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Important changes in FRA 1993 (Amendment Act 2006)

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On 15 November 2006 the Financial Reporting Amendment Act 2006 (FRAA) was passed which introduced changes to the Financial Reporting Act 1993.

 


 

What were the key changes?

The most significant change relates to companies with 25% or more overseas shareholding.  These companies are now subject to a large company test to determine whether they file audited financial statements.  Other changes included the following:  

  • Exemptions from Financial Reporting Act 1993 requirements may be given by the Registrar or the Financial Markets Authority;
  • Non active companies can complete a declaration which means that they do not need to prepare financial statements;
  • Introduction of Infringement Notices for directors that do not comply with their filing obligations under the Financial Reporting Act 1993.  Read more... 

 

Who needs to register financial statements with the Companies Office?

Section 18 / Section 19 Financial Reporting Act 1993

The only entities that are required to register their financial statements within five months and 20 working days from balance date are:

  • A company that falls within the definition of an “issuer” under section 4 of the Financial Reporting Act 1993 including conduit issuers.
  • An overseas company that has registered under Part XVIII of the Companies Act 1993 to carry on business in New Zealand.
  • A company that is a subsidiary of a company or body corporate incorporated outside New Zealand.
  • A “large” company in which 25% or more of the voting power is held outside New Zealand.

However, section 19(2) may apply.  Read more...

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Does an overseas company have to file financial statements?

Section 19(1)(a) Financial Reporting Act 1993

Yes.  However Section 19(2) Financial Reporting Act 1993 may apply – if the overseas company is a subsidiary of a New Zealand incorporated company and accounts in respect of the New Zealand incorporated company and the group are registered, then the overseas company is not required to file.

If the overseas company wishes to apply for an exemption under s19(2) of the FRA, it is recommended that the Registrar is notified in writing by sending us a letter requesting exemption for a specific accounting period.  Alternatively, an email request can be sent to fra@companies.govt.nz.  If no written request is sent, the company and its director(s) may continue to receive reminders to file accounts as part of our regular compliance programme.

Further, exemptions to the requirement to file may also be granted by the Financial Markets Authority or the Registrar.   Read more...

 

What is a ‘large’ company?

Section 19(1)(b) Financial Reporting Act 1993

Section 19A(1)(b) defines “large” company as one that crosses two of the following thresholds:

  • NZ$20,000,000 in annual turnover (as per statement of financial performance shown in their latest financial accounts)
  • NZ$10,000,000 in a company’s assets (as per statement of financial position shown in their latest financial accounts)
  • 50 or more full-time employees (includes employees in subsidiary companies) (usually not reflected on the financial accounts)

 

Section 19(1)(b) further requires that large New Zealand companies must file financial statements where shares in the company that carry the right to exercise or control 25% or more of the voting power at a meeting of the company are held by:

  • a subsidiary of a company incorporated outside New Zealand; or
  • a company or body corporate incorporated outside New Zealand; or
  • a person not ordinarily resident in New Zealand.
     

How do I apply the large company test?

We will peruse the most recent set of financial statements available and if the company meets the first two criteria outlined above (NZ$20,000,000 and NZ$10,000,000) they will continue to file financial statements.

Employee numbers are difficult to ascertain as they are not generally included in financial statements.  Therefore, if a company meets only one of the first two criteria and we are unable to confirm employee numbers, the Registrar will assume, unless provided evidence to the contrary, that the company does not meet the two out of three test in section 19A(1)(b) Financial Reporting Act 1993 and is not required to file financial statements.

 

What is an exempt company?

Section 6A Financial Reporting Act 1993

An exempt company is a company other than an issuer or an overseas company:

  1. to which at least two of the following subparagraphs apply:
    1. As at balance date the value of the total assets of the company in the statement of financial position did not exceed NZ$1,000,000;
    2. In the accounting period the turnover of the company did not exceed NZ$2,000,000;
    3. As at balance date the company has 5 or fewer full-time employees; and
  2. as at balance date the company:
    1. was not a subsidiary of another body corporate or association of persons; and
    2. did not have any subsidiaries.
       

If my company is not 'large' is it an 'exempt company'?

No. The criteria for qualification as an exempt company should not be confused with the those set out in section 19A(1)(b) that determine whether a company is 'large'.  The latter are only relevant to companies that have 25% or more overseas-held shareholding ('overseas owned companies').  If an overseas owned company meets two out of the three section 19A(1)(b) criteria it will be considered to be 'large' and will be required to deliver audited financial statements to the Registrar of Companies (the Registrar) for registration under section 19.

