New legislation will have an impact on your operations – be ready

Last year ended with the passing of important new acts for the accounting industry that will have significant impact and implications for organisations such as yours.  In this article, we challenge you to consider what your governing body needs to consider to be best prepared for changes effective from 2015 onwards, and others from 1 April this year.

We also summarise the changes in the Acts affected: Financial Reporting Act 2013, Financial Reporting (Amendments to Other Enactments) Act 2013, Financial Markets Conduct Act 2013, and Non-bank Deposit Takers Act 2013.

All are available for viewing at www.legislation.govt.nz

What you need to consider

We suggest your governing body considers the following and discusses these with your accountant or financial statement preparer, to ensure you are prepared for the changes. Details on the financial reporting standards are available on the External Reporting Board’s website www.xrb.govt.nz

  • What financial reporting standards will you be required to report under?
  • If you are a small or medium sized company, read your constitution to see if you are required to prepare financial statements in accordance with with Generally Accepted Accounting Practice (GAAP).

If so, you may wish to consider changing to the special purpose format, as not doing so will require you to comply with GAAP – being NZ International Financial Reporting Standards (NZIFRS).

  • What changes will occur to the basis of preparing the financial statements?  Some companies will need to prepare under NZIFRS. Not for profits will need to prepare under the new Public Benefit Entity standards.
  • Will filing and audit requirements change for your entity? What does your constitution currently require to be prepared and does your constitution need amending?
  • Will there be increased accounting and auditing costs that need to be budgeted for in the coming years when the new reporting standards are in place?
  • Will systems, processes, policies and internal controls need to be modified to ensure data is adequately captured to be used with the new reporting standards?

Financial Reporting Act 2013

This Act comes into force on 1 April 2014, except for the provisions that amend the Charities Act, which will come into force on 1 April 2015.
Important points of this law include:

  1. New definitions of large entities required to prepare financial statements in accordance with GAAP:

Large entities (other than an overseas company or a subsidiary of an overseas company) are defined as large if at least one of the following conditions is met:

a) As at the balance date of each of the two preceding accounting periods, the total assets of the entity and its subsidiaries (if any) exceed $60 million:

b) In each of the two preceding accounting periods, the total revenue of the entity and its subsidiaries (if any) exceeds $30 million.

An overseas company or a subsidiary of an overseas company is large in respect of an accounting period if at least one of the following conditions
is met:

a) As at the balance date of each of the two preceding accounting periods, the total assets of the entity and its subsidiaries (if any) exceed $20 million:

b) In each of the two preceding accounting periods, the total revenue of the entity and its subsidiaries (if any) exceeds $10 million.

2.  Most small to medium sized companies and subsidiaries of overseas entities will no longer have to prepare annual financial statements in accordance with GAAP.  However, they will still need to prepare special purpose financial reports, the format of which is still being developed (refer to our spring 2013 newsletter for more on this). There will be no entities reporting as exempt companies – these companies will most likely prepare special purpose financial reports for tax purposes.

3.  Not for profits are now required by law to prepare financial statements in accordance with GAAP: previously there was no requirement for this.

4.  An entity must ensure that an auditor has access at all times to the accounting records and other documents of the entity. The auditor is entitled to require from a director or an employee of the entity, the information and explanations that he or she thinks necessary for the performance of his or her duties as auditor. If an entity fails to comply, they are liable to a fine not exceeding $50,000.

5.  It defines a specified not for profit entity as an entity where, in each of the two preceding accounting periods of the entity, the total operating payments of the entity are $125,000 or more. Those entities that meet this definition will be required to prepare annual financial statements in accordance with GAAP under the Charities Act 2005, which has been amended by the Financial Reporting (Amendments to Other Enactments) Act 2013.

Financial Reporting (Amendments to Other Enactments) Act 2013

This Act became law at the same time as the Financial Reporting Act. The purpose is to amend other acts governing financial reporting. Acts amended include the Charities Act and the Companies Act.

Financial Markets Conduct Act 2013

This Act comes into force in two phases from 1 April 2014.  It replaces several Acts, including the Securities Act, the Securities Markets Act, the Unit Trusts Act, the Superannuation Schemes Act, and the non-tax parts of the KiwiSaver Act.

The main purposes of this Act are to:

  1. Promote the confident and informed participation of businesses, investors, and consumers in the financial markets; and
  2. Promote and facilitate the development of fair, efficient, and transparent financial markets.

Key changes in the Act include:

  • A new requirement for issuers to prepare a single product disclosure statement tailored to retail investors who receive the service. The form and detail of this will be detailed later in an Order in Council issued by the Governor General.
  • Two new online public registers that will  make offer documents and information much more accessible to investors, their advisers, market analysts, and commentators.

These will be a register of offers of financial products, and a register of managed investment schemes.

  • New licensing regimes for specific financial services providers including fund managers, independent trustees of workplace superannuation schemes, discretionary investment management services and derivatives issuers.
  • New forms of capital-raising, such as peer-to-peer lending and crowd-funding.
  • New duties on fund managers and supervisors, and stronger governance requirements.
  • A new system to regulate securities exchanges such as the stock market, including allowing for new low cost exchanges to make capital-raising easier and cheaper.
  • A consolidation of financial reporting requirements for issuers into this one act. There will also be requirements to keep accounting records and have financial statements audited by a qualified auditor.

Autumn 2014

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