Last month parliament passed the long awaited Financial Reporting Bill and the Financial Reporting (Amendments to Other Enactments) Bill, which will replace the Financial Reporting Act 1993. The Bills have not yet received Royal Assent, however this is expected shortly, to enable implementation from 1 April 2014.
What does this mean for you?
The key changes that will result from the Financial Reporting Act 2012 are:
Many companies will now no longer have a legal obligation to prepare general purpose Financial Statements, and will only be required to do so if they are:
- “Large” entities
- An FMC reporting entity
- A public entity
- Have 10 or more shareholders (and have not opted out of compliance); or
- Have fewer than 10 shareholders (and have opted in).
All companies that do not have an obligation to prepare general-purpose financial statements will be required to prepare financial statements at least to a special-purpose level specified by the Inland Revenue and for the requirements of other users such as banks. Refer to our comments below for more information on these requirements.
The definition of “Large” has been amended. A New Zealand company (other than a subsidiary of an overseas company) will be considered “Large” (in respect of an accounting period) if at least one of the following applies:
- As at the balance date of each of the two preceding accounting periods, the total assets off the company and its subsidiaries (if any) exceed $60 million (“the asset threshold”).
- In each of the two preceding accounting periods, the total revenue of the company and its subsidiaries (if any) exceed $30 million (“the revenue threshold”).
For New Zealand incorporated subsidiaries of overseas companies to be classified as “large”, the above thresholds are reduced to $20 million for “the asset threshold” and $10 million for “the revenue threshold”.
An overseas company, or its New Zealand Branch, will only be only be required to prepare financial statements if it is a “FMC reporting entity” or a “large overseas company”. The same thresholds as a New Zealand subsidiary are used to determine if an overseas company is considered “large” (i.e. the $20 million asset threshold and the $10 million revenue threshold).
It is important to note that the Inland Revenue Department is in the process of preparing their own requirements for companies which are no longer required to prepare general purpose financial statements. Whilst we do not have a final ruling on this, it will still mean that a level of reporting is needed for all companies to satisfy Inland Revenue requirements. The IRD’s reporting requirements are to ensure that they have sufficient information accompanying tax returns to enable them to verify the tax position.
Fewer companies will be required to register their financial statements with the companies office, the registration requirements only applies to “FMC reporting entities”, “large overseas company” and “large” New Zealand companies with 25% or more overseas ownership.
The timeline for preparing and lodging financial statements has been reduced from Five months and 20 working days after balance date to Four months.
Parent company financial statements
An FMC reporting entity that is a parent will only be required to prepare group financial statements (rather than both parent financial statements and group financial statements, as is currently the case).
Provisions have been put in place to allow time to implement various changed. The Financial Reporting Act 1993 will continue to apply to accounting periods that begin prior to the relevant sections of the new Act commencing.
There have been no specific announcements on the implementation for the provisions of the Act. However the Inland Revenue Department have indicated that their new minimum financial reporting requirements for companies would apply from 1 April 2014 (periods beginning on or after).
We will keep you updated on further developments, however, if you would like further clarification on this topic please contact your usual William Buck advisor.