Financial Reporting Amendment Act 2006
On 15 November 2006, the Financial Reporting Amendment Act 2006 was passed which introduced changes to the Financial Reporting Act 1993.
FAQs
- When was the act passed?
- What were the key changes?
- Who needs to register financial statements with the Companies Office?
- Does an overseas company have to file financial statements?
- 25% overseas shareholding and the large company test
- How do you apply the large company test?
- Definition of subsidiary
- Audit obligations for companies that have to file financial statements
- Amendment to section 196(3) of the Companies Act 1993
- Does a subsidiary of a company incorporated in New Zealand need to file?
- Will late filing fees still continue to be applied?
- Can we apply for an extension in filing time?
- Refunds on statements that were not required
- How do the transitional provisions apply?
- Recipients of money from conduit issuers
- Non-active entities not required to prepare financial statements
- Financial Markets Authority may grant exemptions
- Registrar may grant exemptions
- Infringement notices
When was the act passed?
On 15 November 2006, the Financial Reporting Amendment Act 2006 introduced some 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 will now be subject to a large company test to determine whether they file audited financial statements. Other changes include 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.
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 - see below.
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.
Further, exemptions to the requirement to file may also be granted by the Financial Markets Authority or the Registrar.
25% overseas shareholding and the large company test
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)
A New Zealand registered company with 25% or more overseas held shareholding will only have to file financial statements if they qualify as a “large” company as above.
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.
Exemptions to the requirement to file may also have been granted by the Financial Markets Authority or the Registrar.
How do you 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.
Definition of subsidiary
Section 19(1)(c) Financial Reporting Act 1993
It should be noted that under the new section 19(1)(c) of the Financial Reporting Act 1993 the requirement to register financial statements also applies to any company that is a subsidiary of any company or body that is incorporated outside New Zealand. Under section 5 of the Companies Act 1993 a company will be a subsidiary of another company if that other company:
- Controls the composition of the board of the company; or
- Is in a position to exercise or control more than half of the votes that can be exercised at a meeting of the company; or
- Holds more than half of the shares of the company; or
- Is entitled to receive more than half of every dividend paid on shares issued by the company; or
Where a company is a subsidiary of a subsidiary company it will also meet the definition of subsidiary under the Companies Act 1993.
The word ‘subsidiary’ in the Financial Reporting Act 1993 refers to all levels of subsidiary of a company, therefore if there are five levels of subsidiaries, all subsidiaries may be required to file financial statements.
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.
Exemptions to the requirement to file may also have been granted by the Financial Markets Authority or the Registrar.
Audit requirements for companies that have to register financial statements
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 (section 19(1)(a) of the Financial Reporting Act 1993) – refer Financial Reporting for Overseas Companies for detailed information on audit requirements;
- Any company that is a subsidiary of a company or body corporate incorporated outside New Zealand (section 19(1)(c) of the Financial Reporting Act 1993; or
- Any company that is an issuer (sections 4 and 18) of the Financial Reporting Act 1993.
Amendment to section 196(3) of the Companies Act 1993 extends scope of exemption not to appoint an auditor at an annual meeting for certain companies
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.
Does a subsidiary of a company incorporated in New Zealand need to file?
Section 19(2) Financial Reporting Act 1993
Assuming Company A is a subsidiary of Company B, and Company B is incorporated in New Zealand.
If Company B files its own financial statements, and financial statements in respect of the group, then Company A does not have to file its own separate financial statements.
This also applies if Company A is an overseas company which is a subsidiary of Company B (New Zealand incorporated company).
Will late filing fees still continue to be applied?
Yes. Accounts submitted outside the five month and 20 working day period will attract a late filing fee.
Can we apply for an extension in filing time?
No. The Registrar has no authority to grant an extension in filing time.
Refunds on statements that were not required
If the documents have already been registered then no refund is available and the statements remain on the register.
If the documents are rejected by the Registrar when they come in, the fee will be returned at the same time as the statements.
