28th January 2014
Financial Reporting Overhaul
Ann Tod – KPMG Private Enterprise Partner
The new Financial Reporting Act overhauls the statutory reporting obligations of entities in New Zealand and was part of
the Government’s Business Growth Agenda to improve capital markets and reduce compliance costs for small and medium
sized entities.
Key points:
• New definition of ‘large’. Different size thresholds will apply to overseas companies (incl. subsidiaries of
overseas companies)
• Inland Revenue has issued a consultation paper, setting the minimum financial reporting requirements for
corporate SMEs.
•Minimum financial reporting requirements required by the old Financial Reporting Act will now be a requirement of the
Tax Administration Act.
• NZ IFRS Differential Reporting (Tier 3) and Old GAAP (Tier 4) will be withdrawn by the XRB for For-profit
entities once the Acts are enacted and come into force.
The effective dates of both the Financial Reporting Act 2013 and the Financial Markets Conducts Act 2013 have yet to be
set. Certain provisions likely to be effective 1 April 2014 with remaining provisions of the Acts coming in force on 1
April 2017.
Key changes introduced by the new Act
Financial reporting requirements for different entity types are contained in the statutes governing those entities. In
particular, financial reporting requirements for issuers are included in the ‘Financial Markets Conducts Act 2013 (FMC).
Key changes for different entity types and consequences for these entity types are summarised below:
Companies
Preparation and assurance
• The definition of "large" has been amended for overseas companies and subsidiaries of overseas companies ($20
million for assets and/or $10 million in revenue). All other entities apply the original thresholds of $60 million for
assets and/or $30 million in revenue. As a result more overseas companies and subsidiaries of overseas companies will be
required to prepare and file financial statements due to changes in the threshold definition on the term ‘large’,
compared to the proposal under the initial Financial Reporting Bill.
• In general, a statutory obligation to prepare general-purpose financial statements will only apply to companies
that:
(a) are ‘FMC reporting entities’;
(b) are ‘large’ entities;
(c) are public entities;
(d) have 10 or more shareholders that have not opted out; or
(e) have fewer than 10 shareholders but have opted in.
• An annual notice of shareholder’s meeting on the proposed resolutions in relation to the application of Opt In/
or Opt Out is required.
• Parent entity financial statements will no longer be required if consolidated group financial statements are
prepared.
• Non-active companies will continue to be exempt from the requirement to prepare financial statements.
Registration/ filing
• Financial statements registration requirement now only applies to ‘FMC reporting entities’, ‘large overseas
companies’ or ‘large’ New Zealand companies with 25% or more overseas ownership.
• The timeframe for preparation and filing of financial statements has been reduced to 4 months after the balance
date for FMC reporting entities, and reduced to 5 months for all other entities. Under the FRA 93, the reporting
timeframe was 5 months plus 20 working days for all entities.
Small to medium sized entities (SMEs)
All active companies that no longer have a statutory obligation to prepare general-purpose financial statements will be
required to prepare financial statements at least to a special-purpose level specified by Inland Revenue.
In November 2013 Inland Revenue issued for consultation a paper - Minimum financial reporting requirements for companies. This paper discusses which companies will be required to prepare financial statements and the minimum details required
for tax purposes.
I have been a member of The New Zealand Institute of Chartered Accountants (NZICA)SME working group that has provided
input to the development of additional guidance to SMEs on financial reporting. The latest proposed NZICA guidance is
focused on keeping things simple and consistent with the minimum financial reporting requirements required for tax
purposes. As a consequence the cost savings expected by the government will not be significant.
Essentially the minimum financial reporting requirements that were required by the old Financial Reporting Act will now
be a requirement of the Tax Administration Act.
Inland Revenue has proposed that these new requirements to commence for income years starting from 1 April 2014 for
companies and 1 April 2015 for non-companies. However, the final timing will depend upon the effective dates set by the
Financial Reporting Act 2013.
Consequential impacts on SMEs
• The XRB will be withdrawing the existing NZ IFRS Differential Reporting and Old GAAP suite of standards, when
the legislation is enacted and in force – this is expected to be 1 April 2014.
• For-profit SMEs that are currently applying NZ IFRS Differential Reporting (Tier 3) or Old GAAP (Tier 4) will
need to transition into either NZ IFRS (Tier 1) or NZ IFRS RDR (Tier 2) in order to continue to assert compliance with
NZ GAAP.
• Small to medium sized PBEs or NFP PBEs, may continue to apply differential reporting under NZ IFRS PBE or Old
GAAP, until the relevant legislation that governs the financial reporting of those entities and the applicable suites of
standards (NZ PBE standards, Simple Format Accrual, Simple Format Cash), set by the XRB are effective, come into effect.
Specified not-for-profit entities
The financial statements of a specified not-for-profit entity will need to comply with generally accepted accounting
practice (as set by the External Reporting Board). This is a new requirement will apply to entities with total operating
payments of $125,000 or more.
In all other cases, not-for-profit entities will have a choice to either follow generally accepted accounting practice
or a non-GAAP standard in preparing the financial statements. It is expected that the accounting standards will come
into force in 2015.
In addition, changes have been announced that require charities with annual expenditure of over $1million or more to be
audited, over $500,000 reviewed and less than $500,000, no mandatory requirements.
There is general agreement that public confidence in the charitable sector will improve if financial statements of large
and medium sized registered charities are subject to a level of assurance. This needs to be weighed against the
assurance service costs hence excluding smaller charities.
There is a reasonable expectation that compliance costs on the whole should fall, particularly for medium-sized business
however costs will likely increase for very small businesses and a number of not-for-profit entities.
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Ann Tod is a Business Advisory Partner in KPMG’s Private Enterprise team.
She currently provides audit services and general accounting advice to a range of small to medium enterprises and
branches/subsidiaries of overseas companies. Her current clients include many import/distributors, manufacturers,
privately-owned businesses and not-for-profit entities.
Ann is currently a member of the New Zealand Institute of Chartered Accountants’ Admissions and Membership Committee.
She is also the Finance Director of the International Netball Federation.
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ENDS