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Changes to financial reporting framework confirmed

On Wednesday 14 September, the Hon Simon Power Minister of Commerce announced a number of changes to the financial reporting framework. The key changes are as follows:

*Small and medium sized companies that are not issuers will no longer have to prepare general purpose financial reports. The likely introduction will be mid 2013.

*The External Reporting Board (XRB) will set financial reporting standards for registered charities and any other not-for-profit and public entities that have reporting obligations. The timeframe for likely introduction is mid 2013 for most public benefit entities, with the exception of not-for-profits to be introduced in mid-2014. The details of this proposal are open for your consultation.

Changes to the requirement for SMEs

Currently all companies are required to prepare annual financial reports. Minister Simon Power has today confirmed that non-issuer companies who do not meet the changed definition of large, that is annual revenue of more than $30 million or assets of more than $60 million, will no longer be required to prepare general purpose financial reports.

It is our view that this decision will be a welcome reduction in compliance costs for many businesses (and thus chartered accountants in practice), but that it’s important now to find the balance between cutting unnecessary bureaucracy and having the tools for solid
financial management. For example, it is still expected that these businesses will 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.

NZICA confirm they will be producing a set of high quality guidelines for use in the preparation of annual financial statements by entities that will have no statutory obligation to produce general purpose financial statements under the changes (referred to as Special Purpose Financial Reports-“SPFR”).

To ensure these guidelines are fit for purpose, a working group with representation from users of SPFR will be involved in the development of these guidelines. The group includes representatives of Inland Revenue and the banking industry.

NZICA will be undertaking significant research and stakeholder consultation to ensure the new SPFR are fit for purpose, with the intention that the guidelines developed be robust and simple.

NZICA will also be looking overseas, as there are other countries that have developed similar financial reporting guidelines for SMEs; NZICA will be looking at the lessons they have learned through the application of their guidelines.

Changes for charities and not-for-profit entities

The Minister has confirmed changes to the reporting requirements for charities and not-for-profit entities, including that the XRB will set financial reporting standards for registered charities and any other not-for-profits required to prepare GPFR.

The intention is to make life easier for this sector by setting a consistent basis for reporting and providing certainty as to what is expected.

The XRB will continue to consult with the charities sector in the process of creating the reporting templates.

There will be a significant lead-in period to allow charities to adjust to the new reporting requirements – the reporting template will not be required to be used until 1 July 2014. Charities will be able to early adopt the simple format approach from 1 July 2013, if they so wish.

Further detail

The XRB has released position and consultation papers on the proposed reporting framework with submissions regarding their proposals requested by the end of this year.

Over the coming months you can expect to see regular updates from NZICA on this topic, as we seek feedback for a submission on the XRB framework, and as we develop the SPFRs.

NZICA's October Accountants' Journal will be featuring an article that outlines the changes and proposals in more detail and comments on the impact on the accounting profession. Feedback will also be able to be provided on the framework in the weeks to come.

This is a significant change and as such we’ll be working hard to ensure a smooth a transition for you as our special clients.