New IFRS amendment a welcome step forward

New IFRS amendment a welcome step forward

The International Accounting Standards Board (the international body that develops and approves International Financial Reporting Standards (IFRS) has approved an amendment that should make financial reporting more relevant to New Zealand conditions.

Since New Zealand adopted IFRS there have been criticisms the global standards do not cope well when companies revalue their assets to market value within our nil capital gains tax regime.

IFRS assumes that additional tax is payable on the uplift over cost and requires deferred tax liabilities to be recognised, which reduces net assets. In addition, over the past six months, a number of New Zealand companies and unit trusts have been required to report significant additional deferred tax liabilities and tax expenses under IFRS, as a result of the May budget changes to remove tax depreciation on buildings.
IFRS did not foresee or allow for such events and this led to commentators calling for changes to the standards and the possibility of moving away from global standards altogether.

The approved amendment will solve the problem for investment properties and provide welcome relief for those who generally were the most severely impacted by the budget changes.

PricewaterhouseCoopers Accounting Consulting Services partner, Michele Embling says "This is welcome news from the IASB, especially as we move into the next reporting cycle. It will result in financial information that is more meaningful and transparent and easier for investors to understand. It also demonstrates that the IASB is willing to listen, even to countries as small as New Zealand, and make changes to IFRS when there are good reasons for doing so."

The IASB is sympathetic to New Zealand's remaining concerns with the tax accounting standard and IASB staff are continuing to work with the New Zealand standard setter to explore other amendments that might solve the problem for remaining entities impacted by the budget changes.

While amendments still need to be adopted in New Zealand, Michele Embling says “the relevant standard setters are gearing up to approve the amendments over the Xmas break so that New Zealand entities can take advantage of the amendments as soon as possible.”

ENDS

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