists in a timely manner to ensure: 
    • Proper accounting records that support the financial statements are kept (and provide a supportable audit trail)
    • Adequate resources, expertise and technical skills are dedicated throughout the financial reporting process. 
 

Note: This point is becoming a recurring theme in the FMAs publications, and (re)highlights that: 

  1. Areas of complex accounting (continue to) exist in practice, and 
  2. External expertise may be required to ensure these areas can be analysed and documented thoroughly, completely, and accurately.   
 
  • Ensure there is a robust plan to support the preparation (and audit) of the entity’s financial statements
  • Ensure robust internal controls and processes are in place to have documented oversight, approval and signoff (by the Board) of key accounting estimates and judgements used to prepare the financial statements
  • Ensure timely communication between management, audit committees/directors and auditors to discuss risks and matters impacting the financial statements.  

Areas of future focus - Specific financial reporting areas

The FMA noted the following areas of financial reporting that they will be focusing on: 
 

Note: While the remit of the FMA is limited to only certain entities, its areas of future focus relate to application areas most consequentially impacted by current market conditions and trends, and therefore remain relevant to all: 

  1. For-profit entities that report in accordance with NZ IFRS and NZ IFRS (RDR) financial reporting standards  
  2. Public benefit entities (including not-for-profits) that report in accordance with PBE IPSAS and PBE IPSAS (RDR) financial reporting standards.
 
 

Financial reporting area

FMA focus areas identified

BDO guidance
Impairment of non-financial assets
[NZ IAS 36]
  • Identification of impairment and relevant indicators. 
  • Reasonableness of impairment testing methods, related assumptions and sensitivities. 
  • Assessment of cash-generating units identified for impairment. 
  • Adequacy and completeness of disclosures. 
 BDO’s comprehensive IFRS In Practice publication regarding IAS 36 Impairment of Assets. 
Impairment of receivables (expected credit losses)
[NZ IFRS 9]
  • Adequacy and completeness of disclosures with respect to methodology, consistency and reasonableness of assumptions.  
  • Determination of significant increase in credit risk (SICR) and identification of exposures with SICR. 
  • Assessment of forward-looking information, macro-economic factors and sensitivity analyses considered in impairment models. 
  • Internal controls, systems and processes for data collection, processing and review for impairment calculations. 
 BDO’s comprehensive IFRS In Practice publication regarding IFRS 9 Financial Instruments. 
Fair value measurement
[NZ IFRS 13]		 Appropriateness of valuation techniques (in particular, Level 3 (unobservable) fair value measurements, where there is significant estimation uncertainty). 

Adequacy and completeness of disclosures with respect to: 
  • Valuation methodologies. 
  • Key assumptions, risks and uncertainties, sensitivity analyses   
Consistency of fair value judgements across reporting periods. 		 BDO’s Financial Reporting Insight article regarding amendments to Fair value measurement considerations 
Related party transactions
[NZ IAS 24]		 Adequacy and completeness of disclosures with respect to: 
  • Related party relationships. 
  • Need help Please contact our Financial Reporting Advisory team for assistance in your entity’s year-end financial reporting process, including where engaging external financial reporting specialists is being considered.. For more on the above, please contact your local BDO representative.
  • Related party transactions. 
  • Related party balances. 
Ensuring that appropriate internal controls, systems and processes are present to ensure accounting records that support the above		  
 

Need help

Please contact our Financial Reporting Advisory team for assistance in your entity’s year-end financial reporting process, including where engaging external financial reporting specialists is being considered.

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

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