Further amendments proposed for the Financial Reporting Bill

Tuesday 5 November 2013

Author: Glenn Joblin

Last week a Supplementary Order Paper (SOP) was released with some final amendments to the Financial Reporting Bill, which is expected to be passed soon. The amendments largely relate to the recent enactment of the Financial Markets Conduct Act 2013 (FMC Act), however a small number of substantive amendments have also been included.

The Bill will repeal and replace the Financial Reporting Act 1993 (the 1993 Act) and amend a number of other statutes that contain financial reporting obligations for various entities.1

Substantive changes for some "large" overseas companies

Under the Bill, New Zealand registered overseas companies will only be required to prepare financial statements if they are an FMC reporting entity or a "large overseas company". To address concerns raised by the Inland Revenue Department, the SOP reduces the thresholds for overseas companies to be classified as "large" to:

  • $20 million for the asset threshold (instead of $60 million); and

  • $10 million for the revenue threshold (instead of $30 million).

For consistency, the test for whether the New Zealand business of an overseas company is "large" has also been amended. The thresholds relating to New Zealand incorporated companies are unchanged by the SOP.

Other changes

Some other changes of note for companies include:

  • the exemption for "non-active" entities, which exempts inactive companies from the requirement to prepare financial statements, will only apply if the company has no subsidiaries or if all of its subsidiaries are inactive;

  • requiring notice of a shareholders' meeting to include the text of any proposed resolutions for:

    • the shareholders of a company with 10 or more shareholders (other than a "large" company, or a public entity) to opt out of the requirement to prepare company or group financial statements, the audit requirements, or the obligation to prepare an annual report; or

    • the shareholders of a "large" company (other than a public entity or company that is required to register financial statements) to opt out of the audit requirements.

Key changes arising from the enactment of the FMC Act

Most of the changes in the SOP relating to the enactment of the FMC Act and "FMC reporting entities" have been carried forward from an earlier SOP (SOP No 93). The term "FMC reporting entity" is defined in the FMC Act and includes issuers of securities, managers of registered schemes, listed issuers, licensed insurers, building societies and credit unions.

The Bill will replace Part 7 of the FMC Act, which relates to financial reporting by "FMC reporting entities". The main changes to the current financial reporting rules for these entities are:

  • Time frame for preparing and filing financial statements: this time frame has been reduced from 5 months and 20 working days after the balance date to 4 months.

  • Enforcement and liability regime: the financial reporting requirements will be subject to the enforcement and liability regime in the FMC Act. A contravention may give rise to a civil remedy under the FMC Act, including a pecuniary penalty. In addition, both the FMC reporting entity and its directors may be liable for an offence for knowingly failing to comply with financial reporting standards (with significantly enhanced penalties compared to the 1993 Act).

  • Exemption regime: the Financial Markets Authority can grant exemptions under the FMC Act in respect of the new Part 7 financial reporting requirements.

  • Parent financial statements not required: an FMC reporting entity that is a parent company will be required to prepare group financial statements, but will no longer be required to prepare parent company financial statements. The External Reporting Board will determine what (if any) parent entity information will need to be disclosed in the notes to the group financial statements.

The SOP also makes various changes to the transitional provisions relating to the new financial reporting requirements for FMC reporting entities. One change of note is that the financial statements of a scheme will be required to be prepared under Part 7 of the FMC Act even if the FMC reporting entity that is an issuer or a trustee of that scheme has not yet registered under the FMC Act.

Next steps

We expect the Bill to make its way through the final stages of the Parliamentary process relatively quickly now that the FMC Act has been enacted. The Government has already signalled that Part 7 of the FMC Act (as amended by the Financial Reporting Bill) will be implemented in April 2014.

We will keep you updated with further developments.


‚Äč1 An overview of the key changes arising from the Bill is set out in our November 2012 client update: Submissions called on Financial Reporting Bill and in our May 2013 client update outlining the changes made to the Bill following the Commerce Select Committee's recommendations: Some welcome amendments proposed for the Financial Reporting Bill.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

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