Adopting NZ IFRS 18

An overview of the new accounting standard and steps to successful adoption

About NZ IFRS 18 - What does it mean for your business?

The newly released NZ IFRS 18 accounting standard (formally known as ‘NZ IFRS 18 Presentation and Disclosure in Financial Statements’) will soon come into effect and require a number of important changes for your business’ financial statements. The new standard introduces changes to how financial information is required to be presented and disclosed. Preparing for these changes will require time investment from you, or your accountant. 

NZ IFRS 18 comes into effect for annual reporting periods beginning on or after 1 January 2027, with comparatives required. However, for entities that prepare in accordance with NZ IFRS or NZ IFRS (RDR), the requirements of the new accounting standard on Presentation and Disclosure in Financial Statements (NZ IFRS 18) will need to start being applied in earnest from 2026.

Read more below to learn about NZ IFRS 18, its application areas, and how BDO’s Financial Reporting Advisory specialists can help.

Broadly speaking, NZ IFRS 18 has three core application areas to be addressed:

  1. Classification of income and expense items, and new sub-totals in the Statement of Comprehensive Income.
  2. Stricter requirements regarding labelling of items in the financial statements and aggregation and disaggregation (particularly where “Other”, “Sundry” etc. prefixes have historically been used).
  3. Disclosures about Management-defined performance measures (a new requirement).

With respect to (1), entities should not be fooled in thinking that adopting NZ IFRS 18 will merely be a simple reclassification (i.e., re-mapping) exercise.

While reclassification is ultimately the end result (the WHAT), entities must first work through HOW and WHY these reclassifications are required, with this process requiring that:

  • Various entity-specific judgements to be made.
  • These judgements are supportable (with evidence).
  • Specific criteria, indicators, and definitions are met.

Also, entities will need to also consider whether changes in financial performance subtotals and metrics will impact other areas of the business, such as:

  • Compliance with debt covenants  
  • Employee bonuses
  • Vesting conditions of Employee Share Options Plans (ESOPs)
  • Earn-out payments; and,
  • Share price determination.

All entities have a legal requirement to keep Accounting Records for internal and Audit evidence purposes.

In adopting NZ IFRS 18, this will require entities to ensure thorough, complete, and accurate documentation is prepared that addresses the HOW and the WHY (i.e., via Technical Memos), as well as the mechanical reclassification worksheets (re-mapping) (the WHAT).

In certain instances, entities may need to engage financial reporting experts to assist with the analysis and/or documentation of the application of NZ IFRS 18.

Failure to appropriately document the application of NZ IFRS 18 may result in:

  • Breaches of law (for the Entity and Directors).
  • Delayed financial reporting filing and audit sign-off. 
  • Qualified Audit Opinions.
  • Additional time and cost to rectify.

Ultimately, a failure to adopt NZ IFRS 18 correctly may result in materially misstated financial statements (both initially, and on an ongoing basis), which again may result in similar consequences.

How BDO can help you to successfully adopt NZ IFRS 18 

For entities with limited resource and/or expertise, the journey to a complete and accurate adoption of NZ IFRS 18 may require entities to engage external financial reporting experts. 

Adopting NZ IFRS 18 represents a significant “change” in an entity’s financial reporting requirements, and like implementing any other significant change within a business the only way to successfully tackle this is to adequately “plan” for it by:

  • Giving it the respect and attention it deserves.
  • Approaching it as a stepped process to be worked through.
  • Project managing it (potentially by establishing a Project Steering Committee behind it, assigning key roles and responsibilities, and engaging external experts where required).

Six steps to a successful adoption of NZ IFRS 18

Below we outline our proposed six steps to adopt NZ IFRS 18.

A BDO NZ IFRS 18 impact assessment involves an initial investigation and assessment of key application areas of NZ IFRS 18, on an entity-specific basis.

This will involve:

  • Completion of BDO FRA’s  NZ IFRS 18 Adoption Questionnaire.
  • Review of specific information requests.
  • Discussions with Management.

On completion, our Observation Report to Management will communicate our findings regarding:

  • Key application areas that appear to exist, and why.
  • The severity and complexity of these application areas.
  • Areas of Management Judgement and Estimation that need to be made (or confirmed).
  • Recommendations as to how Management can approach addressing these application areas in their Project Plan (Step 2 below).

The objective of a BDO NZ IFRS 18 impact assessment is to undertake an initial lift-the-lid on the potential entity-specific application areas of NZ IFRS 18 so that these can be: (i) Identified; (ii) Documented; and then, (iii) Appropriately actioned.


