Financial Reporting in New Zealand Essay

Financial Reporting in New Zealand Essay

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The New Zealand (NZ) Framework for Financial Reporting is in the process of changing since 2009, as a result of the review of the statutory reporting requirements in New Zealand by Ministry of Economic Development (MED) and the Accounting Standard Review Board (ASRB). The mainly recommendation was to remove small and medium sized companies from the statutory reporting framework (Ernst & Young, 2013, p.11). This New Zealand Framework for Financial Reporting 2010 (NZ Framework) was issued by the New Zealand Accounting Standards Board of the External Reporting Board (XRB) in 2011. The changes of framework pull open the NZ financial reporting standards that comprise NZ Generally Accepted Accounting Practice (GAAP) setting movement from ‘rule-based’ approach to ‘principle-based’ approach. Then comes to the question: Whether the application of NZ GAAP is supported positively by the NZ Framework with the appropriate underlying principles, or it preserved a largely ‘rule-driven’ approach? From my perspective, NZ Framework provides parts of applicable underlying principles in guidance of NZ GAAP but there are rooms for improvement.

This essay will discuss the influence NZ Framework brings to financial reporting standards that included NZ GAAP based on the debate between principles-based and rule-based. In particular, it will portray: (1) the nature and orientation of financial reporting framework and GAAP; (2) the main improvement of NZ Framework and the applications framework guided in NZ GAAP.

The NZ Framework is an accounting conceptual framework based on the International Accounting Standards Board (IASB) Conceptual Framework. The key objective of the framework is to provide a complete and updated set of accounting concepts to use ...

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...n. Based on the definition of asset/liability, the operating leases items meet it. Therefore the amount should show as asset/liability off balance sheet as well.

In conclusion, appropriate principles could lead to clearer interaction and more comparable financial reporting standards without the need of the current rules. The NZ Framework has provided parts of clear and appropriate underlying principles to lead the application of NZ GAAP and other financial reporting standards. However the standards setting movement from ‘rule-driven’ approach to ‘principle-based’ approach is still half-way in New Zealand. How could principles be sufficiently clearly portrayed and put into practice require the profession to think and support. Just as Tweedie (2007, p.7) states, a principle based system will only work if preparers, auditors, users and regulators wish to make it work.

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