Some welcome amendments proposed for the Financial Reporting Bill

Thursday 23 May 2013

Authors: Glenn Joblin and Jenny Hills

The Commerce Select Committee has reported back on the Financial Re​​porting 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 committee.

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 deadline.

    • 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 previously.

  • 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 a vote.

  • 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.


1 This term is to be defined under the Financial Markets Conduct Bill (yet to be enacted), and will include issuers and other financial market participants.


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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