Polson Higgs
Big Changes For Small Entities
Commerce minister Simon Powell recently announced proposed changes “to simplify the financial reporting framework for small and medium-sized businesses and registered charities.”
The stated aim is to reduce red-tape and hence reduce compliance costs for small and medium enterprises.
The aim is laudable but our view is that they will lead to additional costs for some whilst others will continue to require relevant financial information for their purposes as owners and managers as well as for external parties such as banks.
The Changes
The proposal looks at removing what is currently called general purpose financial reports and replacing them with targeted reports for tax purposes.
Broadly, it is proposed that new simplified accounts will be applicable for entities that have turnover of less than $30m and assets of less than $60m. However, requirements will differ depending on whether your entity is a company, a trust, a limited partnership or charity.
For some charities and not-for-profit entities the proposals will undoubtedly lead to additional accounts preparation costs as parts of this sector have previously had no guidance about the accounts they need to prepare.
Importance of Relevant Financial Information
Whilst these proposals will affect the format of the financial accounts that are required from a legislative perspective we will continue to work with you to provide financial information that is relevant to your business and the decisions that you need to make.
If the proposal goes ahead as planned the coming months will see our own professional body NZICA developing a framework for the new reports that “finds the balance between cutting unnecessary bureaucracy and having the right tools for solid financial management and assessment of business health” – NZICA Chief Executive Terry McLaughlin
What do you need to do right now?
We are currently in “watch this space” territory and await more detail before we can assess the impact on your business. See the table below for a summary of the changes and feel free to contact your advisor if you wish to discuss these proposed changes further.
For our part, Polson Higgs will be looking to provide feedback to NZICA about any proposed simplified framework and we welcome any feedback from your perspective.
We will, of course, keep you up to date with future developments in this area.
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 Maori incorporations | In addition to the current preparation and audit requirements, require distribution to all beneficial owners. |
| Medium and small Maori incorporations | Remove the audit requirement. |
| Maori land trusts | Empower the XRB to set default reporting requirements, but allow the Maori Land Court to vary those requirements to meet individual circumstances. |
Last updated: Wednesday, 19 October 2011 | 3:48:55 p.m.
