Financial Reporting Act changes
22 December 2005 Media Statement
Financial Reporting Act changes will reduce business compliance costs
Changes to the financial reporting system aimed at reducing business compliance costs, were announced today by Commerce and Small Business Minister Lianne Dalziel.
The exempt companies system, which allows certain small to medium sized enterprises (SMEs) to produce financial statements in a simple format, will be extended from the current criteria of annual turnover of less than $1 million and total assets of less than $450,000, to a 'two-out-of-three' test of either less than $2 million turnover, less than $1 million in assets and/or five or fewer full time equivalent employees.
“This means that most small companies will be able to produce financial statements in a simple format. I have also asked officials to assess whether these companies should have any preparation requirements at all, and report back to me next year,” said Lianne Dalziel.
Changes are also planned to remove reporting requirements for New Zealand-incorporated companies with 25 per cent or more overseas ownership. These compa-nies will no longer have to file audited financial statements with the Registrar of Companies provided they qualify for the exempt companies or differential reporting systems. Differential reporting also includes a 'two-out-of-three' test: either annual turn-over of less than $20 million, assets of less than $10 million and/or 50 or fewer FTE employees.
The Accounting Standards Review Board (ASRB) will have exemption powers and overseas-incorporated companies will be able to apply for these exemptions. In addition, non-active entities will no longer be required to file financial statements with the Registrar.
“An infringement notice system will be introduced for late filing of financial statements. This will create administrative efficiencies within the system while creating an effective deterrence to late filing. Some of the changes will require amendments to the Financial Reporting Act and I expect to introduce a Bill into Parliament in early 2006,” she said.
Lianne Dalziel said she had asked officials to report on the way that auditors are regulated.
“Other countries have made reforms in this area in recent years and we need to con-sider how relevant those reforms are in a New Zealand context,” she said.
“For now, we are not making any changes to the institutional arrangements for financial reporting and the ASRB will continue to consider draft standards submitted to it for approval by the New Zealand Institute of Chartered Accountants.
“I will consider whether changes need to be made to the institutional arrangements in the light of the work on auditor regulation,” Lianne Dalziel said.