If a New Zealand parent company files group accounts, does its subsidiary have to file accounts?

Under section 19(2), a company (Company A) will not have to register its financial statements if the following requirements are satisfied:

  1. Company A is a subsidiary of a company that is incorporated in New Zealand (Company B); and
  2. Financial statements in relation to Company B that comply with section 11 are completed and signed within the time specified in section 10; and
  3. Group financial statements in relation to a group comprising Company B, Company A, and all other subsidiaries of Company B that comply with section 14 are completed and signed within the time specified in section 13; and
  4. A copy of the financial statements referred to in paragraph (b) and a copy of the group financial statements referred to in paragraph (c), together with the auditor’s report on those statements, are delivered to the Registrar for registration.

 

However, the exceptions to the requirement to file for companies that satisfy Section 19(2) may apply.  If Company A is a subsidiary of a New Zealand company which is a subsidiary of a New Zealand company which is a subsidiary of a company incorporated outside New Zealand, Company A will not need to file accounts if the first subsidiary incorporated in New Zealand files group accounts.

If a company wishes to apply for an exemption under section 19(2) of the FRA, it is recommended that the Registrar is notified in writing by sending us a letter requesting exemption for a specific accounting period.  Alternatively, an email request can be sent to fra@companies.govt.nz.   If no written request is sent, the company and its director(s) may continue to receive reminders to file accounts as part of our regular compliance programme.
 

If my company is an 'Issuer' but a subsidiary of a New Zealand parent company that files group financial statements, will my company be covered by section 19(2) exemption?

No.  Section 18 applies to issuers, not Section 19.

Issuers are still required to prepare and file separate audited financial statements regardless of whether their New Zealand parent company files group financial statements. (For example: if a company is a retirement village operator, it is deemed to be an issuer and as such it would not be entitled to such an exemption).
 

Do my financial statements need to be audited?

Under section 196(3) of the Companies Act 1993 the following companies are required to appoint an auditor and have their financial statements audited:

  • Overseas companies – refer to section 19(1)(a) of the Financial Reporting Act 1993
  • Any company that is a subsidiary of a company or body corporate incorporated outside New Zealand – refer to section 19(1)(c) of the Financial Reporting Act 1993
  • Any company that is ‘large’ in which 25 percent or more of the voting shares are held by a) company or body corporate incorporated outside New Zealand, b) a subsidiary of a company or body corporate incorporated outside New Zealand, c) a person ordinarily resident in New Zealand – refer to section 19(1)(b) of the Financial Reporting Act 1993
  • Any company that is an issuer – refer to sections 4 and 18 of the Financial Reporting Act 1993
     

Who can take advantage of exemption to not appoint an auditor?

Section 196(3) of the Companies Act 1993 was amended as from 20 April 2010.   This affects companies covered by section 19(1)(b) of the Financial Reporting Act 1993 that used to file audited financial statements under section 19(3) of that Act until the Financial Reporting Amendment Act 2006 came into force in 2007.   That Amendment Act exempted those companies that were not 'large' under section 19A(1)(b) from filing, but their audit obligation continued under section 196.

The amended section 196(3) gives the shareholders of those companies the opportunity at the next annual meeting and subsequent annual meetings to take advantage of the exemption in section 196(2) not to appoint an auditor for the accounting period next following the meeting.

The procedures of the Companies Act 1993 that follow the resignation of an auditor or where a casual vacancy arises are unchanged.
 

If my company is non-active, will it still be required to appoint an auditor or prepare and file nil audited accounts?

Non-active companies are not required to prepare or file audited financial statements.  However, such companies are still required to appoint an auditor under section 196 of the Companies Act 1993. There will not be any statements to audit, but that will not be known until after the accounting period has ended whereas the auditor has to be appointed at each annual meeting for the ensuing year.

The non-active declaration form may be completed by directors of companies caught as having to file under section 19 of the Financial Reporting Act 1993.

The audit requirements of section 196 of the Companies Act 1993 that apply here are currently the subject of an amendment introduced into Parliament in late 2008.

If my company is an issuer and no longer trading or non-active for a specific accounting period, can it file a non-active declaration form and avail of exemption under section 10A of the Act?

No.  Section 10A only applies to companies that are caught as having to file under section 19 of the Act.  It does not apply to issuers.
Under the Act, where a person ceases to be an issuer during an accounting period, that person shall be deemed to continue to be an issuer in relation to that accounting period for the purposes of this Act.
 

What is a conduit issuer?

