New Zealand

Details

  • Service: Audit, Advisory, Accounting Advisory Services
  • Type: Business and industry issue
  • Date: 1/08/2012

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Simon Lee

Simon Lee

Technical Director, Accounting Advisory Services

+64 4 816 4678

  

Reporting update – Financial reporting bill 

Welcome to a special edition of KPMG's Reporting News, focusing on the key aspects of the Financial Reporting Bill (the Bill) as it relates to companies. We plan to provide further updates about the impacts of the Bill on our website or in future newsletters as the Bill passes through the legislative process. Watch this space.

Overview


The Bill, introduced on 31 July 2012, will replace the current Financial Reporting Act. It outlines the substantive changes to the financial reporting requirements of entities operating in New Zealand and includes consequential amendments to many other Acts.

 

The aim of the amendments is to improve the financial reporting system by reducing compliance costs and to streamline the financial reporting requirements for entities required to prepare general purpose financial statements.

 

The overriding principle is to ensure that external users who have a need for an entity’s financial statements have access to that information when they are unable to demand it.

 

It should be noted that the financial reporting requirements for Issuers remain largely unchanged, but will likely be included in the Financial Markets Conduct Act 2011. The discussion below focuses on companies other than issuers.

 

Requirement to prepare financial statements

 

The requirement to prepare general-purpose financial statements will apply to:

 

  • Large companies and large overseas companies that carry on business in New Zealand. Large is defined as assets exceeding $60m OR revenue exceeding $30m (assessed over the 2 preceding accounting periods).
  • Companies with 10 or more shareholders unless, through a 95 % majority vote, the company opt out of compliance.
  • Companies with fewer than 10 shareholders if shareholders who hold at least 5% of the voting shares require the company to comply.

 

In addition:

 

  • Financial statements must be prepared in accordance with GAAP within 3 months of the balance date (rather than 5 months as is currently the case).
  • Parent entity financial statements will no longer be required if group financial statements are prepared.
  •  In respect of section 211 disclosures in annual reports, the threshold has been reduced. Shareholders who hold at least 95% of the voting rights will be able to agree to exclude information from the annual report; previously unanimous agreement was required.

 

Requirement to audit financial statements

 

The audit requirement applies to the same companies as noted above and the same opt-in and opt-out provisions apply.

 

In addition:

 

  • Large companies (other than those that are required to register their financial statements) can opt out of the audit requirement through a 95 % majority vote.
  • Audits must be carried out in accordance with auditing and assurance standards (but the Registrar can recognise overseas standards).
  • An auditor is required to be appointed only if the financial statements or group financial statements of the company are required to be audited.

 

Requirement to register financial statements

 

The registration requirement for overseas companies has been consequentially restricted to large overseas companies and large companies with 25 % overseas ownership (consistent with the current requirements).

 

In addition, any company that is a subsidiary of an overseas entity and that is required to prepare financial statements must register its financial statements.

 

Initial thoughts about the impact on other entities

 

Charities will be required to prepare financial information in accordance with generally accepted accounting practice. Currently, there are no requirements for the content of this financial information.

 

Large partnerships will have to prepare financial information in accordance with generally accepted accounting practice. This information should be audited unless the partnership opts out of compliance by passing a resolution by partners who together have contributed at least 95% of the capital.

 

We will provide a detailed overview of the impacts on other types of entities in a future newsletter or on our website.

 

Our view

 

We welcome the streamlining of financial reporting requirements across a range of entities. However, we had hoped that the Bill would bring together all of the financial reporting requirements for many different entities into one place, resulting in the easy and consistent application of financial reporting legislation in New Zealand.

 

However, the approach taken by the Bill is to include all of the substantive reporting requirements scattered throughout sector, industry and entity specific Acts, leaving only the core financial reporting principles and definitions in the new Financial Reporting Act 2012.

 

Therefore, to find the financial reporting requirements relating to companies, preparers of financial statements will need to look at the Companies Act 1993; for the requirements relating to retirement villages then these are included in the Retirement Villages Act 2003 and so on. This approach, together with the various opt-out provisions, has not brought the clarity of reporting requirements that we were hoping for.

 

What’s next?

 

The Bill will process through Parliament before it becomes law which will be on a date specified by the Governor-General by Order in Council, but this will be by 1 April 2015 at the latest. Until then, there is no change to companies’ financial reporting requirements. However, the accounting standards that companies can choose to apply are already changing (refer to Reporting News 12RN06 for more detail).


KPMG will keep you updated as developments occur. We will issue further updates in respect of the impacts of the Bill once we have looked at its provisions in detail.

 

Further information

 

If you need any further information, please contact Simon Lee (04 816 4678)

 

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