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Businesses face new financial reporting rules

More than 450,000 New Zealand companies may have to adopt new accounting processes as a new bill moves through Parliament this year.

The Financial Reporting Bill 2012 replaces the Financial Reporting Act 1993, bringing it up-to-date and aligning company reporting rules with those in Australia.

Submissions on the bill – which had its first reading in November – close on January 18.

Grant Thornton's national technical director Mark Hucklesby says the existing act is not aligned with business reporting requirements in Australia, does not recognise the unique reporting requirements of charities and fails to capture large partnerships.

"For many businesses, particularly small- and medium-sized companies with annual revenues of less than $30 million or total assets less than $60 million, the bill will come as good news.

"They will be able to substantially reduce their accounting compliance costs and in many instances may also be relieved from having to complete an annual audit," Mr Hucklesby says.

However, he says the bill may be seen as bad for other businesses.

"With more than 450,000 companies soon to be able to use special purposes financial statements, currently used in Australia, well entrenched accounting processes that have been in place for the last 20 years will almost certainly have to change."

National MP Jonathan Young, chairman of the Commerce Select Committee, says the bill has significant implications for New Zealand's 28,000 registered charities.

"Clear rules are required to improve charity reporting.

"As we have those clear rules and as we have accurate and efficient reporting regarding our charities, once again we will build confidence in New Zealanders in the donation dollars that they give," Mr Young said during the bill's first reading.

Green Party leader Russel Norman argued it would "be good to see a further extension in New Zealand into environmental reporting for companies".

Comments and questions
8

Hope it extends to incorporated societies and especially with the likes of MUNZ, which has recently refiled their 2006 and 07 annual yearly accounts - and, surprise, surprise, they apparently found a few missing millions in assets and cash... Alarm bells anyone?

I hope the auditor-general is ensuring our parliamentary processes and the political parties funded by such entities are thoroughly scrutinised.

You'd think Labour would even be asking / insisting the auditor-general launched a full public and independent inquiry - just for transparency and to ensure they "pay their fair share" of taxes - unlike McCarten's Unite, which apparently still owes the IRD plenty.

What a relief for some companies not to have to file an annual return - this is such a time-consuming process for small businesses.

Having filled in annual returns for a small business, I cannot see how Anonymous claims it is so time consuming.

I think the requirement to continue filing annual company returns is retained, but that fewer companies will required to file their annual financial statements with the registrar, is the current suggestion.

Yes, there is little work involved in completing the annual company return, but heavens, did the government need to reintroduce a filing fee? What does it cost them, seeing it must be filed online...

So accounts will be cheaper to compile for small businesses?

Certain income tax treatment follows the accounting treatment. These will need to be addressed for companies adopting special purposes financial statements to substantially reduce their accounting compliance costs.

By removing the accounting-only requirements, the special purpose accounts will be prepared for tax purposes (as "small" businesses currently do, where they don't meet the current differential reporting rules - i.e. sole traders, partnerships).

While I welcome what these changes are trying to do, directors of small companies need to be mindful that they should still ensure adequate financial reports are being prepared (for example, monthly management reports) that enable the directors to review the financial results of the business.

A tax return is also still required to be filed with IRD so accountants should, in most cases, still be insisting on preparing fully reconciled financial statements to ensure nothing is missed from a tax perspective. These would be what is known as "special purpose" financial statements.

There is a very fine line between unnecessary compliance and good financial management.