Guidance for financial reporting by electricity distribution businesses in 2025

These amendments apply for annual reporting periods beginning on or after 1 January 2024.

These amendments enhance the required disclosures for fees incurred for services received from each audit or review firm.

Tier 1 reporting entities are required to disclose the fees incurred for services received from its audit or review firm, and a description of each service, using the following specified categories:

1. audit or review of the financial statements; and
2. each type of other service performed by the entity’s audit or review firm during the reporting period, using the following categories:
   • audit or review related services;
   • other assurance services and agreed-upon procedures engagements;
   • taxation services; and
   • other services.

As well as disclosing the quantum of the fee for each category, entities are also required to disclose the nature of the different services performed. Although FRS-44 contains comprehensive guidance, categorising certain services could involve judgement. If you are unclear about which category to use, you should consult with your auditor.

The standard now also clarifies that, for the purposes of these disclosures, the fees for services received from the audit or review firm are based on the amount of fees expensed during the reporting period.² This includes any disbursements incurred in connection with the services. Common disbursements include travel or accommodation costs and the costs of subject matter experts. Because the amendment must be applied retrospectively, comparative information is also required.

Reduced Disclosure Regime

Tier 2 entities have reduced disclosure requirements. However, those entities are still required to disclose the total fee for the audit or review of the financial statements and, separately, the total fee for all other services provided by the entity’s audit or review firm, along with a general description of these services.

An example disclosure is included in the Appendix.

These amendments apply for annual reporting periods beginning on or after 1 January 2024.

These amendments to NZ IAS 1 clarifyhow covenants that an entity must comply with within twelve months after the reporting period affect the classification of a liability as current or non-current.

Only covenants that an entity must comply with on or before the reporting date affect the classification of a liability as current or non-current. This is the case even if compliance with the covenant is assessed only after the reporting period (for example, a covenant based on the entity’s financial position at the end of the reporting period but assessed for compliance only after the reporting period).

The amendments also improve disclosure of the information an entity provides when its right to defer settlement of a liability for at least twelve months is subject to compliance with covenants within twelve months after the reporting period. In such situations, the entity shall disclose information in the notes that enables users of financial statements to understand the risk of the liabilities becoming repayable within twelve months after the reporting period, including:

• Information about the covenants, including the nature of the covenants and when the entity is required to comply with them and the carrying amount of related liabilities.
• Facts and circumstances, if any, that indicate the entity may have difficulty complying with the covenants — this could also include the fact that the entity would not have complied with the covenants if they were to be assessed for compliance based on their circumstances at the end of the reporting period.

The amendment must be applied retrospectively.

These amendments apply for annual reporting periods beginning on or after 1 January 2024.

The amending standard Supplier Finance Arrangements introduces disclosures to enhance the transparency of an entity’s supplier finance arrangements and their effects on its liabilities, cash flows, and exposure to liquidity risk.

An entity is required to include additional disclosures for their supplier finance arrangements in aggregate, including the terms and conditions of the arrangements, carrying amounts and associated line items subject to a supplier finance arrangement (including disclosure of those that have already been paid by the finance provider), the range of payment due dates for these and comparable trade payables not part of a supplier finance arrangement, and the type and effect of non-cash changes in the carrying amounts of the financial liabilities disclosed under these requirements.

Reduced Disclosure Regime

Tier 2 for-profit entities are exempt from all of the new disclosure requirements.

This amendment applies for annual reporting periods beginning on or after 1 January 2024.

This amendment applies to sale and leaseback transactions that are accounted for as a sale under NZ IFRS 15 Revenue from Contracts with Customers.

In subsequently measuring the lease liability, a seller-lessee shall determine the lease payments in a way that it would not recognise any amount of the gain or loss that relates to the right of use retained by the seller-lessee.

However, this amendment does not prevent the seller-lessee from recognising in profit or loss any gain or loss relating to the partial or full termination of a lease.

This is applied retrospectively, in accordance with NZ IAS 8, to sale and leaseback transactions entered into after the date of initial application. The date of initial application is the beginning of the reporting period in which the entity first applied NZ IFRS 16.

NZ IFRS 18 introduces new requirements to improve how information is presented in the financial statements – in particular, information in the statement of profit or loss.