How do the transitional provisions apply?
Large companies
The transitional provisions provide that sections 19 and 19A Financial Reporting Act 1993 which set out the requirements for non-issuer overseas and overseas owned companies to file financial statements apply to companies which have accounting periods, both current and future, with balance dates after 21 January 2007.
Non-active entities
The transitional provisions provide that section 10A Financial Reporting Act 1993 relating to declarations of non-active status applies to companies with balance dates after the commencement of the section. A non-active declaration can be filed which will exempt a company from submitting financial statements. Read more about non-active declarations.
Exemptions from filing
The transitional provisions provide that the ability to grant exemptions from Financial Reporting Act 1993 requirements will apply after the commencement of the relevant sections. For more information, please visit:
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:
- to which at least two of the following subparagraphs apply:
- 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;
- In the accounting period the turnover of the company did not exceed NZ$2,000,000;
- As at balance date the company has 5 or fewer full-time employees; and
- as at balance date the company:
- was not a subsidiary of another body corporate or association of persons; and
- did not have any subsidiaries.
Can an issuer or an overseas company be an exempt company?
Section 6A Financial Reporting Act 1993
The definition of “exempt company” does not apply to issuers or overseas companies.
Recipients of money from conduit issuers
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.
Non-active entities are not required to prepare financial statements
What is a non-active declaration?
Section 10A Financial Reporting Act 1993
Where a company, other than an issuer, files a declaration that it has not been active in the relevant accounting period, this means the company does not have to prepare financial statements in respect of that accounting period.
Financial Markets Authority may grant exemptions
Who may apply for an exemption?
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.
Registrar may grant exemptions
Exemptions from Financial Reporting Act requirements
Under section 35B of the Financial Reporting Act 1993 (“the 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.
Accounting periods for which an exemption may be granted
The amendment to the FRA which introduced section 35B containing the Registrar’s power to grant exemptions came into force on 18 June 2007. An exemption may apply to accounting periods that commenced before the exemption is granted (including where an accounting period has ended), but only where the filing requirement in respect of that accounting period has not yet fallen due.
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 he 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.Top
Class exemptions
Where it appears to the Registrar that requirements under the FRA are unduly onerous or burdensome for a class of overseas companies (e.g. companies that are incorporated in a particular jurisdiction), he or 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.
Exemption from financial reporting standards – ASRB
Section 14 of the Financial Reporting Amendment Act 2006 introduces new sections 29A to 29D to the FRA. These sections have not yet been brought into force. However, when the new sections do commence, under section 29A the Accounting Standards Review Board (ASRB) may exempt the directors of any class of reporting entities from ensuring that financial statements or group financial statements comply with any provision of an applicable financial reporting standard. Where any company seeks to rely on an exemption granted by the ASRB, the onus will be on the company to provide the Registrar with a copy of the exemption. Once received, any compliance programme will cease.
Infringement notices
Infringement notice sections 41A - 41D of the Financial Reporting Act 2003 came into force on 18 June 2007 and apply in respect of accounting periods that commenced after that date, that is, June 2008 balance dates onwards.
Where a company with an obligation to file audited financial statements with the Registrar fails to file within the prescribed five month and 20 working day period, the Registrar has the option to issue each director of that company with an infringement notice, the fee for which is NZ$7,000 per director.
Once an infringement notice has been issued, the directors of an offending company will be given a set time in which they must submit their audited financial statements and pay the NZ$7,000 fee.
If audited financial statements are not submitted, and the NZ$7,000 fee not paid, the infringement notice will be referred to the Department of Courts for collection of the fee, and the company may be referred to the Registrar’s National Enforcement Unit for investigation with a view to summary prosecution.
Should you receive an infringement notice under the FRA, detailed information on the steps that need to be taken and the avenues available to you are included. We would recommend that if you do not understand the information provided in the infringement notice, you contact your solicitor or legal advisor.
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