As the new climate reporting standards continue to make headlines, it is important for small and medium-sized businesses in New Zealand to stay informed about their financial reporting obligations, even if the climate standards do not directly affect them. Navigating the complex financial reporting landscape in New Zealand can be challenging, but compliance is essential. This article is designed to provide SMEs with an overview of their financial reporting obligations.
Some New Zealand and overseas companies have financial reporting obligations under New Zealand law, depending on their financial size and shareholder base. In this respect, some “large” New Zealand companies, and all “large” overseas companies, are required to file financial statements with the Companies Office.
The definition of a “large” company for the purposes of financial reporting in New Zealand is objective and is based on specific financial criteria (total assets and revenue). So, it is possible that the financial reporting definition of a “large” company in New Zealand could capture an SME. An SME that has been in business for a while, grown and expanded, could potentially meet the criteria for a “large” company, even though it might still be considered a small business operationally.
It is crucial for companies to stay updated on their financial reporting obligations and to comply with applicable laws. Neglecting to do so may lead to penalties and fines for both the company and its directors.
What are the key obligations?
In the table below, we set out an overview of the key thresholds and resulting obligations. In general terms, financial reporting obligations consist of three key obligations:
- the obligation to prepare financial statements (or where the company has subsidiaries, group financial statements);
- the obligation to have those financial statements audited; and
- the obligation to publicly file those financial statements with the Companies Office.
The table below sets out when each of these obligations applies and when a company may “opt-out” of these obligations. Separate requirements apply to the preparation of annual reports.
|Company||Applicable “large” threshold||Prepare||Audit||File||Deadline|
|Large NZ incorporated company (with less than 25% overseas ownership)||In each of the two preceding accounting periods, total assets (including subsidiaries) at the balance date exceeded $66 million, or total revenue (including subsidiaries) exceeded $33 million.||Yes||Yes
|Large NZ incorporated company (with 25% or more overseas ownership)||In each of the two preceding accounting periods, total assets (including subsidiaries) at the balance date exceeded $66 million, or total revenue (including subsidiaries) exceeded $33 million.
Unless it is a subsidiary of an overseas company – see below
|Yes||Yes||Yes||5 months from balance date|
|Large overseas company carrying on business in NZ*||In each of the two preceding accounting periods, total assets (including subsidiaries) at the balance date exceeded $22 million, or total revenue (including subsidiaries) exceeded $11 million.||Yes||Yes||Yes|
|or Large NZ subsidiary||Yes||Yes||Yes|
|Non-large NZ company with ≥10 shareholders||-||Yes
|Non-large NZ company with <10 shareholders||No
* If the New Zealand business of the large overseas company is itself “large”, then financial statements will need to be prepared under NZ GAAP for that business, as if it were a standalone company. These financial statements must also be audited and publicly filed.
Opting in and out
Non-large New Zealand companies with 10 or more shareholders can opt-out of preparing financial statements and having them audited, unless the constitution provides otherwise. Large New Zealand companies are required to prepare and audit financial statements but can opt-out of having them audited if they are less than 25% overseas owned.
To opt-out, shareholders must pass a resolution within the opting period with at least 95% support.
Non-large New Zealand companies with fewer than 10 shareholders are not required to prepare financial statements. However, shareholders can opt-in to preparing financial statements and having these audited. To opt-in, shareholders with at least 5% of the voting shares must give written notice to the company, at least 5-working days before the end of the opting period, that they require the company to prepare financial statements, and if applicable, have these statements audited.
The opting period runs from the start of the accounting period until the close of the earliest of:
- the date that is six months after the start of the accounting period;
- the date of the annual meeting to be held in the accounting period; or
- in the case of an accounting period that is shorter than six months (as a result of the date of the registration of the company or a change of the balance date of the company), the balance date of the period.
The Registrar may exempt large overseas companies from preparing financial statements if they are satisfied that compliance would be unduly onerous or burdensome, reporting requirements in the country where the company is incorporated are satisfactory, and the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave rise to the exemption. The Registrar may grant an exemption on any terms and must publish their reasoning for granting the exemption.
However, if the New Zealand branch of the overseas company is large, financial statements for the New Zealand business are still required to be audited and publicly filed.
The Registrar has issued a class exemption for companies incorporated in Australia that have been granted relief by Australian Securities and Investment Commission (ASIC) instrument 2016/785. Companies that qualify must provide their consolidated financial statements, prepared and audited to Australian standards, to the New Zealand Companies Office within 20-working days of the date they were required to be signed, along with a copy of the auditor’s report and a memorandum signed by two directors confirming the applicable exemption and ASIC relief. The class exemption will expire on the close of 31 July 2025.
What are the consequences of not filing?
The consequences of non-compliance vary depending on the severity of the violation and the specific obligations that were not met:
The late fee for financial statements filed up to 25-working days after the due date is $25, and $100 if filed more than 25-working days after the due date.
If a company fails to file audited financial statements, the company and its directors may eventually be subject to an infringement penalty of $7,000 (per director or the company), and if the penalty is not paid, the company may be referred to the Companies Office investigation team.
In cases of serious non-compliance, the company and its directors may also be prosecuted and, on conviction, be subject to a fine of up to $50,000.
If you have any questions about the financial reporting obligations your business may have, or for assistance with filing financial statements with the Companies Office, please contact one of our experts.
This article was co-authored by Brayden Print, a Solicitor in our Corporate and Commercial team.
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