Accounting standards you will meet in these books

This chapter is a map, not a substitute. Each entry gives the question the standard answers, the requirements you will meet in these exercises, and where to see it happen.

NZ IAS 1 — Presentation of Financial Statements

The question: what must a set of financial statements contain, and what does it mean to present them fairly?

• A complete set includes a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows, and notes NZ IAS 1.10.
• Fair presentation requires the faithful representation of the effects of transactions, other events and conditions NZ IAS 1.15.
• Where an entity departs from a requirement to achieve a fair presentation, the departure and its effect are disclosed.
• The statement of financial position presents specified line items where they are relevant NZ IAS 1.54.
• The profit or loss section presents specified line items in addition to those required by other standards NZ IAS 1.82.
• Expenses are analysed by nature or by function, whichever provides reliable and more relevant information NZ IAS 1.99.
• Accounting policy information is disclosed where it is material NZ IAS 1.117, along with the judgements management made in applying those policies NZ IAS 1.122 and the major sources of estimation uncertainty NZ IAS 1.125.

In ByteBook: Reports → Balance sheet and Profit and loss. The balance sheet states the difference between assets and liabilities plus equity rather than hiding it.

NZ IAS 7 — Statement of Cash Flows

The question: where did the money come from, and where did it go?

• Cash flows are classified as operating, investing or financing activities NZ IAS 7.10.
• Operating cash flows are presented by the direct method, showing gross receipts and payments, or by the indirect method, starting from profit NZ IAS 7.18.
• Investing and financing transactions that do not use cash at all are excluded from the statement and disclosed elsewhere NZ IAS 7.43.

In ByteBook: Reports → Cash flow.

NZ IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors

The question: what happens when a number you reported last year turns out to have been wrong?

• A change in an accounting estimate is recognised prospectively, in this period and future ones NZ IAS 8.36.
• A material prior period error is corrected retrospectively NZ IAS 8.42.

In ByteBook: the void and correct routine in chapter 11. A correction that reverses a wrong figure is visible in the audit trail, which is what makes the treatment checkable.

NZ IAS 10 — Events after the Reporting Period

The question: the balance date has passed and something has happened. Does it change the accounts?

• Adjusting events provide evidence of conditions that existed at the reporting date, and the amounts recognised are adjusted NZ IAS 10.8.
• Non-adjusting events concern conditions that arose after the reporting date. The amounts are not adjusted NZ IAS 10.10, though material ones may need disclosure.

In ByteBook: the closing routine in chapter 10, and the cut-off procedure A09.

NZ IFRS 9 — Financial Instruments

The question: how much of the money customers owe will actually be paid?

• For trade receivables, the loss allowance is measured at an amount equal to lifetime expected credit losses NZ IFRS 9.5.5.15.

In ByteBook: Reports → Outstanding, and the debtors procedure A04.

NZ IFRS 15 — Revenue from Contracts with Customers

The question: when has a business earned its revenue?

• Revenue is recognised when the entity satisfies a performance obligation by transferring a promised good or service to the customer NZ IFRS 15.31.
• Where a performance obligation is not satisfied over time, it is satisfied at a point in time NZ IFRS 15.38.
• The transaction price is allocated to the performance obligations NZ IFRS 15.46.

In ByteBook: Invoices, and the builder's stage payments.

NZ IFRS 16 — Leases

The question: is this rental an expense, or an asset and a liability?

• A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration NZ IFRS 16.9.
• At the commencement date the lessee recognises a right-of-use asset and a lease liability NZ IFRS 16.22.

In ByteBook: the recurring rent entries, and the balance sheet that follows from them.

NZ IAS 16 — Property, Plant and Equipment

The question: when is a purchase an expense, and when is it something the business owns?

• An item that qualifies for recognition is measured at its cost NZ IAS 16.15.
• The depreciable amount is allocated on a systematic basis over the useful life NZ IAS 16.50.
• Depreciation begins when the asset is available for use NZ IAS 16.55.

In ByteBook: the expenses procedure A11, which reports the large one-off costs where this question has to be asked.

NZ IAS 2 — Inventories

The question: what is the stock worth on the balance sheet?

• Inventories are measured at the lower of cost and net realisable value NZ IAS 2.9.
• Cost comprises the costs of purchase, the costs of conversion, and the other costs of bringing the inventories to their present location and condition NZ IAS 2.10.
• Cost is assigned using first-in, first-out or a weighted average cost formula NZ IAS 2.25.
• Where cost is not recoverable, the write-down is recognised as an expense in the period it happens NZ IAS 2.28.

In ByteBook: the wholesaler simulation.

NZ IAS 37 — Provisions, Contingent Liabilities and Contingent Assets

The question: when do you put a cost in the accounts for something that has not happened yet?

• A provision is recognised where there is a present obligation from a past event, an outflow of resources is probable, and a reliable estimate can be made NZ IAS 37.14.
• The amount recognised is the best estimate of the expenditure required to settle the obligation at the reporting date NZ IAS 37.36.

In ByteBook: the closing routine in chapter 10.

NZ IAS 21 and NZ IAS 12

Two more you will meet as soon as a business trades across a border or has a tax bill.

• A foreign currency transaction is recorded by applying the spot exchange rate at the date of the transaction NZ IAS 21.21. Where the presentation currency differs from the functional currency, the results are translated for presentation NZ IAS 21.38.
• Current tax for the current and prior periods is measured at the amount expected to be paid to, or recovered from, the taxation authorities, using the tax rates and laws enacted or substantively enacted by the reporting date NZ IAS 12.46.

In ByteBook: the tax forms, which build the IR3, IR10 and IR4 working papers from the same ledger.

Two things this chapter does not cover

The framework for smaller entities. New Zealand has reporting tiers, set by XRB A1 and XRB A2. A business reporting under a reduced disclosure regime applies the same recognition and measurement rules with fewer disclosures, so the standard you reach for is the same and the disclosure requirements are not.

Estimates that need a specialist. NZ IAS 36 impairment, NZ IAS 19 employee benefits and NZ IFRS 17 insurance contracts are all in the library and all outside the scope of a small-business simulation. They are named here so that you know what you have not read.