New financial Reporting Rules April 11, 2014
New Financial Reporting Rules – For Profit Entities
There have been significant developments with regard to the Financial Reporting requirements of Companies registered in New Zealand. These developments have been mostly driven with a view to reducing compliance costs for the small to medium sized companies.
The effect of this change which is legislated under the Financial Reporting Act 2013 will begin from the start of the new financial year beginning 1 April 2014 for Companies with March balance dates.
We recommend that you contact your external accountant and discuss what this will mean for your organisation going forward. These changes also impact on the requirement to have these financial statements audited and filed with the New Zealand Companies Office.
In an attempt to try and summarise these changes and the potential impact on your organisation I have detailed the following:
The XRB which is an independent Crown Entity was formed a few years ago and it is responsible for setting and approving NZ Accounting Standards and Auditing & Assurance Standards.
Future Financial Reporting requirements will fall into 2 Tiers:
Tier 1 will apply to all Issuers and Other FMC Reporting Entities – they will have to prepare general purpose financial statements under NZ Equivalents to International Financial Reporting Standards (NZIFRS).
Tier 2 will apply to all “Large” entities which are not FMC Reporting Entities – they will also have to prepare general purpose financial statements under NZ Equivalents to International Financial Reporting Standards Reduced Disclosure Regime (NZIFRS RDR).
The definition of Large is as follows:
· Revenue > than $30 Million or Assets > than $60 Million
· Where there are > than 10 shareholders that don’t opt out of the financial reporting requirements.
For overseas companies or NZ business units of overseas companies the limits are lower.
· Revenue > than $10 Million or Assets > than $20 Million.
As you can see from the above limits on Revenue or Assets this will exclude a number of Companies and NZ business units of Overseas Companies from having to prepare general purpose financial statements, follow the XRB Accounting Standards and have these audited and filed with the NZ Companies Office.
These Small and Medium Sized entities will not be required to prepare General Purpose Financial Statements or to follow the XRB Accounting Standards, but they will be required to comply with IRD/NZICA Special Purpose Reporting requirements for tax purposes. In addition they would also not be required to have these financial statements audited or filed with the Companies Office.
It is very important that the correct decisions are made in consultation with your External Accountant as to how you wish to proceed in future, because if you choose to continue to report under NZ IFRS RDR and have an audit carried out there are some significant changes in the accounting treatment of certain transactions and disclosures that will occur.
In making that decision you should consider if the bare minimum requirements of Special Purpose Reporting which consists of simplified financial statements based on tax requirements will actually provide sufficient information for a business to assess and forecast cash flow, monitor key drivers in their businesses or meet management account requirements or banker’s expectations.
Of course after you have considered your Accounting and Financial Reporting requirements for your entity going forward with your External Accountant, you may want to consider if you require any auditing and assurance services.
Please feel free to contact us at JSA Audit directly if you have any concerns or would like to discuss any issues further.