There is a lot of change happening at present in the world of NZ financial reporting and financial markets law – and whilst 2013 has been a year of progress, much is still not quite locked down! Here is a quick snap shot of the progress of the various strands of legislative and regulatory reform that may impact your financial compliance requirements.
Financial Reporting Bill
The Financial Reporting Bill, the proposed legislation that drives the largest overhaul of NZ’s financial reporting in a generation, has now been through the Select Committee process. Two of the most significant recommendations made by the Commerce Select Committee that are expected to be incorporated into the final Act are:
For entities required by law to prepare financial statements and file these, the initial Bill contained a three month deadline for approving financial statements, but effectively provided another month for filing of the financial statements. This effectively shortened the previous filing deadline of 5 months and 20 working days by almost two months!
The Select Committee has recommended that the deadlines be simplified to be a single deadline for both preparation of financial statements and the filing of these. The new deadline for both preparation and filing proposed is:
FMC Reporting Entities (issuers) 4 months from balance date
Other entities: 5 months from balance date
“Cash” accounting threshold for Small Charities
Charities with under $125,000 of expenditure will be able to report under a cash basis, rather than an accruals basis. This is a significant change as the threshold was originally a much lower $40,000 in the draft bill. This will mean around 25% of registered charities will be able to adopt the simplest tier of financial reporting requirements.
Development of accounting standards
The External Reporting Board (XRB), the Government’s accounting and assurance standard setter, has been busy developing the accounting standards to underpin the new sector specific tiers of financial reporting. We’ve previously provided a diagram of how the new tiers will work, which you can find at:
Progress is being made on developing the appropriate accounting standards on all of these tiers.
For-profit Reduced Disclosure Regime:
NZ IFRS Reduced Disclosure Regime (NZ IFRS RDR) is available now for entities that wish to simplify their financial reporting. This will be of benefit to entities that currently apply full reporting under NZ IFRS because they are large, but are not a Tier One entity.
NZ IFRS RDR significantly reduces the volume and complexity of disclosure required compared to full NZ IFRS – However we would only recommend early adoption at present by those not previously able to apply differential reporting.
All large for profit entities will be required to adopt NZ IFRS RDR once the Financial Reporting Bill becomes law and effective.
Public Sector Tier 1 & 2 Public Benefit Entity (PBE) Frameworks:
The XRB’s Public Sector standards developed based on International Public Sectors Accounting Standards have now been released. As well as the standards taken from the international arena (with some local content added), there are two completely local standards PBE FRS 46 and PBE FRS 47 that deal with the first time transition to these standards. These public sector standards for Public Benefit Entities (PBEs) can be found at: click here
These new accounting standards will apply for accounting periods commencing on or after 1 July 2014, for public benefit entities with operating expenditure of over $2m.
Entities required to apply these standards are encouraged to consider developing a transition plan as soon as possible – as the standards will require that comparative information also be presented in accordance with these standards. As always the Hayes Knight team are happy to provide assistance if needed.
Smaller Public Benefit Entity (PBE) Frameworks
Exposure drafts have been presented for Tiers 3 and 4 for both public sector and not-for-profit (NFP) groups. These “Simple Format” accounting frameworks provide a single standard for preparers to follow. These standards will apply to all NFP’s with less than $2m of annual expenditure, and provide a significantly reduced compliance burden for these entities, compared to those that will be required to report under PBE IPSAS standards.
Details of the exposure drafts (which are now closed for comment) can be found at: click here
Not for profit PBE Standards
Tier 1 and 2 NFP PBE Standards are still under development, but exposure drafts should be released for public comment before the end of 2013. These standards are based on International Public Sector Accounting Standards with specific content developed locally in New Zealand to assist in their consistent application to the not for profit sector.
NZICA SME Guidelines – For profits
Small for profit entities (that are not issuers) will cease to be required to prepare financial statements in accordance with GAAP once the Financial Reporting Bill becomes law. This applies to many New Zealand businesses and is a significant change in their annual accounting requirements.
In response to this, the New Zealand Institute of Chartered Accountants (NZICA) is developing guidelines to underpin how such entities should report. The objective of these guidelines is to ensure accounting methods are simple and straightforward – but still provide robust financial information for users. These are still in development at present – but it is expected that these will be ready to use for periods commencing after 1 April 2014, once the Financial Reporting Bill is passed.
Financial Markets Conduct Act
In addition to the ongoing review of the financial reporting requirements, a significant piece of securities law has recently been passed – the Financial Markets Conduct Act. This new law repeals the Securities Act 1978 and the Securities Markets Act 1988. It is a broad ranging piece of legislation with implementation beginning to be required from 1 April 2014 – but with many aspects to be phased in over a longer period. Like the Securities Act before it, much of the detailed requirements will be in the form of separate regulations. The detail of these regulations is still currently being developed, and due to be released in 2014. Detail aside, it is clear that:
- Investment Statements and Prospectuses will be superseded by a new “Product Disclosure Statement”
- New public registers will be created for offers and managed investment schemes
- More specific governance requirements will be present for debt and managed investment schemes
Anyone involved in issuing securities to the public or providing financial services should stay abreast of the details in this complex area. More information on the current progress can be found at: