SMEs to be released from financial reporting straitjacket

Small businesses and charities can forget about detailed financial reports under plans to simplify rules around financial reporting.

A ‘targeted report for tax purposes’ could instead be all that’s required for non-listed companies that earn less than $30 million annually or have assets of less than $60 million.

Changes the government is proposing would have a dramatic impact - slashing the number of companies required to prepare general purpose financial reports from 460,000 to less than 10,000 and cutting business compliance costs by an expected $90 million a year.

Commerce Minister Simon Power said the changes would also improve financial reporting by charities, which are currently not subject to financial reporting standards and it is unclear what they need to file with the Charities Commission.

“The new framework will promote accountability of senior management and ensure people with an interest in the economic performance of a company can have confidence in the information they receive,” Mr Power said.

“It will also clarify charities’ financial reporting obligations, particularly as many rely on volunteers who are currently unsure about what they need to prepare.

“The changes will strengthen the public’s confidence that the money they donate to charities is being used effectively and efficiently,” he said.

Government will work closely with the New Zealand Institute of Chartered Accountants (NZICA) to develop the condensed reporting guidelines ahead of consultation with businesses.

All New Zealand companies are required to produce financial reports under the Companies Act – an exercise that can be time-consuming and expensive.

NZICA chief executive Terry McLaughlin said plans to make SMEs exempt reflects moves in Australia and will be welcome reduction in red tape for many businesses.

“The decision reflects New Zealand’s unique business landscape; it makes sense for smaller businesses to be exempt from preparing general purpose financial reports. What will be important now is to find the balance between cutting unnecessary bureaucracy and having the right tools for solid financial management and assessment of business health.”

“For example, businesses will still generate financial reports for tax purposes, if they have shareholders with vested interests or if they need to prepare financial reports for major creditors such as banks or lenders,” said Mr McLaughlin.

Mr Power said the government would introduce a Financial Reporting Amendment Bill to Parliament next year.