Guide

Guidance on Accounting for Financial Instruments Under PBE IFRS 9 for Non-financial Entities

Practical Guide for entities restricted from investing and borrowing activity

Purpose and Overview On 12 January 2017 the New Zealand Accounting Standards Board of the External Reporting Board issued PBE IFRS 9 Financial Instruments. This accounting standard updates the principles for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items.

The Crown has resolved to adopt PBE IFRS 9 Financial Instruments for financial statements prepared for periods beginning on or after 1 January 2018. Accounting for financial instruments, especially those with complex features, can be difficult. Among other things the standard deals with the classification of financial assets and financial liabilities, which can impact how they are measured in the accounts, impairment and hedge accounting items.

Under the Public Finance Act 1989 and the Crown Entities Act 2001, all government departments and Crown entities subject to s.161-164 are restricted from investing and borrowing activity. The application of PBE IFRS 9 to these entities is therefore likely to be limited to accounting for:

  • Debtors or receivables (including provisioning)
  • Term Deposits issued by a registered bank, or by any other entity that satisfies a creditrating test that is specified in the Crown Entities (Financial Powers) Regulations 2005.

In practice, the major impact is likely to be over the more detailed requirements for impairments of accounts receivable (provisioning for doubtful debts).

This guidance note has been prepared to provide practical and simple assistance for such entities to adopt and subsequently assert compliance with the requirements of PBE IFRS 9 Financial Instruments. It has been organised to provide advice on accounting for both of the issues above.

Treasury has consulted with the Audit Office in the preparation of this document.