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Covid-19 forces new company disclosure rules

Covid-19 forces new company disclosure rules

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Companies will need to divulge more about their financial health when new disclosure rules come into effect at the end of the month.

New Zealand's sharemarket has immediately fallen two percent after opening after the Waitangi Day closure. Global markets have been left reeling in the biggest one-day fall on Wall Street since 2011.

Photo: RNZ / Rebekah Parsons-King

Due to the market uncertainty created by Covid-19, the External Reporting Board has introduced new specific requirements on going concerns in response to the increased demand for transparent and consistent disclosures.

Chief executive April Mackenzie said the going concern disclosures have needed tightening for some time.

“The accounting standard was actually somewhat silent on the nature, or the specifics of what was required to be disclosed. It basically said that directors needed to assess whether they were a going concern and state [it].

“This is now saying… well that’s not really enough information.”

Mackenzie said Covid-19 was what pushed the need for comprehensive disclosures over the line.

“There wasn’t a lot of specifics in previous financial reports because when you’re in more stable economic conditions… [this disclosure] isn’t as fundamental, but now it’s better to have more specifics.”

“Entities have always been required to disclose their ability to continue operating… that is are they a going concern, what we’ve done though is brought in more consistent requirements.”

The requirements mean businesses must identify the significant judgements and assumptions made as part of its going concern assessment, any material uncertainties about future outcomes and its plans to mitigate the effects of those uncertainties.

She said the levels of uncertainty would make this harder for firms but it was better for directors, auditors and investors if it was all laid out.

“Companies who weren’t doing it before… are quickly learning disclosure is your friend.”

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