 

Upon completing Step 1, Management will have a solid grasp and understanding of WHAT will need to be addressed.

Step 2 therefore involves planning HOW this will be executed.

Depending on the size of the entity and/or nature and extent of the application areas identified, Management may feel that it is appropriate to formally establish a Project Steering Committee (PSC) to manage and direct the project. 

For the adoption of NZ IFRS 18, key workstreams that the Project Plan would typically include would be, for example (but not limited to):

  • Educate and upskill (see Step 3 below).
  • Making determinations on key application areas, and ensuring they are appropriately supported and documented.
  • Reviewing and authorising outputs (i.e., documentation, re-mapping (see Step 5 below), draft disclosure and presentations for the financial statements (see Step 6 below)).


Project Steering Committee 

Members of a PSC typically include Senior Management of relevant business areas that will be impacted (not necessarily limited solely to Finance department members), as well as external Financial Reporting experts, where necessary.

As with any project, there will be phases/workstreams that can occur concurrently, and others that are dependent on elements “upstream” having to be completed before hand.

Planning for these phases/workstreams at the outset, and assigning clear roles, responsibilities, and timelines, ensures that there is sufficient oversight and expectation of what needs to be achieved, by when, and (importantly) in what order.

Projects to adopt new NZ IFRS’ are typically unique and distinct from other types of change-implementation projects entities might be familiar with. Accordingly, entities should again give consideration as to whether external Financial Reporting experts who has been-there-and-done-that should be engaged to (help) lead the project.


Inclusion of an entity’s Auditor along the journey

For entities that are subject to external audit requirements, we would strongly recommend that the entity’s Auditor is involved during the process – rather than just at the end.

This will ensure that the Project Plan, and the documentation to be produced, will ultimately be fit-for-purpose and meet Auditor expectations – and therefore mitigate any scenarios for re-work and/or additional information to be provided come audit time.


Upon completing Step 2, one of the first actions of the Project Plan will typically need to be to:

  • Identifying the various stakeholders that will require education and upskilling on NZ IFRS 18 (i.e., Finance team members, Senior Management, Directors, Shareholders).
  • Deciding how, when, and in what format the required education and upskilling should be executed.

BDO supports entities in two key ways with upskilling on NZ IFRS:

  • Free publications and eTrainings.
  • Customised inhouse trainings for staff.

Success at this stage is dependent on the thoroughness of the plan that has been established in Step 2, and completeness of any upskilling in Step 3.

Entities will also need to be considering who is best placed to act as Project Manager (i.e., is it someone within the entity with knowledge of the business, or, is it an external Financial Reporting expert more appropriate).

Where an entity has established a Project Steering Committee, the frequency of their meetings and specific judgements, estimates, and decisions to be “steered” at these meetings should also be planned, and then implemented.

For entities that are subject to external audit, we would strongly recommend that you provide regular updates to your auditors regarding the progress of the project, as well as flagging any new application areas that are uncovered and invite their input and comment as early as possible to ensure that the project is adjusted to adequately address these.


The re-mapping of the line-items and sub-totals in an entity’s Statement of Comprehensive Income should be undertaken only after the NZ IFRS 18 adoption Project Plan has been fully executed and all application areas addressed and resolved.

This will mitigate the need for significant re-work and/or correction, which may consequentially have flow on impacts to other areas of the financial statements (i.e., such as notes, reconciliations, cash flow workings etc.).

Management should ensure that the re-mapping worksheet “reconciles” back to the application areas that have been identified in Step 1, and then addressed and resolved in Step 4, that is, the re-mapping worksheet:

  • Should not introduce any new application areas.
  • Should make it clear where the background details of the application areas being applied can be found (i.e., cross-referencing back to Technical Memos).


Once you’ve executed (or even whilst you are executing) your Step 5, Management should begin to prepare the necessary disclosures and presentation requirements of NZ IFRS 18.

These would include (but not limited to):

  • Changes to the line-items and sub-totals of the Statement of Comprehensive Income.
  • Changes to the line-items and sub-totals of other primary financial statements.
  • Updated accounting policy wording (i.e., Basis of preparation, etc.)
  • Management performance measure disclosures (if applicable).
  • Adoption specific disclosures (i.e., reconciliations to prior period).

This task should not be underestimated, even if your entity is a Tier 2 reporting entity, preparing financial statements in accordance with the Reduced Disclosure Regime NZ IFRS (RDR).

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