Simplified financial reporting proposed for SMEs, charities
CommerceCommerce Minister Simon Power today announced proposals to simplify the financial reporting framework for small and medium-sized businesses and registered charities.
The proposed reforms follow on from a review of the financial reporting framework which found that the framework was overly costly and not meeting users’ needs or expectations.
Under the new regime, non-issuer companies which do not meet the definition of large companies (annual revenue of more than $30 million, or assets of more than $60 million), will be asked to prepare targeted reports for tax purposes, rather than financial statements under the Companies Act.
The changes will reduce the number of companies required to prepare general purpose financial reporting from 460,000 to less than 10,000, and is expected to cut business compliance costs by $90 million a year.
“The new framework will promote accountability of senior management and ensure people with an interest in the economic performance of a company can have confidence in the information they receive,” Mr Power said.
The New Zealand Institute of Chartered Accountants will work closely with Inland Revenue and other users to develop the revised requirements, which will reduce the reporting burden for a large number of New Zealand companies.
The changes will also improve financial reporting by charities, which are currently not subject to financial reporting standards and it is unclear what they need to file with the Charities Commission.
The External Reporting Board is expected to release consultation papers shortly, and will continue consulting with the community and voluntary sector in the process of creating the simple format reports for charities.
“The changes will strengthen the public’s confidence that the money they donate to charities is being used effectively and efficiently.
“It will also clarify charities’ financial reporting obligations, particularly as many rely on volunteers who are currently unsure about what they need to prepare.
Other changes to improve New Zealand’s financial reporting system are summarised below.
Mr Power said the Government intends to introduce a Financial Reporting Amendment Bill to Parliament next year.
Submissions on the discussion document are available here.
Summary of changes to the financial reporting system
|
Class of entity |
Change and impact |
|
Large companies |
Remove the requirement to prepare parent entity financial statements and leave it to the External Reporting Board to determine any parent company reporting obligations.
|
|
Medium-sized companies |
Replace General Purpose Financial Reporting (GPFR) preparation requirements with Special Purpose Financial Reporting (SPFR) for tax purposes to minimum standards set by Inland Revenue. |
|
Small companies |
Replace simple format template reporting with SPFR for tax purposes to minimum standards set by Inland Revenue. |
|
Issuers |
The time within which companies, with preparation obligations, need to prepare financial reports will be reduced from five months to three months. |
|
Subsidiary companies |
Where a group of companies has reporting obligations, they are no longer required to prepare a set of financial statements for the parent company. The obligation to prepare consolidated statements remains. |
|
Medium and small limited partnerships |
Replace the existing preparation requirement with special purpose reporting for tax purposes to minimum standards set by Inland Revenue. |
|
Large trading trusts, limited partnerships and partnerships |
Introduce requirements to prepare GPFR, have them audited and distribute to the owners. |
|
Registered charities |
Require the preparation of GPFR prepared in accordance with standards set by the XRB. The XRB has indicated that it is likely to use a simple format reporting approach for entities with operating expenditure <$2 million. |
|
Micro registered charities (annual operating expenditure ≤$40,000) |
Allow GPFR (which is likely to be simple format) to be prepared on a cash basis. |
|
Medium and small industrial and provident societies |
Retain a requirement to file an annual return with the Registrar but remove the requirement to include financial statements. |
|
Friendly societies that offer insurance services, and credit unions |
Retain the requirement to file audited financial statements but remove the requirement on the Registrar to monitor them and report to Parliament. |
|
Other friendly societies |
Retain preparation, assurance and distribution to members, but remove the filing requirement. |
|
Gaming machine societies that operate gaming machines in commercial venues |
Publication obligations vary according to the society’s legal form. Introduce a consistent requirement to file audited financial statements. |
|
Gaming machine societies that operate gaming machines almost exclusively in their own premises |
Require societies to distribute audited financial statements to members but do not introduce a publication requirement. |
|
Retirement villages |
All retirement villages are treated as though they are issuers for financial reporting villages. Remove that presumption for those that are not issuers in a real sense, which would allow the XRB to decide whether they could report in accordance with the second rather than the top tier of reporting. |
|
Large Māori incorporations |
In addition to the current preparation and audit requirements, require distribution to all beneficial owners. |
|
Medium and small Māori incorporations |
Remove the audit requirement. |
|
Māori land trusts |
Empower the XRB to set default reporting requirements, but allow the Maori Land Court to vary those requirements to meet individual circumstances. |