NZASB Update 1/2021

Welcome back!

Welcome back to 2021, we look forward to keeping you up to date on accounting standards developments and receiving your feedback on upcoming projects. 

In this NZASB update we feature:

• New IASB guidance on going concern disclosures
• IASB proposals for the accounting of Regulatory Assets and Regulatory Liabilities
• IPSASB re-exposes proposals for lease accounting
• Academic research opportunities
• Upcoming February NZASB Meeting
• Consultation documents open for comment

New IASB guidance on going concern disclosures

The IFRS Foundation has recently issued education material, Going concern – a focus on disclosure, to support the consistent application of current IFRS disclosure requirements related to an entity’s going concern position.

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An entity’s going concern assessment for financial reporting purposes will for many entities continue to be subject to increased judgement and uncertainty over the 2021 year.

NZ IAS 1 Presentation of Financial Statements requires management to make an assessment of an entity’s ability to continue as a going concern. If management has significant concerns about the entity’s ability to continue as a going concern, the uncertainties must be disclosed.

The guidance in the IFRS Foundation's education material echoes the new specific going concern disclosure requirements issued by the XRB last year, which are now effective. These XRB amendments are relevant to Tier 1 and 2 entities in both the for-profit and the PBE sectors, and effective from 30 September 2020.

Further details and links are in our NZASB Update 16/2020.

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IASB proposals for the accounting of regulatory assets and regulatory liabilities

The IASB has released an Exposure draft (ED) Regulatory Assets and Regulatory Liabilities with proposals for the financial reporting requirements when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.

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Internationally, these are expected to affect some entities in the utilities sector and the transport industry. These proposals are intended to replace IFRS 14 Regulatory Deferral Accounts when it is issued as a standard.

The purpose of the ED is to provide investors with better information about the performance of rate‑regulated entities. The main accounting issue is that a timing mismatch can occur between the period in which an entity supplies the goods and services, and the period in which the entity can charge for them, which would then affect the timing of revenue recognition.

The ED introduces requirements for those entities within the scope of the proposals, to report new categories of regulatory assets and liabilities on the balance sheet, and regulatory income and expenses in the income statement.

Due to the limited number of entities that are believed to fall within the scope of the proposals, the NZASB is not intending to comment at this stage. However, if your entity may fall under the proposals then the NZASB would like to hear from you before 30 April 2021.

We encourage Tier 1 and Tier 2 for-profit entities to comment on this ED directly to the IASB (with a copy to the NZASB).

Comments are due to the IASB by 30 June 2021. 

IPSASB re-exposes proposals for lease accounting

The IPSASB is seeking comments on their recently issued ED 75 Leases (ED 75) and Request for Information Concessionary Leases and Other Arrangements Similar to Leases (RFI).

Previously, the IPSASB sought comments on lease accounting through the issuance of ED 64 Leases in January 2018, which proposed:

Using the right-of-use model in IFRS 16 for lessee accounting – resulting in most lease contractual obligations being recognised as a right-of-use asset and a lease liability.

Using a similar right-of-use model for lessor accounting – resulting in the lessor continuing to recognise the leased asset, and recognising a lease receivable and a liability (unearned revenue). This approach was not consistent with IFRS 16 which continued to the use the operating/finance lease distinction.

New accounting requirements for leases at below market terms (also known as “concessionary leases”) for both lessors and lessees.

The feedback received on ED 64 was mixed. While it showed overall support for the proposals for lessee accounting, the IPSASB could not reach a consensus view on the proposals for lessor accounting and concessionary leases.

In response to the feedback received on ED 64 the IPSASB has issued ED 75 and an RFI to gather more information on concessionary leases, as discussed below. 

IPSASB ED 75: Leases

ED 75 is based on IFRS 16 for both lessee and lessor accounting requirements.

For lessees, this will mean the recognition of most lease contractual obligations on the balance sheet.

For lessors, it means the retention of the current operating/finance lease distinction as used in IFRS 16 and currently applied by PBEs through the application of PBE IPSAS 13 Leases.

The ED excludes proposals on concessionary leases, which is instead addressed through the RFI.

We feel that ED 75 has addressed the significant issues previously raised by New Zealand constituents. However, we welcome any further comments on ED 75 before the IPSASB issues a final standard.

The final IPSASB standard when issued will form the basis for proposing new lease accounting requirements for PBEs (public sector and NFP) in New Zealand.

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IPSASB RFI: Concessionary Leases and Other Arrangements Similar to Leases

In the public and NFP sectors, leases are often entered into at below-market terms, these are sometimes referred to as ‘concessionary’ or ‘peppercorn’ leases. It is also common for entities to enter into other arrangements similar to leases to obtain rights to access or use assets, but which do not meet the definition of a lease under IFRS 16.

The IPSASB has issued an RFI to gather more information on the nature of concessionary leases and other ‘lease-like’ arrangements. Your feedback will assist the IPSASB in determining whether additional guidance is needed for these types of arrangements.

The objective is to develop consistent accounting requirements in this area that improve transparency and are practical to apply.

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Comments on the proposals in ED 75 and the RFI are due to the NZASB by 22 April 2021 and to the IPSASB by 17 May 2021.

Upcoming February NZASB Meeting

11 and 12 February 2021

The February NZASB Board meeting will be held in Wellington on the afternoon of 11 February and the morning of 12 February.

On the afternoon of 11 February, the public session of the meeting will consider:

• Public Sector Insurance

On the morning of 12 February, the public session of the meeting will consider:

• the draft ED and Invitation to Comment for Public Sector Specific Financial Instruments; and
• IPSASB ED 75 Leases and the RFI on Concessionary Leases and Other Similar Arrangements.

The NZASB meetings are open to the public.

You can access the public agenda, public meeting papers and register to attend the NZASB February meeting on our website. 

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Academic research opportunities

IASB Webinars

The IFRS Foundation has recently commenced the delivery of six webinars aimed at academics to stimulate research into IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, and IFRS 16 Leases.

Research evidence on IFRS 9, IFRS 15, and IFRS 16 (major new standards applied for the first time over the last 4 – 5 years) will help inform the IASB’s current and upcoming post-implementation reviews (PIRs) of these Standards.

The webinars explain how academics can inform these upcoming PIR’s and the discusses the research opportunities available.

The slides and webinar recordings are available.

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XRB Academic Research Forum

The XRB held its first Academic Research Forum in December 2020 to encourage New Zealand researchers to develop projects to facilitate more evidence-based standard-setting and support the XRB’s work.

We are looking forward to holding a similar event during 2021, please contact Kerrie Cole at the XRB if you would like to discuss further any academic research ideas.

Call for research papers

The academic journals, British Accounting Review and Accountancy in Europe, together with the IASB have published a joint call for research papers on

• compliance with mandatory disclosure requirements; and
• specific areas of interest to the IASB including new standards (IFRS 9, IFRS 15 and IFRS 16) and disclosure requirements; materiality; and narrative disclosures.

These groups are also interested in qualitative and interpretative research, in addition to the quantitative studies.

Papers must be submitted by 31 January 2022.

Further information is available.

Have a look 

Consultation papers open for comment

The following consultation papers on financial reporting matters are currently open for comment.

We welcome your comments and feedback, either formal or informal, by the due dates below. You can submit your comments directly from the consultation page on our website following the links below.

NZASB Consultation Document

IASB Consultation Documents

IPSASB Consultation Documents