NZ IFRS 18 will replace NZ IAS 1 Presentation of Financial Statements once it becomes mandatory for the period beginning on or after 1 January 2027.

Key changes include:

• New requirements to classify income and expenses into defined categories in the statement of profit or loss.
• Introduction of two new defined subtotals in the statement of profit and loss: “Operating Profit” and “Profit or Loss before Financing and Income Taxes”.
• Enhanced requirements for the disclosure of information about management-defined performance measures (that is, non‑IFRS defined measures).
• Enhanced requirements and principles for the location of information and the aggregation/disaggregation of information in the primary financial statements notes.

Early adoption is permitted for accounting periods that end after the Standard took effect on 20 June 2024.

The standard applies retrospectively, so EDBs need to consider the impact on financial reporting in advance of the application date, as for some this may require setting up new systems or changes to existing systems.

The XRB are seeking feedback (via an Exposure Draft) on proposed Reduced Disclosure Regime concessions for Tier 2 for-profit entities on certain new disclosure requirements.

These amendments apply for annual reporting periods beginning on or after 1 January 2026.

Amendments to NZ IFRS 9 Financial Instruments and NZ IFRS 7 Financial Instruments: Disclosures include:

1. Amendments to clarify classification of financial assets with environmental, social, and corporate governance (ESG) and similar features – in respect to whether these features affect whether an asset is measured at amortised cost or fair value.
2. Financial liabilities settled via electronic payment – option to derecognise the liability before cash is delivered on “settlement date”, if specified criteria are met.
3. New disclosures for investments in equity instruments designated at FVOCI and for financial instruments with contingent features.

Tier 2 for-profit entities are exempted from some of the new disclosure requirements.

These amendments apply for annual periods beginning on or after 1 January 2028. This has been deferred from 1 January 2025. Early adoption is permitted for accounting periods that begin before 1 January 2025 but have not ended or do not end before 20 June 2024.

The amendments to NZ IFRS 10 and NZ IAS 28 to the accounting for a sale or contribution of assets between an investor and its associate or joint venture require entities to recognise a full gain or loss when the transaction involves a business. Entities recognise a partial gain or loss when the transaction involves assets that do not constitute a business.

This includes when the business or assets are housed in a subsidiary.

These amendments apply for annual reporting periods beginning on or after 1 January 2025.

The amending standard defines when a currency is exchangeable and introduces new requirements, guidance, and disclosures relating to estimating the spot exchange rate when a currency is not exchangeable.

Currencies that are not exchangeable includes those where there are strict government controls, such as the Venezuelan Bolivar.

This amends NZ IAS 21 and NZ IFRS 1 and will likely have limited application to EDBs.

Tier 2 entities are exempt from some of the new disclosure requirements.

The amendments apply for annual reporting periods beginning on or after 1 January 2026.

In December 2024, the International Accounting Standards Board (IASB) issued targeted amendments to help companies better report the financial effects of nature-dependent electricity contracts, which are often structured as power purchase agreements (PPAs). XRB consultation on the New Zealand equivalent amendments has closed but these amendments have not yet been issued by the XRB at the date of this commentary.

PPAs can be broadly grouped into physical or virtual PPAs. Physical PPAs are contracts in which a generator delivers a specific volume of electricity to a customer at a specific price. Under these agreements the customer pays the generator directly for the whole amount of electricity purchased.

Virtual PPAs are contracts in which a generator and a customer sell/purchase electricity to/from the grid at the current market price and settle the difference between the market price of the electricity and the agreed upon price, typically to fix the price.

Both fall within the scope of IFRS 9. Physical PPAs may qualify for the “own‑use” exception, allowing them to be accounted for as an ordinary sale/purchase. Virtual PPAs meet the definition of a derivative or could be a cash flow hedge if conditions are met.

The primary issue for both is whether entities can accurately predict the volume of electricity required, so it can be challenging to meet the conditions of the “own‑use exception” or hedge accounting, in which case these are accounted for as derivatives which can have a volatile impact on profit and loss.

The targeted amendments are to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. The amendments include:

• Clarifying the application of the “own‑use” requirements.
• Permitting hedge accounting if these contracts are used as hedging instruments.
• Adding new disclosure requirements to enable investors to understand the effect of these contracts on a company’s financial performance and cash flows.

Certain entities overseas can apply the amendments earlier.