Part 5: Other matters arising from our audits

Results of our 2019/20 audits of port companies.

In this Part, we comment on other matters arising from our 2019/20 audits of port companies. We discuss:

Environmental impact disclosures made by port companies

Some disclosure is happening

Changes to the environment, such as larger and more intense storms and rising water levels, can significantly affect port companies. Port companies also need to consider the impact they are having on the environment.

We reviewed the information port companies provided in their annual reports about how they are managing their environmental impact. Most port companies included disclosures in their annual reports about a variety of matters. We summarise some of them below.

Three port companies30 disclosed in their annual reports that they have prepared environmental strategies that are aligned with the United Nations Sustainable Development Goals.31 This is helping them determine where to focus their efforts.

Port companies are increasingly mindful of their carbon footprint. Several port companies have disclosed their current carbon footprint in their annual reports and the mitigations they have put in place, or are putting in place, to reduce them.

Mitigations include decarbonising their vehicle fleets but this is more difficult for some vehicles (such as straddles). Some port companies have goals of producing zero emissions by 2040 or 2050.

Some port companies' annual reports included a focus on improving the marine environment by monitoring water quality and their discharges into water. This focus will assist the port companies in determining future improvements to their stormwater management.

Additional disclosures on climate risks might be needed

The Government has recently announced that certain organisations will be required to report on climate risks. These reporting requirements will be based on the Task Force on Climate-related Financial Disclosures framework, which is widely acknowledged as international best practice. Affected organisations will need to make annual disclosures about their governance arrangements, risk management, and strategies for mitigating any climate change impacts.

If Parliament approves these new requirements, they will affect several port companies.32 The types of disclosures required will likely be more detailed than what port companies already disclose in their annual reports.

We encourage affected port companies to start considering what information they will need to disclose and what information they will need to collect to meet the reporting requirements.

Accounting for inland ports and freight hubs

As noted in paragraph 1.15, several port companies operate inland ports and freight hubs. Because of concerns raised with us previously, we considered during 2019/20 how port companies should account for these types of operations in their financial statements.

Inland ports are a direct extension of a seaport and are considered integral to the port's operations. Inland ports offer cargo customers an alternative delivery point and thereby help to increase the volume of cargo moving through the seaport.

Freight hubs offer logistics services by providing facilities and services such as warehousing, cross docking, cold storage, and providing and storing empty containers. Third parties operate and lease these services and facilities. The third parties will not necessarily provide these services and facilities to a port company or its customers.

Although inland ports and freight hubs seem similar, they are different in substance and require different accounting treatments.

Inland ports are owner-occupied property and are accounted for in keeping with NZ IAS 16: Property, Plant and Equipment. Freight hubs, on the other hand, are not owner-occupied and are accounted for in keeping with NZ IAS 40: Investment Property.

We are satisfied that all port companies that currently operate inland ports and freight hubs are correctly accounting for them in their financial statements. Port companies that operated both inland ports and freight hubs had correctly applied the accounting rules. They had appropriate factors in place that management could use to determine how the different assets should be treated.

Accounting for inland ports and freight hubs can be a matter of significant judgement for port companies. We have asked our auditors to confirm that port companies that have subsequently set up these types of operations are also accounting for them correctly.

Disclosures of major customers by port companies

Listed companies must comply with NZ IFRS 8: Operating Segments (NZ IFRS 8). The core principle of NZ IFRS 8 is that an organisation must disclose information to enable readers of its financial statements to evaluate the nature and financial effects of the business activities that it engages in and the economic environments it operates in.

This is important for listed companies. They are typically large companies that can operate in different industries and locations in New Zealand and internationally.

Paragraph 34 of NZ IFRS 8 requires an organisation to provide information about the extent to which it relies on major customers. Specifically, an organisation is required to disclose the total amount of revenue it receives from each single external customer that contributes to more than 10% of its revenue.

Of the listed port companies, South Port New Zealand disclosed this in its financial statements. Port of Tauranga did not include the disclosure. Marsden Maritime Holdings was not required to make this disclosure as they did not have any qualifying customers in 2019/20.

We consider that, although port companies should ordinarily make this disclosure, it provides limited information to the readers of the financial statements. This is because the user of the port decides which shipping company (which the port company receives revenue from) transports the freight through the port, rather than the port company. Therefore, the port company relies more on its major users than on its major customers.

We encourage port companies listed on the NZX to improve their disclosures by summarising their reliance on the major users of the port. In our view, including this information alongside the major customer information required by NZ IFRS 8 will provide more meaningful information to readers of their financial statements.

30: These are CentrePort, Ports of Auckland, and Port of Napier.

31: For more information about the sustainable development goals, see

32: All issuers listed on the NZX will be required to comply with the new climate-reporting requirements. This will include the listed port companies and port companies that are owned by listed organisations.