Draft legislation is in the process of being finalised that will change the level of detail required in an entity’s financial statements, depending on its size.
Currently, if a New Zealand company meets two or more of the following criteria, General Purpose Financial Reporting (GPFR) requirements must be met when financial statements are prepared:
- annual turnover of more than $2 million
- total assets of more than $1 million
- have more than 5 employees
GPFR requires certain key information to be included in a set of financial statements and is intended to provide information to stakeholders (such as the bank or the IRD) for decision making purposes or accountability purposes where they would generally be unable to obtain the information themselves. GPFR is a legal requirement and standards are set by the External Reporting Board.
Companies who fall below the above requirements are exempt and may report using Special Purpose Financial Reports (SPFR), which are basically a simplified form of financial statements that enable companies to choose what information is included.
In an attempt to reduce compliance costs for SMEs, it is proposed that GPFR will not have to be complied
with if an entity has:
- annual revenue of less than $30 million, or
- total assets of less than $60 million.
Note: these changes do not apply to Issuers.
It is expected that 98% of New Zealand’s Companies would fall into the new SME definition. The New Zealand Institute of Chartered Accountants (NZICA) has created a working party to develop a recommended accounting framework for SMEs. The framework will be in a simple language format, and include industry based model financial statements.
The IRD is also working on a minimum reporting standard for its purposes to ensure consistency in its requirements. As the IRD is the single biggest user of financial statements in New Zealand it is important that taxpayers do not have to amend their statements after they have been prepared, to meet the IRD’s needs. Draft legislation is being finalised that will provide the IRD with the legislated basis for setting these requirements. The IRD will initiate public consultation later in the year.
The changes are to apply from the 2013 / 2014 income year or 1 April 2015 at the latest. The reduction in the requirements for SMEs should hopefully bring a welcome reduction in compliance costs.