Previous Insights

8 November 2022

Key Audit Matters Research Report

Understanding the communicative values and readability of audit reports

We commissioned the University of Auckland to undertake research into reporting practices for key audit matters (KAMs) to assess how the standard is being applied since it was first introduced in 2017. 

Commissioning this work is also driven by a need to understand the overall communicative value of KAM reports. Specifically, whether they can be easily understood and to what extent ‘boilerplate language’ is used. We also know that users find KAMs more useful when they are specific to the entity, so the ability to assess to what degree KAMs are entity specific or more generic is also valuable. Lastly, given the impact of COVID -19, we wanted to be able to have sight of what effect it has had on KAMs. 

We recognise auditors face a number of challenges when describing KAMs. Using concise but informative and accurate language is one such challenge. Avoiding standardised wording and keeping KAMs evolving when in many instances the same KAMs will arise each year is another problem auditors face. 

While the research does identify instances of repeated content, a balance of comparability and entity-specificity in the KAMs is evident. It is also worth noting that some repetition would be expected given many key risk areas are consistent year on year. 

However, the research also found that roughly half of the reports contained KAMs that may not be easily understood by all users. We recognise that KAMs are often about the most complex areas within financial statements, and frequently link directly to content in the financial statements, but we encourage auditors to continue to explore ways to enhance the communicative value and understandability of KAMs. 

We will continue our work to influence international standard setters as the debate on the future of audit continues.  The International Auditing and Assurance Standards Board (IAASB) is currently exploring the auditor’s responsibility in the financial statement audit - specifically with respect to fraud and going concern and we are closely monitoring the IAASB’s thinking and direction in this area. Should they decide to add more information into the auditor’s report, we will be interested to see what impact these will have on the communicative value and understandability of the auditor’s report. 

Download the research report here.

Previous insights

29 September 2022

Including climate-related matters in financial statements


Tips from our Technical Director of Accounting Standards, Charis Halliday

While accounting standards do not specifically mention climate, in today's world, it is important for both for-profit entities, and public benefit entities to consider the potential impact of climate-related matters in financial statements.

Climate change and the impact on an entity’s cash flows, financial position and performance, is receiving greater attention from investors, auditors, regulators, and other stakeholders. Later this year, we’ll be publishing specific requirements on climate-related risks and opportunities for climate reporting entities, so it is timely for us to clarify the existing requirements for Tier 1 and Tier 2 reporting entities.

What needs to be included?

Consistent with NZ IFRS’s and PBE IPSAS’s principles-based approach, accounting standards already require consideration of climate-related matters, when the effect of those matters is material in the context of the financial statements as a whole.

So, what do we mean by material?

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions made by primary users.

For more details on the application of materiality and how it relates to climate and other emerging risks have a read of this article by the IASB’s Nick Anderson. The IFRS Practice Statement 2 Making Materiality Judgements provides further guidance.

What areas might be impacted by climate risks and climate-related matters?

Climate-related matters could impact many aspects of your financial statements, for example they could be:

  • recognised within assets, liabilities, revenue and expenses, or included in cash flows, to the extent they relate to past events or transactions and meet the recognition and measurement criteria.
  • incorporated into judgments, estimates and assumptions underpinning the financial statements.
  • disclosed in accordance with specific requirements or overarching disclosure objectives in individual accounting standards.

You may need to apply significant judgement to identify considerations that are relevant to your entity.

Potential financial implications arising from climate-related and other emerging risks are also broad and can include, but are not limited to:

  • asset impairment (including goodwill);
  • changes in the useful life of assets;
  • changes in the valuation of assets;
  • changes in provisions for onerous contracts because of increased costs or reduced demand;
  • changes in provisions and contingent liabilities arising from fines and penalties; and
  • changes in expected credit losses for loans and other financial assets.

Find out more

As climate-related matters continue to evolve and entities take additional actions to address climate change, you’ll need to consider whether your financial statements have kept pace with this level of change.

