|
|
Home
| Databases
| WorldLII
| Search
| Feedback
New Zealand Securities Commission |
Last Updated: 9 November 2014
SECURITIES COMMISSION PRACTICE NOTE
No
2/2004
Issued 30 September 2004
Revised 25 August
2005
Revised 18 December 2006
Prospective financial information in offer documents prepared in periods prior to adoption of NZ IFRS in historical financial statements
Relevant Legislation
Securities Act 1978
Securities Regulations 1983
Contents
This practice note addresses certain issues relating to prospective financial
information in offer documents required under the Securities
Act 1978 ("the
Act") and Securities Regulations 1983 ("the Regulations"). These issues are
expected to arise prior to an issuer's
adoption of New Zealand equivalents to
international financial reporting standards (NZ IFRS) in historical financial
statements.
The practice note clarifies the Securities Commission's view on the
application of the Act and the Regulations in this context. It
is intended for
those who prepare and examine prospective financial information in offer
documents.
2.
The practice note addresses:
-
preparation and disclosure of prospective financial information in offer documents before an issuer's expected date of adoption of NZ IFRS in historical financial statements; and
-
relevant disclosures relating to the preparation of that information in the
context of an issuer's transition from previous NZ GAAP
to NZ IFRS.
3.
This practice note also sets out the approach that the Securities Commission
intends to take in the enforcement of securities law.
4.
This practice note should be interpreted subject to the overriding concept of
materiality. In securities law a material matter is
one that would be likely to
influence a reasonable person in making a decision whether or not to subscribe
for the securities, without
necessarily being determinative of the
decision.
5.
The Commission will be reviewing this practice note as financial reporting
standards are approved by the Accounting Standards Review
Board (ASRB), and will
make changes if considered necessary.
Definition of
Terms
6.
In this practice note, terms are used as follows:
IFRS - International Financial Reporting Standards and International Accounting Standards that have been issued or adopted by the International Accounting Standards Board, and final interpretations by the International Financial Reporting Committee approved by the International Accounting Standards Board.
NZ GAAP - the basis of accounting that an issuer uses for preparing
historical financial statements.
Previous NZ GAAP - the basis of
accounting that an issuer uses for preparing historical financial statements
immediately before adopting NZ IFRS.
NZ IFRS - standards that are approved financial reporting standards under the Financial Reporting Act 1993, and that have been approved by the ASRB on the basis that they correspond to IFRS, whether or not approved by the Board in a different form to take account of New Zealand conditions or any other matter the Board considers relevant.
Year of Transition - the period for which an entity presents, or will present full comparative information under NZ IFRS in its first NZ IFRS historical financial statements.
Date of Transition - the beginning of the period for which an entity
presents or will present full comparative information under NZ IFRS in its first
NZ IFRS historical financial
statements.
Purpose
7.
The Securities Commission has considered the implications of the transition
to NZ IFRS on the financial information disclosure requirements
contained in the
Act and the Regulations, including the presentation and disclosure of
prospective financial information.
8.
The Regulations do not expressly require prospective financial information in
a registered prospectus to be prepared in accordance
with NZ GAAP. The
professional standards of the New Zealand Institute of Chartered Accountants
(NZICA) require accountants and auditors
to ensure that general purpose
prospective financial information is prepared in accordance with NZ GAAP (i.e.
FRS-29 Prospective Financial Information or FRS-42:Prospective Financial
Statements). The Securities Commission's view is that information prepared
other than in accordance with FRS-29/42 is likely to deceive, mislead,
or
confuse readers. As with other information in a registered prospectus,
advertisement or investment statement, prospective financial
information must
not be false or misleading (including by omission).
9.
FRS-42 becomes operative for an entity’s prospective financial
statements published on or after 1 June 2006. FRS-42 supersedes
FRS-29.
10.
During the transition from previous NZ GAAP to NZ IFRS, prospectuses prepared
under the Act will forseeably contain prospective financial
information relating
to accounting periods that fall in either the pre- or the post-
transition periods. Also where an issuer presents prospective financial
information in respect of more than
one period, the information could include
accounting periods both before and after an issuer adopts. This would mean that
the prospective
financial information may contain information for some periods
prepared on the basis of previous NZ GAAP, and for other periods on
the basis of
NZ IFRS.
