The reporting requirements for companies are included in the Companies Act 1993. These requirements were amended in 2014 with the Government’s intention to simplify and reduce the cost of compliance for companies.

However, in practice the amendment to the Companies Act 1993 has also resulted in difficulties for Directors correctly assessing a company’s statutory reporting requirements. Incorrectly assessing a company’s statutory reporting requirements can have serious ramifications including the ability under the Companies Act 1993 for a fine not exceeding $50,000 to be issued to a company and / or fines not exceeding $50,000 to be issued to each Director of a company.

Depending on the reporting requirements of the Companies Act 1993, a company is either required to prepare financial statements that comply with generally accepted accounting practice (GAAP) or are prepared on a special purpose basis.

Financial statements that comply with GAAP must follow the recognition, measurement and disclosure requirements of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) or New Zealand equivalents to International Financial Reporting Standards with reduced Disclosure Regime (NZ IFRS RDR). Financial statements that are prepared on a special purpose basis do not need to follow any prescribed accounting framework, but they should be appropriate for the purpose upon which they have been prepared and meet the needs of the intended users. For example, a company that does not need to prepare financial statements, that comply with GAAP, could prepare special purpose financial statements in accordance with relevant income tax law to assist with the lodgement of the company’s income tax return.

The key is understanding when the Companies Act 1993 requires your company to prepare financial statements that comply with GAAP, as this is where non-compliance with statutory requirements could lead to the aforementioned fines.

Section 201 and 202 of the Companies Act 1993 states that every company or overseas company must prepare financial statements that comply with GAAP (or prepare consolidated financial statements that comply with GAAP where the company or overseas company has subsidiary entities) when the company or overseas company meets the requirements of section 200 of the Companies Act 1993.

A company or overseas company will meet the requirements of section 200 of the Companies Act 1993 upon satisfaction of any one of the following criteria:

• The company is a “large company”, meaning that the company is large in respect of an accounting period if at least one of the following paragraphs applies:

(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.

• The company is a “public entity”; public entities are typically controlled by the Government and subject to audit by the Auditor-General.

• The company is a “large overseas company”, meaning that the overseas company or a subsidiary of an overseas company is large in respect of an accounting period if at least one of the following paragraphs applies:

(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 .

• The company has 10 or more shareholders and has not opted out of the requirement to prepare financial statements in accordance with GAAP under section 207I of the Companies Act 1993. It should be noted that section 207I of the Companies Act 1993 does not apply where the constitution of the company states that financial statements must be prepared in accordance with GAAP or the company is a large company or a public entity.

• The company has fewer than 10 shareholders and has opted into compliance with the requirement to prepare financial statements in accordance with GAAP under section 207K of the Companies Act 1993.

It should be noted that if a New Zealand company prepares consolidated financial statements that comply with GAAP and the Companies Act 1993, any subsidiary entities of this company are not required to prepare financial statements that comply with GAAP.

Preparing financial statements that do not comply with the requirements of the Companies Act 1993 can expose the company and its Directors to fines. It can also be noted that the reporting requirements of the Companies Act 1993 can be complex.

If you are a Director of a company and are unsure of your reporting requirements under the Companies Act 1993, we would be happy to provide you with assistance. Please contact our Audit and Assurance team.