Unitec Institute of Technology

How financial reporting changes are affecting the NZX 50

How have New Zealand’s listed companies fared in the shift to new international reporting standards? And what impact has this change had on their balance sheets? Two Unitec lecturers have been studying the figures.

The most significant change in New Zealand’s financial reporting requirements has been transitioning into place over the past two years. Mandatory since January 2007, the New Zealand equivalents of the International Financial Reporting Standards (NZ IFRS) must now be used by companies when preparing external financial reports.

The actual and anticipated impacts of the changeover are being studied by Unitec Business Department Senior Lecturer Elizabeth Rainsbury and Lecturer Carol Hart.

It was generally anticipated that some NZX 50 companies would report higher profits, partly because goodwill is now subject to impairment testing rather than being amortised, i.e. gradually written off. This was proven in practice with 12 of 16 "early adopters" of the new standards (prior to January 2007) analysed in the study.

Those who adopted the new standards after January also commonly expected the goodwill change to have an impact, and nearly all the companies surveyed identified potential increases in deferred tax assets and liabilities in their balance sheet, which also may affect income tax. In the income statement, employee benefits, intangibles and financial instruments were most frequently cited.

This study is only the first stage of a longer examination of the effects of moving from national to international Generally Accepted Accounting Practice (GAAP) and contributes to the growing international literature on the subject.