Shortcomings revealed in financial reports review
10 June 2005
Shortcomings revealed in Securities Commission review of 2004 financial reports
Forty per cent of financial reports of issuers reviewed by the Securities Commission were found to have some shortcomings that need to be addressed.
The Commission reviewed the audited full-year financial reports of 40 companies with balance dates from 31 March to 31 July 2004. The review also covered prospectuses, substantial security holder information, and continuous disclosure notices.
The review is the first cycle of the Securities Commission’s ongoing financial reporting surveillance programme.
“The aim is to encourage New Zealand issuers to improve the quality of their financial reporting,” Chairman Jane Diplock said. “This will enable investors to have confidence in the credibility of financial information provided by issuers, and contribute to the integrity of New Zealand’s securities markets."
The Commission has asked 15 companies to address specific shortcomings when preparing their next financial reports. One matter has been referred to the Commission’s enforcement staff.
“It is pleasing to see that few serious problems were identified. However, the review indicates that a number of issuers need to do more to raise the standard of their financial reporting,” Jane Diplock said.
Other matters found were:
the appropriateness of a prior period adjustment;
valuation of property, plant and equipment and intangibles;
lack of actual versus prospective financial information comparisons and explanation;
format of the Statement of Movements in Equity;
non-disclosure of a share-based arrangement with a product distributor;
undated financial statements; and
unusual differences in the dates of the annual report, shareholder information, and the audit report.
The review also identified some instances of incompleteness and poor timing of continuous disclosure notices, and incompleteness and inaccuracy of substantial security holder disclosures. The Commission will follow up these with the companies and, where applicable with the NZX.
The selected 40 issuers reviewed were made up of:
28 companies listed on the NZX;
8 companies listed on the NZAX; and
4 companies with shares traded on the Unlisted securities market.
The Commission expects to publish a report on this first stage of its surveillance programme.