By Melissa Higham - 10 Oct 2011
The Commerce Minister, Simon Power, has announced proposals to
simplify the financial reporting framework of small and medium
sized businesses (SMEs). The change will be available to companies
that do not meet the definition of a "large" company. A "large
company" has annual revenue of more than $30 million or assets of
more than $60 million - if it doesn't meet either of those criteria
then it is not "large".
The proposed reforms are being implemented following a review of
the financial reporting framework. This found that the existing
reporting requirements were too expensive and often inappropriate
for SMEs.
When the reforms are implemented, SMEs will no longer have to
prepare general purpose financial reports under the Companies Act.
For tax assessment, they will instead be able to file special
purpose financial reports. The New Zealand Institute of
Chartered Accountants and the Inland Revenue Department are
currently developing the report requirements.
The default requirement for SMEs with 10 or more shareholders
will continue to be to prepare general purpose financial
reports. But these companies will be able to opt out of these
reporting obligations if 95% of the voting shares support the
decision to opt out. On the flip side, the default position
for SMEs with less than 10 shareholders will be to prepare special
purpose financial reports. The exception will occur when
shareholders holding a minimum of 5% of the voting shares, require
the preparation of general purpose financial reports.
The number of companies required to prepare the more expensive
general purpose financial reports is expected to drop from 460,000
to less than 10,000. So the changes are expected to cut business
compliance costs by up to $19 million a year.
A Financial Reporting Amendment Bill outlining the changes is
expected to be introduced to Parliament in the first quarter of
2012. The Act is expected to come into force in 2013.
We will keep you informed as more details surrounding the
requirements for the special purpose financial reports become
available.