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Simplified financial reporting for SMEs

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.


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