This is the third edition of the New Zealand version of Craig Deegan's text “Australian Financial Accounting”. The successive New Zealand editions have all been co‐authored by Grant Samkin at the University of Waikato and relate the local reporting environment.
The book comes with an accompanying CD containing the solutions manual, PowerPoint slides and a test bank of questions for each chapter. The text is also helped by end‐of‐chapter exercises with comprehensive solutions.
The book groups the subject matter into nine parts:
- 1.
Part 1. The New Zealand Accounting Environment (confined to Chapter 1).
- 2.
Part 2. Theories of Accounting (Chapter 2).
- 3.
Part 3. Accounting for Assets (six chapters).
- 4.
Part 4. Accounting for Liabilities and equity (ten chapters).
- 5.
Part 5. Accounting for Cash Flows (one chapter).
- 6.
Part 6. Other Accounting Issues (four chapters).
- 7.
Part 7. Accounting for Equity Interests in Other Entities (five chapters).
- 8.
Part 8. Foreign Currency (two chapters).
- 9.
Part 9. Corporate Social‐Responsibility Reporting (one chapter).
There is a glossary of accounting terms and four appendices. Three of these deal with present value calculations and the fourth with accounting standard references.
The range of topics covered means this book can be used for both the traditional stage two and stage three financial accounting courses in New Zealand tertiary institutions.
This review will look at selected chapters (there are too many to review in detail) and offer comments on the content and appropriateness of the material covered. For example, Chapter 1 (66 pages) provides an overview of the New Zealand external reporting environment. Unfortunately, it was written in 2005 when a number of important underlying sources of reporting authority were being changed. For instance, International Reporting Standards were replacing the older New Zealand financial reporting standards, the Financial Reporting Act was being substantially amended and the differential framework was being reviewed. The result is that there is no clear statement of the current rules that underpin the New Zealand financial reporting environment. The discussion is largely a mix of the “old” and “new” requirements, with little comment on the likely authority of either. This is not the authors' fault and reflects the uncertainty of the issues in a period of rapid transition. Most of these problems have been clarified and a new edition should be able to present the current position much more clearly.
The overview of theories of accounting in Chapter 2 contains an adequate summary of the major approaches to accounting theory. For users of the text, especially at the stage three level, who wish to cover particular areas in more detail, the chapter may require to be supplemented by further readings.
Part 3, dealing with assets, has a useful overview on recording assets and further chapters on depreciation, revaluation, inventories, intangibles and heritage and biological assets. The depreciation chapter is good, as are the examples dealing with revaluations of Property, Plant and Equipment. The treatment of asset impairment lacks an adequate description and examples of how firms determine cash generating units (CGU) and how the allocation of the impairment losses to assets within the CGU is carried out. This lack of detail is carried over into Chapter 7 which deals with intangibles and describes the NZ IAS 38 “Intangible Assets” treatment of these assets. The impairment of goodwill, one of the major changes in the new international financial reporting regime, gets only a half page mention, though there is a relatively long discussion of the older amortisation requirements which are no longer relevant. This is an area requiring analysis given the recent large impairments of goodwill in companies like Vodafone, Telecom and The Warehouse. A detailed description of the determination of cash generating units and the allocation of purchased goodwill would have helped, along with examples of how goodwill amortisation is calculated. Another issue, the ability of group companies to recognise internally generated intangibles in consolidated accounts, but not at the individual company level, is also not explained in this chapter, nor in the later chapters dealing with consolidations.
The coverage in Chapter 9 of liabilities is good. Examples from NZ IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” are used and extended. The discussion and examples of accounting for leases in Chapter 10 is comprehensive and has examples covering most of the issues discussed. Chapter 11, which deals with debt defeasance, is confined to a discussion of the “old” New Zealand standard FRS 26 “Accounting for Defeasance of Debt” though it does recognise that the standard was withdrawn from 2007. The details of when debt items may be offset are now covered in NZ IAS 32 “Financial Instruments: Disclosure and Presentation”. It would have been better to have described the equivalent provisions in NZ IAS 32, which are the new authority on debt and debt set‐off rather than list the requirements of FRS 26, many of which have been superseded. The balance of the chapters in Part 4 have good coverage of their topics and there is recognition that for some areas, like financial instruments, the implications of the standards are still being developed. The last chapter in Part 4 deals with accounting for income taxes, an area where NZ IAS 12 “Income Taxes”, has prescribed a whole new approach to the problem. Generally the coverage is comprehensive and deals with the main issues. I found some of the worksheets to the illustrations in the chapter a little confusing and the explanation could be helped by redrafting some of these otherwise useful examples.
The chapters in Part 7, dealing with accounting for equity interests in other entities, have a good coverage of topics dealing with consolidations, equity accounting and joint venture accounting. The introduction to Part 7, Chapter 24, is not reader friendly. It starts with discussions of the development of standards on consolidated financial reports followed by alternative consolidation concepts. I found these detailed descriptions, before introducing the idea of how companies are consolidated, to be out of place. The chapter would have been better to start with the later descriptions and examples of consolidations, coming back to the development of standards, consolidation concepts and the concept of control.
The role of the standard dealing with “business combinations” would also have helped the explanation. Business combinations cover more than consolidations. For example, the acquisition of the assets and liabilities of a business is a business combination but not discussed in the text. These points are mentioned because assets in business combinations are accounted for using their fair values. The acquisition of assets not constituting a business combination are accounted for using the cost of these assets. There is an example of the latter in Chapter 3, but the important distinction between acquisitions at cost under NZ IAS 16 “Property, Plant and Equipment” and at fair values under NZ IFRS 3 “Business Combinations” is not clear enough.
The chapters on foreign currencies deal with transactions (Chapter 29) and translations (Chapter 30). They have both been substantially updated and deal nearly exclusively with the new requirements of NZ IAS 21 “The Effects of Changes in Foreign Exchange Rates”. The chapters deal extensively with the ideas of “functional” and “presentation” currencies which replace the older separation of integrated and independent operations. The explanation is good, but would have been helped by the inclusion of relevant notes from published accounts, to show the diversity of the problems faced. The chapters are focused. For example, Chapter 30 quotes paragraph 39 of NZ IAS 21, which contains the standard's direct instructions on how to apply the presentation currency when consolidating. The situations requiring specific methods of translation, always a problem, are spelt out and the different approaches linked with each other.
The overall conclusion gained from reviewing this edition of the text is that it is a significant improvement over the earlier editions. A major problem, that the time of writing coincided with a period of substantial changes in the New Zealand financial reporting environment, should no longer be an impediment. Most of the unsettled issues at the time of writing have largely been resolved and the next edition should reflect a much more definite picture. This book or its next edition should definitely be considered a contender for stage two and three financial accounting papers.