If you work in the for-profit space I’d recommend starting with the IASB document “Effects of climate-related matters on financial statements” published in 2020. It sets out examples illustrating when IFRS Standards may require companies to consider the effects of climate-related matters in applying the principles in a number of standards and the disclosure implications.

Public sector entities can look at the 2020 IPSASB Staff Q&A “Climate Change: relevant IPSASB Guidance”. It highlights the relevant standards and guidance for the public sector. While the full document is not relevant to New Zealand entities, Question 7 is relevant to NZ Tier 1 & 2 public benefit entities as NZ PBE Standards are substantially aligned with the international public sector accounting standards discussed.

Closer to home, to see what Australian and New Zealand companies have recently disclosed on climate-related matters, have a read of these:

  • Research by CA ANZ, the University of Melbourne and the University of Queensland which has found that climate-related risks are impacting statutory financial statements, mainly in the areas of impairment of non-current assets, financial risks and to a lesser extent environmental restoration provisions.
  • CPA Australia has prepared a high-level guide on the identification, materiality assessment and integration of climate-related financial risks into an entity’s financial statements. While Australian focused, New Zealand entities may find the practical examples and questions helpful.

15 August 2022

The importance of service performance information


Why report service performance information?

Charities and other not-for-profit entities are a vital part of our society in Aotearoa New Zealand, supporting and encouraging those in need, enabling us to express our unique culture, to engage in sport and other meaningful activities, and care for our environment. The services of charities and other not-for-profit entities (PBEs) are in high demand, and PBEs need resources to achieve what the public expects of them. More than one in five New Zealanders work voluntarily for a charity or not-for-profit entity (giving 150 million + hours a year) and JB Were estimated PBEs receive more than $3.8 billion a year from individual and corporate philanthropy and grants. Significant public funds are also directed towards PBEs. There’s a lot of ‘stakeholders’ who are interested in how their money and other resources are making a difference in Aotearoa New Zealand. Until this year most of the focus on charities’ and not-for-profit entities’ annual reports has been on the dollars and cents, rather than non-financial information on the good work that they do. This has left a gap in meeting what stakeholders need to hear.

How do we report service performance information?

If the charity or not-for-profit entity you work or volunteer for is a Tier 1 or Tier 2 PBE (generally it has more than $2 million in annual expenses), a new reporting standard (PBE FRS 48 Service Performance Reporting) came into effect this year to enable you to expand your reporting to fill this gap. Service Performance Reporting presents an invaluable opportunity to tell your complete story.  As important as financial reporting is, often the most significant activities of a PBE can be better communicated through non-financial information.

PBE FRS 48 establishes principles and high-level requirements rather than specifying detailed reporting requirements. We know that charities are unique, and the principles provide flexibility to express that unique narrative. PBE FRS 48 asks you to articulate contextual information such as why your organisation exists, your organisation’s vision and how it will go about delivering on that. This helps you communicate your entity’s key achievements and demonstrate the difference that has been made to those all-important funders, donors, volunteers, and clients – all this in the same annual report as the financial statements.

How do we choose the best information?

Many charities and not-for-profit entities already check regularly that what they are doing is having the difference they expect. Internally, this monitoring helps improve processes and practice, and ensures the entity is working towards its goals. While this data will be invaluable as inputs to your service performance report, an annual report is aimed at external stakeholders, who need a complete and balanced picture of your entity’s achievements without being overwhelmed with too much information. There’s always a lot going on, and many entities describe service performance reporting as a ‘journey’ as they make choices about what to report and in how much detail. It’s critical that your Board and management team become involved early on in discussions and decisions about what you will report. You’ll also want to spend time thinking about how best to present your information so that it is engaging to read and gets your story across.

Rather than being a compliance exercise; if you really embrace it, service performance reporting is a valuable opportunity to tell your unique performance story of the wider impact your entity has on your community. Start work now to make the most of your reporting on service performance and ensure your annual report tells your unique story!


Carolyn Cordery

Carolyn is Chair of the XRB’s Accounting Standards Board and Adjunct Professor at the School of Accounting and Commercial Law at Victoria University of Wellington.

