Accounting considerations after significant weather events
26 April 202
New Zealand has experienced several significant natural disaster events in 2023, already.
On 10 and 11 January, Cyclone Hale caused widespread flooding and slips, most notably through Coromandel and Tairāwhiti regions.
On 27 January, an extreme weather event caused severe flooding in Tāmaki Makaurau resulting in significant property damage including the loss of four lives.
On 14 February, Cyclone Gabrielle caused catastrophic damage and the loss of eleven lives through landslides and flooding throughout Northland, Tairāwhiti and Hawke's Bay.
With the 31 March 2023 balance date just passed, and the 30 June 2023 balance date approaching, entities should also be thinking of the impact on their financial statements.
Accounting for damaged assets may come to mind but the widespread impact of these events means that it won’t always be immediately clear what the impacts are, and some impacts might not surface until later. We are seeing accounting decisions and judgements happening in these areas:
Where inventory has been damaged and not yet disposed of, there would be the expectation of writing those assets down to net realisable value;
For items of property, plant and equipment, entities must consider if there are indicators of impairment, and appropriately write down assets where there is an impairment loss.
Where assets are measured at fair value, the sources of those fair values or the data that drives valuations must be challenged and reassessed. This includes assessing the current state and condition of assets and regional differences in data and sources of fair value specific to those assets.
The accounting decisions and judgements will go beyond just the physical damage to assets. Many entities will have supply chain disruptions, be unable to operate for long periods, or have customers impacted by these events. All of these will impact judgements made in assessing assets for impairment, along with the entity’s own ability to continue as a going concern. Previous going concern assessments and forecasts should be continually revised and updated to support the going concern assumption in preparing financial statements.
For those entities with insurance policies, there are strict rules on when assets related to insurance can be recognised. This is a very high threshold requiring the insurance amount and payment to be virtually certain.
Find out more about these accounting issues in detail in our upcoming Financial Reporting Update webinar on 4th May 2023. This session is focused at for-profit entities and we will be delivering a not-for-profit focused session over the coming months.
To speak to an expert on your specific circumstances, contact our Findex Accounting team here.