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:
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.
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
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
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
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.
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.
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.