Doing business in New Zealand - Grant Thornton

Financial reporting and audit
Domestic requirements
Presently, all companies registered in
New Zealand, whether or not they
are incorporated in New Zealand,
must prepare financial statements that
comply with the requirements of the
Companies Act 1993 and the Financial
Reporting Act 1993.
The Financial Reporting Act 1993
requires compliance with generally
accepted accounting practice in New
Zealand (NZ GAAP). For most
companies this necessitates compliance
with applicable financial reporting
standards (ie, accounting standards
that have the force of law behind them,
which means that if they are breached
significant fines and/or imprisonment
can result) or, where there is no
applicable reporting standard,
accounting policies that are appropriate
to the entity’s circumstances and that
have authoritative support within the
accounting profession in New Zealand.
It should be noted that significant
amendments are likely to be made
to this legislation within the next 12
months so please consult our website
for the latest details:
www.grantthornton.co.nz/Services/
Audit/IFRS/financial-reportingchanges.html.
There is currently a category
of companies called “exempt”
companies and their financial reporting
requirements are outlined in legislation.
They are companies that have total
assets and turnover not exceeding
NZD$450,000 and NZD$1,000,000
respectively, are not subsidiaries
of other companies and have no
subsidiaries of their own, and have up
to nine months after balance date within
which to complete financial statements.
The Government has indicated that
it intends to modify the Financial
Reporting Act 1993 and remove this
type of company. It will be replaced by
a reporting regime where a company
or a group of companies with common
ownership that have total assets below
$60 million or revenues less than $30
million per year will no longer be
required to produce general purpose
financial statements in accordance with
NZ GAAP.
Accounting standards
NZ GAAP currently differs from US
GAAP and International Financial
Reporting Standards (IFRS) in a
number of respects:
• The Financial Reporting Act 1993
does not permit standards to be
overridden where compliance with
NZ GAAP would not give a true
and fair view. Instead, the applicable
standards must always be followed
and, if they do not present a true and
fair view, then the directors must cite
why this is the case and present the
financial statements in a way that
they believe does present a true and
fair view. The auditor then needs to
determine whether they concur with
the directors’ point of view or not
• “Exempt” companies may elect to
prepare financial statements that
are not consistent with NZ GAAP
because there is a concessional
framework for small companies
provided by the Financial Reporting
Order 1994 (a regulation stemming
from the Financial Reporting Act
1993)
• Entities that meet the criteria for
differential reporting (see differential
reporting, p16) have the option to
exempt themselves from complying
with certain financial reporting
standards, including the requirement
to prepare a statement of cash flows
and segment reporting
New Zealand equivalents of
International Financial Reporting
Standards (IFRS)
NZ GAAP is presently undergoing a
transition. Currently, all entities must
report under New Zealand equivalents
of International Financial Reporting
Standards (NZ IFRS) or New Zealand
Financial Reporting Standards (FRS).
However, going forward, the External
Reporting Board (the body that
creates applicable financial reporting
standards) in April 2011 signalled that
public sector entities will for periods
commencing on or after 1 July 2014 be
required to report under New Zealand
equivalents of International Public
Sector Accounting Standards (NZ
IPSAS). Not for Profit organisations
will have a modified form of NZ IPSAS
and the operative date for these types
of entities is likely to be for periods
commencing on or after 1 April 2015.
Doing business in New Zealand 15