11.
This practice note sets out the Securities Commission's views on the
preparation and disclosure of prospective financial information
in registered
prospectuses prior to the adoption of NZ IFRS in historical financial
statements.
Background
12.
The Financial Reporting Standards Board (FRSB) is implementing the ASRB's
decision to adopt IFRS issued by the International Accounting
Standards Board
(IASB). The standards will apply to reporting periods beginning on or after 1
January 2007. Entities that adopt at
this time are referred to as 'standard
adopters'. Entities can elect to adopt NZ IFRS for reporting periods beginning
on or after
1 January 2005. Entities that adopt NZ IFRS before 1 January 2007
are referred to as 'early adopters'.
13.
Issuers who intend to adopt NZ IFRS for years beginning on or after 1 January
2005 and who prepare offer documents for offers of securities
that are expected
to take place in 2004 and beyond will need to address the impact of the
transition to NZ IFRS in their offer documents,
as well as the requirements of
the Act and the Regulations. These matters are addressed
below.
Compliance with the Securities Act 1978 and the
Securities Regulations 1983 - Prospective Financial Information
14.
Prospective financial information prepared other than in accordance with
FRS-29/42 is likely to deceive, mislead, or confuse readers.
As with other
information in a registered prospectus or investment statement, prospective
financial information must not be false
or misleading.
15.
Prospective financial information covering periods prior to the date of an
issuer's intended adoption of NZ IFRS in historical financial
statements should
reflect the issuer's currently used formats and accounting policies.
16.
Issuers are required to implement the existing requirements of FRS-29
(paragraphs 5.1 and 5.9) or FRS-42 (paragraphs 26 and 41) in
respect of
anticipated formats and changes of accounting policies.
17.
Prospective financial information covering periods after the date of an
issuer's intended adoption of NZ IFRS in historical financial
statements should
be presented using the formats and accounting policies reasonably expected to be
used under NZ IFRS.
18.
The NZ IFRS used would be those standards, to the best knowledge of the
issuer, that will apply to those periods after the date of
the issuer's adoption
of NZ IFRS for which the issuer has presented prospective financial information.
Additional disclosures would
be required where entities early adopt a standard
or particular requirement within a standard.
19.
The Securities Commission's view is that issuers' offer documents which
include prospective financial information should present the
prospective
financial information for each period in the format and following the accounting
policies reasonably expected to be used
for preparing historical financial
statements for such periods in the future. An illustrative example of this has
been provided in
Appendix 1 to this practice note.
20.
For all prospective financial information presented in offer documents an issuer should:
(a)
for future financial reporting periods that include a period where an issuer intends to adopt NZ IFRS, label the information prominently as being prepared under previous NZ GAAP or NZ IFRS respectively;
(b)
for prospective financial information that is presented for the year of transition to NZ IFRS, where prospective financial information is also presented for the period in which the issuer intends to adopt, include additional disclosures identifying the nature and impact of the main differences that will occur as a result of moving from previous NZ GAAP to NZ IFRS, including a quantification of those adjustments in the following form:
(i)
identification of the difference(s) between its prospective equity reported under previous NZ GAAP and its prospective equity that would be reported under NZ IFRS (should NZ IFRS have been applied) for the same period;
(ii)
identification of the difference(s) between the prospective profit or loss (surplus or deficit) reported under previous NZ GAAP and the prospective profit or loss (surplus or deficit) that would be reported under NZ IFRS (should NZ IFRS have been applied) for the same period; and
(iii)
identification of the difference(s) between the prospective cash flow reported under previous NZ GAAP and the prospective cash flow that would be reported under NZ IFRS (should NZ IFRS have been applied) for the same period.