A conduit issuer is a company that raises money by the issue of securities to the public through a prospectus under the Securities Act 1978 and passes the money raised on to another company. That is, they act as a conduit.

The conduit issuer is known to the Registrar by virtue of having issued a prospectus.

The purpose of Section 4A is to target the recipient of money from a conduit issuer. However the recipient of money is not always known to the Registrar and is not going to be easy to identify.

For example: ABC Limited (the conduit) issues a prospectus and raises money, however that money goes to Unknown Limited (the recipient). ABC Limited files financial statements as they are an issuer. Unknown Limited also needs to file but isn’t identified in any way so their identity is not known. 

 

Who may apply for an exemption?

Financial Markets Authority may grant exemptions

Section 35A Financial Reporting Act 1993

Any directors of an issuer that is incorporated or constituted outside New Zealand may be exempted from compliance with any provision of sections 8 to 11, 13 to 16, 18, 36, 36A, or 38 of the Financial Reporting Act 1993.  Application needs to be made to the Financial Markets Authority who will grant an exemption if they think fit.  The Financial Markets Authority has a number of criteria to which they must be satisfied before an exemption is granted.

Any exemption granted is for life (that is, the company will not need to resubmit the document on an annual basis).

The Financial Markets Authority must advertise exemptions in the Gazette.   The onus will be on the company to provide the Registrar with a copy of their exemption.  Once received any compliance programme will be ceased.

The Financial Markets Authority also has the power to revoke an exemption and this must be advertised in the Gazette.  The Registrar will monitor all Gazette advertising and should a company have its exemption revoked, add that company back into the compliance programme.

 

If an exemption is granted part way through an accounting period, does the company need to file for that accounting period?

Section 35D Financial Reporting Act 1993

Not necessarily.  If the Financial Markets Authority thinks fit the exemption may be granted to an accounting period that commenced before the exemption is granted. 

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Registrar may grant exemptions

Under section 35B of the Financial Reporting Act 1993 (FRA) the Registrar of Companies may exempt any directors of an overseas company that is not an issuer, or any directors of a class of those overseas companies, from compliance with requirements under in the FRA.

If the company is a non issuer you can write to fra@companies.govt.nz

 

If the Registrar grants an exemption part way through an accounting period, does the company need to file for that accounting period?

Section 35D Financial Reporting Act 1993

Not necessarily.   If the Registrar thinks fit the exemption may be granted to an accounting period that commenced before the exemption is granted.
 

Matters relevant to the Registrar’s discretion to grant exemption

Careful consideration will be required in respect of each application by an overseas company for an exemption.  The Registrar may consult with any persons she thinks fit, and in some cases it will be necessary for the Registrar to consult with the Commissioner of Inland Revenue or the Reserve Bank of New Zealand prior to granting an exemption.  Accordingly, where the directors of an overseas company wish to apply for an exemption, they should allow sufficient time in advance of any filing obligations falling due to the exemption to be considered.

The power of exemption will only be exercised where the Registrar considers that compliance with the relevant provision would require the directors of the overseas company to comply with requirements that are unduly onerous or burdensome.  The extent of an exemption will only be what is reasonably necessary to address the matters that gave rise to the exemption.

In determining whether an exemption from filing or audit requirements is appropriate in any particular case, the Registrar will consider the purposes for which financial statements and an auditor’s report on those statements are required to be filed with the Registrar by overseas companies under the FRA, namely:

  • To ensure that effective comparisons can be made between the financial performance of overseas companies; and
  • To assist New Zealand investors and creditors in making informed business decisions in relation to these companies.

 

It is likely that the Registrar’s power of exemption will only be exercised in limited circumstances, and only where the effect of exemption would not undermine the policy intent of the relevant requirement under the FRA.  A requirement under the FRA will not be considered unduly onerous or burdensome merely because it imposes some cost on an overseas company, or because an overseas company has audit and filing requirements in New Zealand that are in excess of the requirements in its home jurisdiction.

 

Term of exemption

Exemptions may be granted on an annual basis or for such longer specified term as the Registrar considers appropriate.   It may be a condition of any exemption granted that the company provide information or financial statements to the Registrar on an annual basis.
 

Class exemptions

Where it appears to the Registrar that requirements under the FRA are unduly onerous or burdensome for a class of overseas companies (for example, companies that are incorporated in a particular jurisdiction), she may grant an exemption for that class of companies.  The Registrar will prefer to grant class exemptions rather than exemptions relating to individual companies.  When time allows the Registrar will consult publicly, particularly where a potential exemption involves significant policy questions.

 

Last updated 28 February 2013