The Commerce Select Committee has reported back on the Financial Reporting
Bill. A copy of the committee's report is available here. The changes are generally positive for businesses. It is
pleasing to see that the select committee has relaxed some requirements in the
original Bill, such as the deadline for preparation of financial statements for
companies other than issuers and other financial market participants.
Bell Gully made submissions to the Commerce Select Committee (available here) and a number of our recommendations have been adopted by
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. 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.
Key changes to the Bill for companies
One of the main focus areas of the Bill is to reduce compliance costs by
reducing reporting obligations. In keeping with this aim, the select committee
has recommended the following amendments to the Bill:
Non-active entities: The Bill now includes an exemption for
"non-active" entities as per the 1993 Act. This provision will exempt
inactive companies from the requirement to prepare financial statements.
Timing requirements for preparation and registration of financial
statements: The select committee has sought to simplify aspects of the
legislation regarding the timing for preparation and registration of financial
statements. A single deadline will apply, to allow reporting entities more
flexibility to allocate time between preparation, audit and lodgement of
financial statements. The timing requirements for different classes of entities
are summarised below:
FMC reporting entities1:
The requirement that issuers and other FMC reporting entities prepare
financial statements within three months after balance date, and register those
financial statements within three months and 20 working days of balance date,
has not been changed. The select committee report indicates that the
intermediate deadline for the preparation of financial statements will be
removed, and instead a four month timeframe will apply for the preparation and
registration of financial statements by FMC reporting entities. The select
committee notes in its report on the Bill that the Financial Markets Authority
could grant exemptions under the Financial Markets Conduct Bill, once it is
enacted, if entities face practical difficulties with meeting the four-month
Overseas companies and other companies with significant overseas
ownership: Overseas companies and other companies with significant
overseas ownership must prepare and register financial statements within five
months of the company's balance date, rather than the separate deadlines of
three months and three months and 20 working days proposed previously.
Other companies: Other companies that are required
to prepare financial statements will have five months after balance date to
prepare financial statements, rather than the three months proposed
Financial statement requirements for New Zealand businesses of
overseas companies: The Bill (as introduced) carried over the current
provision in the 1993 Act which required each overseas company to prepare
financial statements for its New Zealand business as if that business were
conducted by a New Zealand company. This requirement has now been limited so
that it only applies if the New Zealand business is "large". "Large" for this
purpose has the same meaning as in other parts of the Bill.
Audit of financial statements: Large companies have been
exempted from audit requirements if the company is a wholly-owned subsidiary of
a company that has complied with a requirement to lodge or register group
financial statements with the Registrar of Companies. This will remove the audit
requirement for subsidiaries whose financial results have been incorporated into
publicly available consolidated financial statements.
Power of Registrar of Companies to grant exemptions: The
existing power of the Registrar of Companies to grant exemptions for overseas
companies that are not FMC reporting entites has been restored. This amendment
is intended to enable the Registrar to address situations where compliance with
New Zealand law is unduly onerous for an overseas company.
Right of shareholders to obtain financial statements: The
Bill now provides that shareholders of companies that are not required to
prepare financial statements under the Bill have the right to obtain any
financial statements prepared for tax purposes.
Other notable changes
The select committee has also recommended various amendments to the Bill for
other reporting entities. These include:
Limited partnerships: The Bill now allows the partners of
limited partnerships that are not large to choose to prepare and distribute
financial statements and undertake an audit. The Bill (as introduced) did not
provide this option.
Partnerships and operators of retirement villages: The Bill
includes requirements for large partnerships and operators of retirement
villages to keep proper accounting records.
Friendly societies: The Bill requires a vote to not prepare
financial statements for a registered friendly society or branch to be made by a
majority of its members, rather than a majority of the members participating in
Not-for-profit entities: The threshold at which a
not-for-profit-entity must prepare financial statements on an accrual rather
than cash basis has been increased to $125,000 from $40,000.
Charities: The Bill requires the terms and conditions of
financial reporting for charitable organisations in relation to each group
registration to take into account the needs of the users of financial statements
and the purpose of the Charities Act 2005.
Where to from here?
Previously, the Government has indicated that the Bill will be passed by
mid-2013, but there have been no recent confirmations on this timeline. The
timing for the passing of the Bill is dependent on Parliament enacting the
Financial Markets Conducts Bill because the changes relating to FMC reporting
entities are linked to that Bill. We would like to see the Bill passed as soon
as possible given that the Bill will introduce a number of positive changes for
smaller New Zealand businesses and overseas companies.
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.