Editor’s note:

PBE FRS 48 is effective for financial reporting periods beginning on or after 1 January 2022. Service performance information for the previous period is required, including in the year of adoption. The XRB have produced a short guide to help you get started.

9 May 2022

Sunlight is the best disinfectant - The case for transparency and accountability in the charities sector


Think piece from Craig Fisher – Chair of the XRB's External Advisory Committee

Charites, large and small, do fantastic work in Aotearoa New Zealand. Many people, myself included, see them as an essential part of the glue that holds our communities and society together. As such, they should be supported.  

Support in New Zealand comes in many forms. Financially from generous individuals, businesses, and philanthropic trusts and foundations. In addition, our legislation and regulation in New Zealand mean that it is, by international comparison, very easy to establish a charity and for it to apply for, and be granted, charitable status.    

The main benefits of charitable status are primarily twofold: 

  1. Exemption from income tax
  2. Public recognition as a registered charity  

Exemption from income tax is effectively the Government granting, on behalf the general tax paying public, a tangible financial benefit (i.e. not having to pay 28% income tax like a business) to help support a charity’s mahi. A related additional financial benefit granted by the Government is donee status meaning that donors can get a tax rebate for their donation generosity. 

Having registered charity status is also very valuable for a charity’s credibility. It helps confirm to the general public the charity’s social licence to operate as charitable and helps engender trust in the charitable sector.  

A quid pro quo for the benefits

Legislative reforms regarding charities in New Zealand from 2005 onwards clarified that if a charity is to gain the considerable benefits of registered charity status, then an appropriate level of accountability and transparency to the tax paying public is required. In effect, it is the quid pro quo for the considerable benefits of registered charitable status.  

Key planks of the accountability and transparency would be delivered primarily by the creation of a public register, maintained by Charities Services, containing freely searchable information on all registered charities. Significantly this would include annual financial statements of each charity prepared in accordance with the appropriate accounting standards.  

Understandability and comparability are key features of transparency. The requirement to follow appropriate accounting standards assists with this.   

However also recognised was the very different sizes and complexity of our charities in New Zealand. Hence our 4 tiers of financial reporting standards which are essentially different levels of complexity for different sizes of charities – a pragmatic NZ “horses for courses” approach.

But do the compliance costs outweight the benefits?

With any system of tiers someone has to draw a line. And whenever you draw a line, some people will be unhappy. There will be grumbles of unfairness. However, in my personal view we have drawn the lines pretty fairly in this case.   

The other common grumble is the cost to comply: “But it is too hard”  “The compliance costs are too much for us”. 

I can personally attest to the considerable amount of very thoughtful effort which has gone into ensuring the reporting requirements are appropriate. In addition to this, helpful guidance, templates etc are also provided.    

The XRB is also undertaking a review of Tier 3 & 4 requirements, and anyone can engage in this process and have their say.  

I am aware that some in the charity sector remain unconvinced and still want to complain about the effort of compliance. However, in my mind, the answer is simple: No-one is forcing you to be a registered charity. It’s ultimately your choice. There are clear advantages to being a registered charity such as the income tax exempt status and public credibility. And if an entity wants to avail itself of these potentially considerable advantages, then there will be some compliance required.   

Quite simply this compliance is the “tickets to the game”.


As a proud New Zealander, I want to ensure we continue to have a strong, vibrant, wellsupported charitable sector for the health of our society. 

As a taxpayer and donor to charities, I want to ensure my charitable and public funds are being appropriately used and that there is appropriate accountability and transparency by charities for the benefits their status gives them. 

We have to strike a balance. We have to draw those difficult lines.  


About the Author

Craig Fisher FCA is a former audit partner and now Consultant at RSM. Craig chairs the XRB's External Reporting Advisory Panel. The views expressed here are his own.

Contact Craig on:

D: +64 21 899 848



Editor’s note:

The XRB have recently launched their consultation on Tiers 3 & 4 Not-for-Profit reporting standards. Read more here


31 March 2022

Disclaimers of opinion - last resort for auditors


An audit report is not an evaluation of whether an entity is a good investment but is focused instead on the integrity (material truth and fairness) of an entity’s financial statements. As such, auditors have a professional obligation to provide a level of comfort as to whether the financial statements fairly and accurately reflect the operations of an entity during the relevant period.  

