Earlier this month, the Financial Reporting Act 2013 and the Financial Reporting (Amendments to Other Enactments) Act 2013 were enacted. These Acts repeal and replace the Financial Reporting Act 1993 and amend the provisions of a number of other statutes which contain financial reporting obligations for various entities.
The legislation was introduced to Parliament as part of the Government's Business Growth Agenda programme in July 2012. It has been subject to a number of amendments since its introduction. For details of these amendments, see our earlier client updates on the Financial Reporting Bill here, the Commerce Select Committee's recommended amendments here and the final changes made to the Bill last month under a Supplementary Order Paper here.
The key changes to be introduced by the two new Acts are:
All active companies that do not have an obligation to prepare general-purpose financial statements will be required to prepare financial statements at least to a special-purpose level specified by the Inland Revenue Department.
For New Zealand incorporated subsidiaries of overseas companies to be classified as "large", the above thresholds are reduced to NZ$20 million for the asset threshold and NZ$10 million for the revenue threshold.
Financial reporting requirements are split between different statutes – The financial reporting requirements for specific entities will be contained in the statutes which govern those entities, making financial reporting legislation more user-friendly. For example, the financial reporting obligations for "FMC reporting entities" will be included in the Financial Markets Conduct Act 2013. For companies which are not "FMC reporting entities", the financial reporting obligations will be included in the Companies Act 1993.
Reduced compliance obligations for small to medium sized companies – Most companies will no longer be required to prepare general-purpose financial statements. New Zealand companies will only be required to prepare general-purpose financial statements if they are:
- an "FMC reporting entity";
- public entities;
- have 10 or more shareholders and have not opted out of compliance; or
- have fewer than 10 shareholders and have opted into the requirement to prepare general-purpose financial statements.
Amended definition of "large" for New Zealand companies – The definition of "large" has been amended. A New Zealand company (other than a subsidiary of an overseas company) will be considered "large" (in respect of an accounting period) if at least one of the following applies:
as at the balance date of each of the two preceding accounting periods, the total assets of the company and its subsidiaries (if any) exceed NZ$60 million (the asset threshold); or
in each of the two preceding accounting periods, the total revenue of the company and its subsidiaries (if any) exceeds NZ$30 million (the revenue threshold).
Financial statement requirements for overseas companies – Overseas companies will only be required to prepare financial statements if they are an "FMC reporting entity" or a "large overseas company". In determining whether an overseas company is "large", the same thresholds apply as to New Zealand incorporated subsidiaries of overseas companies (i.e. the NZ$20 million asset threshold or NZ$10 million revenue threshold).
Registration requirements – Fewer companies will be required to register financial statements, with the registration requirement only applying to "FMC reporting entities", "large overseas companies" and "large" New Zealand companies with 25% or more overseas ownership.
Timing for preparation and filing of financial statements – The timeframe for preparing and filing financial statements has been reduced from five months and 20 working days after the balance date to four months.
Group financial statements only – Financial statements for a parent company do not need to be prepared if group financial statements are prepared. The External Reporting Board will determine any parent company reporting obligations.
Transitional provisions have been built into the new Financial Reporting Act provisions to allow time to implement various changes. The Financial Reporting Act 1993 will continue to apply to accounting periods that begin prior to the relevant sections of the new Acts commencing.
Timeline for FMC reporting entities
The Financial Markets Authority (FMA) has indicated that the new financial reporting requirements will apply to FMC reporting entities from 1 April 2014 as part of the first phase of the implementation of the Financial Markets Conduct Act 2013.
FMA will be issuing transitional guidance and its policies on exemptions under the new Acts as follows:
Click here to view table.
Timeline for other companies
There have been no specific announcements on the implementation timeline for the remaining provisions of the Acts. However, the Inland Revenue Department has indicated in a recent consultation paper that the new minimum financial reporting requirements for companies would apply for periods commencing 1 April 2014 and later.