FIRSTMATE BLOG: CAPTAINS LOG

Changes to Financial Reporting Requirements for Companies29.05.2014

Financial statements are widely used by investors, Inland Revenue, Banks and other financial institutions to gather information on various entities. While the benefits of financial statements as an information source for businesses are highly valued, the compliance and preparation of the statements can sometimes be an onerous task for some small to medium-sized businesses.

The Financial Reporting Act 2013 and Companies Act 2013 have just been amended to simplify the financial reporting requirements of small companies.

As of 1 April 2014, companies with annual revenue of $30 million or less and assets of $60 million or less will no longer be required to prepare general purpose financial reports. Entities which fall into this category will instead be required to prepare special purpose financial reports. The minimum requirements for the special purpose financial reports have been set by Inland Revenue through an Order in Council.

The general premise behind the changes is to reduce the compliance costs for small to medium-sized business with annual revenue between $2 million and $30 million.

Certain companies will continue to be required to prepare general purpose financial statements:

o A FMC Reporting Entity. This is a new term which includes most entities previously known as issuers and also other investment management entities (where securities are offered to the public).
o Large NZ companies (i.e. companies with revenue over $30 million or assets over $60 million).
o Large overseas companies or NZ subsidiaries of overseas companies (i.e. companies with revenue over $10 million or assets over $20 million).
o Public entities (e.g. SOEs)
o Companies with 10 or more shareholders (unless they opt out).
o Companies with fewer than 10 shareholders who opt in.

While the changes aim to simplify reporting requirements from an accounting perspective, in many instances this will not be the case. Inland Revenue will still be expecting financial statements to be prepared to the minimum standard the Department has set out. In fact some disclosure areas in which the Inland Revenue will now need businesses to report on are wider than had GAAP applied. Further, banks and financial institutions will continue to require the same level of information and assurance from customers as they have done in the past.

The new rules have also introduced some changes to when entities are required to file financial statements with the Companies Office. For accounting periods commencing after 1 April 2014, only FMC reporting entities, large overseas companies or subsidiaries and large NZ companies with 25% or more overseas ownership are required to lodge their financial statements with the Companies Office.

Another important point to note is that the due date for having financial statements filed has also been brought forward for some entities. Previously, all entities had five months and twenty working days after balance date to file. Going forward, FMC Reporting entities will be required to file within four months of balance date.

Although heralded as a compliance cost reduction measure, the reality is somewhat different. For the most part, the same level of financial reporting will continue to apply for most businesses in order to satisfy the requirements of both the Inland Revenue and banks.

back