Financial reporting needs to evolve

2 March 2015

Financial reporting needs to evolve

Financial reporting in New Zealand has undergone significant change in recent years and should continue to evolve in line with international trends.

Independent research commissioned by the External Reporting Board (XRB) has found that the changes in financial reporting which have taken place over the past 10 years have responded to user needs, but must continue to evolve.

“In this climate of increased accountability, companies have really had to step up and change their financial reporting to be in line with international standards and to respond to user demands,” says XRB Chief Executive, Warren Allen. “The research we commissioned shows that the hard work has been worthwhile. Reports are being valued by users. However, there is still room for improvement.”

The key improvements sought by New Zealand users are consistent with those of international users. They include using simple language, and providing more detailed information on:
• the entity, its strategies and risks;
• prospects and forecasts;
• broader context around performance;
• non-financial information (integrated with financial information).

“New Zealand reporting must keep evolving to ensure it continues to build greater investor trust and confidence, and enables our companies to be internationally competitive” says Warren.

The research specifically looks at the usefulness of the financial reports produced by for-profit entities operating on capital markets in New Zealand.

It found that while the types of users and their needs are diverse, they all require similar information, and they value corporate reports. Financial reports are a well-used and trusted source of information, which have a full year shelf-life. The research also found that the needs of New Zealand report users are consistent with those of international users.

The research, conducted by Massey University, is the first New Zealand comprehensive user-needs study undertaken to look at both local and international trends.

“A key outcome for us is confirmation that New Zealand users are very similar to their international counterparts. The XRB’s approach of taking international standards and making minor adjustments to ensure they are appropriate for our unique NZ conditions is right, and will continue.

“The research confirms a lot of what we already suspected,” says Warren. “It is good to see that these reports are read and valued, and for many users they are the most important source of corporate information.

“This research will help companies who want to improve their stakeholder communications to understand their key areas of focus.”

A summary of the key findings is attached.

http://img.scoop.co.nz/media/pdfs/1603/XRB_Summary_Research_Report.pdf

ENDS

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