These disclosures should give sufficient detail to enable users to understand the material adjustments to the prospective balance sheet, prospective performance and prospective cash flows resulting from the transition from previous NZ GAAP to NZ IFRS in the year of transition. If the impact of adopting NZ IFRS is not expected to be material, a statement to this effect should be made;
(c)
for prospective financial information that has been presented for the period the issuer intends to adopt NZ IFRS for the first time and where the offer document includes historical financial statements that have been prepared under previous NZ GAAP and no prospective financial information has been presented for the year of transition, provide:
(i)
reconciliations between its equity reported under previous NZ GAAP to its equity that would be reported under NZ IFRS (should NZ IFRS have been applied for the same period) for both of the following dates:
-
the date of transition to NZ IFRS; and
-
the end of the latest period presented in the issuer's most recent historical financial statements under previous NZ GAAP;
(ii)
a reconciliation between the profit or loss reported under previous NZ GAAP for the latest period of the issuer's most recent historical financial statements to its profit or loss that would be reported under NZ IFRS (should NZ IFRS have been applied) for the same period; and
(iii)
a reconciliation between the cash flows reported under previous NZ GAAP for the latest period of the issuer's most recent historical financial statements to its cash flows that would be reported under NZ IFRS (should NZ IFRS have been applied) for the same period.
These reconciliations should give sufficient detail to enable users to
understand the material adjustments to the balance sheet, performance
and cash
flows resulting from the transition from previous NZ GAAP to NZ IFRS.
21.
The approach set out above will preserve the usefulness of historical and
prospective financial information presented in offer
documents.
Enforcement Approach
22.
The Securities Commission intends to monitor offer documents published during
the transition to NZ IFRS. It will act against those
it considers are likely to
mislead investors. This practice note aims to assist issuers who prepare offer
documents during this period
by setting out appropriate approaches to the
presentation of prospective financial information in registered
prospectuses.
23.
The Securities Commission is responsible for enforcement of securities law.
It has powers under the Securities Act to cancel the registration
of any
prospectus that it considers is likely to mislead or deceive investors, and to
prohibit the distribution of any advertisement
for securities that it considers
is likely to deceive, mislead, or confuse
investors.
Securities Act (International Financial
Reporting Standards - Prospective Financial Information) Exemption Notice 2004
(SR 2004/241)
24.
The Securities Commission has granted an exemption in respect of auditors'
statements required in relation to prospective financial
information in
prospectuses for the period prior to adoption of NZ IFRS in historical financial
statements.
25.
This exemption allows auditors to give a statement in a form that indicates
that the prospective financial information is presented
on a basis that is
consistent with the accounting policies that the issuer reasonably expects to
use upon adoption of NZ IFRS.
Note
26.
The Securities Commission cannot give rulings on the interpretation of the
law or provide legal advice. This practice note is provided
for guidance only.
The Securities Commission will publish further practice notes from time to time.
However, the Securities Commission
is not bound by this or any other practice
note.
27.
This practice note has a limited life, given that the application of NZ IFRSs
is mandatory for financial reports that cover an annual
reporting period, or
part of that period, beginning on or after 1 January 2007.
Example
An issuer with a balance date of 30 June 2006 wishes to register an offer
document in January 2007, and the issuer intends to:
a)
provide prospective financial information for two reporting periods;
and
b)
adopt NZ IFRS for the year commencing 1 July 2007.
In this case the prospective financial information for the year ending 30 June 2007 should be prepared on the basis of previous NZ GAAP and the prospective financial information prepared for the year ending 30 June 2008 should be prepared on the basis of NZ IFRS.
For the purposes of the requirements of paragraph 20 (b), explanations identifying the differences between previous NZ GAAP and NZ IFRS (for the same period) should be provided in the offer document for the year ended 30 June 2007, in order to make prospective financial information provided at this date more easily comparable to the prospective financial information presented for periods subsequent to the year ended 30 June 2007 and to increase the usefulness of the prospective information provided.
Example: Adopting NZ IFRS for the year commencing 1 July
2007
Summary of changes from the 18 December 2006 update:
The main changes to Practice Note 2/2004 as a result of this 18 December 2006
update are as follow:
a)
whenever relevant, this updated version includes the term FRS-42 in addition
to FRS-29;
b)
this updated version includes a definition for “previous NZ GAAP”
as being the NZ GAAP immediately before adopting NZ
IFRS. Where appropriate, the
term previous NZ GAAP replaces the word NZ GAAP;
c)
this updated version adopts the new brand name for the New Zealand Institute
of Chartered Accountants (NZICA); previously known as
the Institute of Chartered
Accountants of New Zealand (ICANZ); and
d)
Appendix 1 contains an updated example for an early adopter of NZ IFRS for year commencing 1 July 2007. This updated example replaces the two previous examples, which had become outdated.
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/other/NZSecCom/2004/12.html