Changes to Company Financial Reporting

 
Grange Associates Ltd - 20 March 2012

Currently under the Financial Reporting Act, there is a statutory obligation for small and medium sized companies to prepare general purpose financial reports on an annual basis.  A recent announcement from the Minister of Commerce signaled that this obligation is to be removed.

Specifically, the announcement noted that non-issuer companies who do not meet the definition of large (annual revenue of over $30 million or assets of more than $60 million) will no longer be required to prepare general purpose financial reports.  The likely introduction of the changes is expected to be for income years beginning after 1 July 2013, which for most will mean for the income year ended 31 March 2015.

Under the expected changes, around 98% of all New Zealand companies will be considered “not large”, so it will be quite a significant amendment.

Although general purpose financial reports will no longer be required, it will still be important for companies to produce a set of annual accounts for tax purposes, shareholders, lenders, banks and other interested stakeholders.  In addition, there are also likely to be changes to the Income Tax Administration Act that will mean companies will need to produce annual special purpose financial reports.

It will be important to strike a balance between reducing unnecessary compliance costs whilst still having the required tools for comprehensive financial management.  To this end, the New Zealand Institute of Chartered Accountants are currently working to develop a set of special purpose financial reporting guidelines for companies no longer required to produce general purpose financial reports.

We welcome this amendment as we are conscious of the additional costs general purpose financial statements impose on our clients, which is why some time ago we adopted special purpose financial reports for trusts, sole traders and partnerships.  For these entities we have found that special purpose financial reports prepared for tax purposes have satisfied most clients’ requirements and see no reason this will not be the case for companies.

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