Due to COVID-19 and the uncertainty that its created, we’re starting to see more modifications being made to audit reports, including disclaimers of opinion. 

What is a disclaimer of opinion?

This type of audit report modification is only used when the auditor has exhausted all avenues to get the evidence needed to form an opinion that provides some level of comfort over the financial statements.

Why is a disclaimer of opinion given?

There are several reasons why an auditor might issue a disclaimer of opinion.  

Missing or unreliable financial information can be a driver and includes things like gaps in the financial records, such as details of significant transactions being lost due to changes in key personnel or misplaced records. 

Significant inherent uncertainties can also contribute to an auditor issuing this type of modified opinion. For example, a disclaimer of opinion will be issued where there is significant uncertainty relating to going concern. In this instance, an auditor may have concerns about the level of uncertainty surrounding future cash flow forecasts or the future forecast borrowing levels of an entity. This has been exacerbated in the current COVID environment due to the uncertainty around future operating conditions for many entities due to lock downs, border closures and red light settings.

An inability by the auditor to complete all the audit procedures required for significant balances might also cause the auditor to disclaim. The auditor may not have been appointed until after the inventory count was completed and is unable to substantiate inventory balances by normal and/or additional procedures.

Where balance dates have occurred during COVID-19 lockdowns, we’ve seen auditors go to extraordinary lengths to complete inventory stock takes from a safe distance, such as using drones to verify inventory levels, to avoid the need to issue a disclaimer. Some auditors have performed inventory counts at a time other than year end with additional procedures to cover the intervening period, to ensure that they can get comfort over inventory balances.

Not given lightly

It is important to highlight that although we’re seeing more disclaimers of opinion than in pre-COVID times, we would expect this type of modified opinion to only be issued as an absolute last resort.

An auditor will only issue a disclaimer when they have exhausted all reasonable means to issue an opinion which provides a greater level of comfort to users of the financial statements. They’re also not done at the stroke of a pen - rigorous quality management and approval processes exist that audit firms work through before a disclaimer can be issued.  I can assure you auditors are doing their absolute best to ensure that disclaimers of opinion are the exception rather than the rule.

John Kensington is a Member of the External Reporting Board and Vice Chair of its Auditing and Assurance Standards Board.

Editor’s note:

The External Reporting Board (XRB) receives modified audit reports due to statutory requirements. All modified audit reports received are reviewed to inform decisions about whether changes to accounting or assurance standards need to be made.
This review by the XRB provides another check and balance in the financial reporting eco-system which ensures the standards issued by the XRB are fit for purpose.


27 January 2022

Michele Embling - Chair of the External Reporting Board  

Delivering on our vision of achieving prosperity for New Zealand, through effective decision making informed by high-quality reporting, requires us to work across all sectors of the economy, and engage with a broad range of stakeholders. Our adoption of international standards to support firms to be competitive and comparable on the global stage is critical to ensuring New Zealand’s capital markets thrive. The Not-for-Profit and Public sectors make an important contribution to the well-being of New Zealanders extending beyond monetary value. The reporting standards we set play a vital role in ensuring transparency, accountability and trust in these sectors is maintained.  
Developing and issuing reporting standards is not a one-way street. We must continuously strive to maintain a balance between the quality of the standards with their practical application and use. This requires us to talk, and more importantly, to listen. I am continuously impressed by the willingness of individuals and organisations to help us achieve that balance. Whether that’s by giving feedback, collaborating with us to develop new and innovative solutions, contributing technical expertise, or in the case of our climate-related disclosures work, supporting us to engage with new and different stakeholders. On behalf of my fellow Board members, and the XRB, I would like to say thank you to all of you for your invaluable support.  
Ehara taku toa
i te toa takitahi
Engari, he toa takitini
Success is not the work of one, but the work of many.