For immediate release 4 March 2004
Financial Instruments - Release of Accounting Standard Discussion Papers and Exposure Drafts
The Financial Reporting Standards Board (FRSB) has released Discussion Papers and two significant Exposure Drafts for
public comment.
The two Exposure Drafts are:
- ED NZ IAS 32 Financial Instruments: Disclosure and Presentation; and
- ED NZ IAS 39 Financial Instruments: Recognition and Measurement.
ED NZ IAS 32 Financial Instruments: Disclosure and Presentation - ED NZ IAS 32 contains requirements for the
presentation of financial instruments and identifies the information that should be disclosed about them. The disclosure
requirements are intended to assist readers in assessing the risks an entity faces and the policies an entity has in
place for controlling those risks.
The proposed NZ IAS 32 will be relevant to and will affect many New Zealand entities, notwithstanding that most entities
do not have complex financial instruments.
The proposed NZ IAS 32 contains requirements on how to determine whether a financial instrument is a financial liability
or an equity instrument. To this extent, many entities will need to consider the requirements of the proposed NZ IAS 32
as they affect whether a financial instrument is classified as equity or liability in the statement of financial
position.
The FRSB also draws constituents' attention to the proposals in ED NZ IAS 32 as some of the requirements differ
significantly from current practice.
ED NZ IAS 39 Financial Instruments: Recognition and Measurement - The proposed NZ IAS 39 establishes principles for
recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items.
The standard specifies when and how financial assets and liabilities should be reported on or off the balance sheet. It
also requires all derivatives and certain other financial assets and liabilities to be accounted for at fair value, and
restricts the use of hedge accounting techniques to defer the recognition of gains and losses.
The proposed NZ IAS 39 is likely to have a significant impact on financial reporting in New Zealand. The extent of the
impact will be dependent on the nature of the financial instruments an entity holds and how it currently accounts for
them.
ED NZ IAS 32 and ED NZ IAS 39 represent two of the most significant proposed equivalent IASB standards that the FRSB has
issued to date. The two proposed standards will fill a gap that currently exists in New Zealand's financial reporting
requirements.
The proposed standards are expected to result in more consistent reporting of financial instruments. However,
application of the standards is likely to increase the volatility of reported financial performance. In addition, the
standards have clear guidance on classifying financial instruments, as debt or equity, and this can have a significant
impact on reported financial position. Entities are therefore encouraged to give early consideration to the likely
impact of these standards on their reported performance and financial position
The closing date for submissions on the above Exposure Drafts is 30 April 2004.
.. ends
Background Notes:
- The Financial Reporting Standards Board (FRSB) is implementing the Accounting Standards Review Board's (ASRB) decision
to adopt International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board
(IASB).
- Application of the standards will be to reporting periods beginning on or after 1 January 2007 (or, in the case of
entities choosing to adopt early reporting periods beginning on or after 1 January 2005).
- The ASRB and the FRSB have agreed that New Zealand standards should continue to apply to both profit-oriented and
public benefit entities. Standards issued by the IASB apply only to profit-oriented entities. As a consequence, the FRSB
intends, where necessary, to introduce additional material to the international standards to ensure that they can be
applied in the New Zealand environment by all reporting entities. The resulting standards will be referred to as NZ IFRS
or NZ IASs, as appropriate.
- The objectives of the FRSB's exposure of IFRS are:
- to ensure reasonable steps are taken to obtain submissions from persons or organisation or their representatives who
will be affected by the adoption of the standard and, in particular, by the proposed New Zealand specific changes to the
international standard;
- to identify issues in relation to the international accounting standard that the FRSB should raise with the IASB; and
- to alert constituents to changes in financial reporting as a result of adoption of international standards.
ENDS