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Managing impacts on financial reporting for FMC reporting entities and Managed Investment Schemes

Page last updated: 26 Mar 2020

COVID-19 is having a significant impact on many FMC reporting entities, including Managed Investment Schemes, and their auditors.

The rapidly evolving situation is increasing challenges and risks related to financial position and financial performance. This may result in practical difficulties for entities and schemes when preparing financial statements and completing audit engagements in line with legislative requirements.

Challenges include:

  • uncertainties relating to the impact of COVID-19 on valuation of assets and liabilities, which will impact the ability to prepare financial statements
  • access limitations as a result of remote working arrangements, health, safety and wellbeing considerations, and domestic and international travel restrictions.

Financial statements of FMC reporting entities and schemes are a key source of information for investors, so it is critical that these documents include appropriate disclosures and that audit quality is not compromised.

In the current circumstances, entities should disclose assessment of, and plans for addressing, material risks to the entity’s activities, operations and future prospects. The disclosure should be based on both qualitative and quantitative assessment of the impact, and should be sufficient to keep investors and markets informed of material developments.

FMC reporting entities and their directors should consider the following when preparing financial statements:

  • Ensuring financial reporting and review processes are as robust as practicable in light of the circumstances.
  • Continuously assessing and documenting the impact of COVID-19 on the entity’s financial position and financial performance, including the impact on the accounting considerations and conclusions.
  • Assessing and documenting in detail the assumptions and estimates used, including, for example, those relating to forward-looking information, accounting for financial instruments, the fair value determination and impairment testing.
  • Conducting and documenting in detail relevant assessments of the areas of significant accounting judgements and estimation uncertainties. This includes documenting the well-reasoned rationale, basis and reasonableness for all inputs and considerations used.
  • Documenting in detail considerations and discussions by the Board and audit committee about relevant assessments, estimates and uncertainties relating to COVID-19 that impact the financial statements. This should include discussions relating to the appropriate and adequate level of disclosure in the financial statements.
  • Assessing whether events occurring after the balance date but before the financial statements are issued require disclosure or a possible recognition (for example, relevant provision).
  • Assessing and documenting the impact of COVID-19 on the entity’s ability to continue as a going concern and the overall prospects of the entity.
  • Ensuring that both qualitative and quantitative disclosures in the financial statements regarding the impact of COVID-19 are complete and provide readers with adequate information that is material and relevant. This should include disclosing information beyond what is required by the accounting standards, where it is necessary for providing a complete picture of the impact of COVID-19.
  • Frequently engaging with the auditor regarding the impact of COVID-19 on the entity’s business, activities and financial reporting, including the application of the accounting standards and the level of disclosures in the financial statements.

Financial reporting obligations

Considering the extreme circumstances, the FMA is providing regulatory relief, by way of a class exemption, which will allow FMC reporting entities and schemes who are impacted by COVID-19 an additional two months to produce their audited financial statements. This relief applies to entities and schemes with balance dates between 31 December 2019 and 31 May 2020. 

When encountering barriers to completing the audited financial statements in a timely manner

Where entities and schemes anticipate delays beyond the required reporting timeframes, we expect these entities to promptly contact their regulators (NZX, the FMA, the Reserve Bank of New Zealand and/or the Supervisor) to notify them of the delay and the reasons for that.

After ensuring the safety and wellbeing of staff, the focus of entities in relation to financial reporting during the COVID-19 pandemic should remain on providing investors with reliable information.

If you have any questions please contact the FMA at questions@fma.govt.nz.