Six things to remember for 30 June 2023 annual and half-year financial statements

This article highlights six things to remember when preparing 30 June 2023 financial statements.

Accounting in times of uncertainty
Climate-related matters
New standards
IFRIC agenda decisions
Hyperinflationary economies
Changes to classification requirements for liabilities under IAS 1

1. Accounting in times of uncertainty

Firstly, it's important for preparers to consider the overarching economic and political uncertainty that exists as the world emerges from the COVID-19 pandemic, and the conflict continues between Russia and the Ukraine. Rising energy prices, interest rates, inflation, exchange rate volatility and supply shortages can 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 30 June 2023 financial statements. These include:

Going concern
Judgements, estimates and estimation uncertainty
Impairment of non-financial assets
Discount rates
Events after the reporting period
Assessment of control, joint control and significant influence
Effects of inflation
Financial instruments
Disclosures.

Impact of recent interest rate increases

Recent interest rate increases are likely to have a significant impact on the measurement of your assets and liabilities, particularly if you are an annual reporter and have not revised your impairment and fair value calculations since June 2022. As interest rates rise, this will directly impact the measurement of many financial statement items because when interest rates increase, so do the discount rates used in present value calculations. The following financial statement items may be affected:

Impairment of assets (NZ IAS 36 Impairment of Assets (for for-profits) and PBE IPSAS 21 Impairment of Non-Cash-Generating Assets and PBE IPSAS 26 Impairment of Cash-Generating Assets (for Public Benefit Entities (PBEs)))
Fair value of financial assets and financial liabilities (NZ IFRS 7 Financial Instruments: Disclosures and NZ IFRS 9 Financial Instruments (for-profits) and PBE IPSAS 30 Financial Instruments: Disclosures and PBE IPSAS 41 Financial Instruments (for PBEs))
Fair value of investment property (NZ IAS 40 Investment Property (for-profits) and PBE IPSAS 16 Investment Property (for PBEs))
Fair value of biological assets (NZ IAS 41 Agriculture (for-profits) and PBE IPSAS 27 Agriculture (for PBEs))
Leases (NZ IFRS 16 Leases)
Long service leave liability (NZ IAS 19 Employee Benefits (for-profits) and PBE IPSAS 39 Employee Benefits (for PBEs))
Defined benefit superannuation obligations (NZ IAS 19 Employee Benefits (for-profits) and PBE IPSAS 39 Employee Benefits (for PBEs))
Fair value of options issued (NZ IFRS 2 Share-based Payment)
Appropriate measurement of provisions, including restoration provisions (NZ IAS 16 Property, Plant and Equipment and NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets (for-profits) and PBE IPSAS 17 Property, Plant and Equipment and PBE IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets (for PBEs)).

Please refer to our impact on interest rate increases article for more information.

2. Climate-related matters

The move to a more sustainable world is gaining momentum. The New Zealand Government has committed to reduce New Zealand’s greenhouse gas emissions by 50% below 2005 levels by 2030, and to achieve net zero GHG emissions (other than biogenic methane) by 2050.

In addition, mandatory climate-related disclosure reporting for large listed companies (large meaning with a market capitalisation of more than $60 million); large registered banks, licensed insurers, credit unions, building societies, managers of investment schemes (large meaning with more than $1 billion in assets for December 2023 year ends) and certain Crown entities will be required for December 2023 year ends onwards. Read more in our article here.

In light of these developments, preparers should start considering the implications of climate-related matters when preparing 30 June 2023 financial statements. IASB educational materials summarise how companies must consider climate-related matters when applying the IFRS. This includes when determining values for assets, liabilities, and provisions, as well as when making disclosures regarding estimates and judgements.

Please refer to IFRB 2020/14 for a summary of these educational materials. More resources on sustainability matters are available on our sustainability reporting web page.

3. New standards

The main new standards applying for the first time to 30 June 2023 annual and half-year periods are outlined in the table below.

For-profit entities

Standard number	Standard name	Applies to periods	Annual periods	Half-year periods (i.e. 31 Dec 2023 year ends)	Resources
NZ IAS 1 and NZ IAS 8 amendments	Disclosure of Accounting Policies and Definition of Accounting Estimates	Beginning on or after 1 January 2023	X	✔	Expect to see a reduction in the amount of accounting policy disclosures IASB clarifies how to distinguish between a change in accounting policy and a change in accounting estimate
NZ IAS 12 amendments	Deferred Tax related to Assets and Liabilities arising from a Single Transaction	Beginning on or after 1 January 2023	X	✔	IASB clarifies accounting for deferred taxes relating to assets and liabilities arising from a single transaction (leases and decommissioning obligations) How do lessees account for deferred taxes on leases when they have made advance lease payments and incurred initial direct costs?
NZ IFRS 17	Insurance Contracts	Beginning on or after 1 January 2023	X	✔

Public Benefit Entities

Standard number	Standard name	Applies to periods	Annual periods	Half-year periods (i.e. 31 Dec 2023 year ends)	Resources
PBE FRS 48	Service Performance Reporting	Beginning on or after 1 January 2022	✔	Already effective	XRB staff guidance papers are available
PBE IPSAS 41	Financial Instruments	Beginning on or after 1 January 2022	✔	Already effective	A summary of our articles on PBE IPSAS 41 is available here
PBE IFRS 17	Insurance Contracts	Beginning on or after 1 January 2023	X	✔

Please ensure you have considered the impact of these in your 30 June 2023 annual and half-year financial statements for 31 December 2023 year ends.

4. IFRIC agenda decisions

You will also need to consider whether IFRIC agenda decisions outlined in the table below, which were approved close to, or since your last reporting date, could affect your 30 June 2023 annual or half-year financial statements.

Month	Decision	Resources
April 2023	Substitution rights in a lease	Article
October 2022	Multi-currency groups of insurance contracts	FAQ
October 2022	Special purpose acquisition companies: accounting for warrants at acquisition
October 2022	Loan forgiveness of lease payments	Article
July 2022	Negative low-emission vehicle credits	Article
July 2022	Classification of public shares as debt or equity in special purpose acquisition companies	Article
July 2022	Transfer of insurance coverage under a group of annuity contracts	FAQ
May 2022	Principal vs agent (software resellers)	Article

5. Hyperinflationary economies

New Zealand has experienced low inflation levels for decades, however, some 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’, NZ IAS 29 Financial Reporting in Hyperinflationary Economies requires the financial statements (including any comparative periods) to be stated regarding 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 in 2023	Watchlist for the future
Argentina Ethiopia Iran Lebanon South Sudan Sudan Suriname Turkey Venezuela Yemen Zimbabwe	Haiti (as of 30 June 2023)	Angola Ghana Sierre Leone Sri Lanka Syria

6. Changes to classification requirements for liabilities under NZ IAS 1

Although these changes only become effective for the 30 June 2025 financial year, you must restate your opening balance sheet on 1 July 2023. For Tier 1 entities, NZ 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 30 June 2023 will change as a result of these amendments, you will need to describe and quantify the impact in your 30 June 2023 financial statements.

Classification of your liabilities may be impacted by one or more of the changes to NZ IAS 1, namely:

The right to defer settlement need not be unconditional and must exist at the end of the reporting period
Classification is based on rights to defer, not intention
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 (a) above, if your entity has loan arrangements which are subject to covenants, the amendments clarify when the covenants affect classification at reporting date. This is illustrated in the diagram below.

More information

Our December 2022 article contains an in-depth discussion of the changes, including illustrative examples.

Need assistance?

Please contact our IFRS Advisory team if you require assistance with any financial reporting matters for your 30 June 2023 annual and half-year financial reports.

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