Clarification details
Updated December 2016. This document has been updated to address issues that have arisen from moderation.
This is the only Accounting standard that requires students to ‘prepare a report’. Students are to write a formal structured report with an executive summary (introduction), body (interpretation) and conclusion (recommendation). The student should acknowledge sources of quoted material and provide a bibliography.
Context
It is not necessary for the entity to be listed on the NZX, however it must have public accountability in NZ, for example a regional council. The external end user should be identified in the introduction and their particular interests/needs should be referenced in the student’s report and eventual recommendation. The focus is on taking an holistic look at the entity relevant to three areas:
- Profitability, relevant to the user’s needs
- Cash management and liquidity, as relevant to the user
- Specific information/interpretation relevant to the user’s needs from annual report and wider sources (such as website and the media), e.g.:
- Union seeking a wage rise - profitability, employee benefits
- Potential employee - employee benefits, training opportunities
- Local environmental group - sustainability and triple bottom line report
- Potential investor - market analysis
Interpretation
There is no requirement for students to calculate any ratios or percentages. Such results, relevant to the context, should be provided to the students. Discussion of profitability, cash management and liquidity should not be confined to specific ratios or percentages. Instead, students should focus on performance aspects relevant to the user’s needs.
The main body of the report should incorporate the key economic activities of the entity, that is, the day-to-day business. For example, the discussion of cash management and liquidity needs to be interrelated in regards to what business decisions were made and how these resulted in net cash inflows and/or outflows and the effect on overall liquidity.
Relevant financial and non-financial information should be discussed for Merit. A comprehensive report at Excellence will also discuss wider economic issues relevant to the context, such as those found in the annual report and the media.
Conclusion
The report is concluded with a recommendation that addresses the end user’s issue. This is accompanied with reasons for Merit, and justifications for Excellence. At Excellence, limitations of the report should also be discussed.