New Zealand tax:
Financial reporting framework document issued

The Ministry for Economic Development (MED) issued a document on 30 September 2009 (Statutory Framework for Financial Reporting) that outlines tentative proposals for the future of financial reporting in New Zealand. It is accompanied by a companion discussion document issued by the Accounting Standards Review Board. With the release of the documents, New Zealand finds itself at a financial reporting crossroads.

The MED aims to create a financial reporting system that is based on a clear and coherent set of financial reporting principles and indicators; weighs the benefits of financial reporting against the costs of compliance; is consistent so that similar entities are subject to similar requirements; and facilitates New Zealand-Australia harmonization to the extent possible to minimize compliance costs for companies that do business in both countries.

The proposals will have some far-reaching consequences including:
- Small closely held companies, in particular small overseas owned and incorporated entities, may find that they no longer have any legislative financial reporting requirements;
- Large for-profit entities other than companies will be brought within the financial reporting regime;
- Many not-for-profit entities will become subject to financial reporting preparation, audit and filing requirements; and
- Large, privately held companies may be required to file audited financial statements. The MED is seeking feedback on applying the approach taken in Australia, which exempted companies that existed when the legislation came out (a "grandfathering" provision), but required new entities that met the economic significance criteria to file their audited financial statements.

Changes in the accounting standards are also proposed.

This financial reporting review is a significant undertaking and there are challenges to make sure New Zealand strikes the right balance for all entities. The papers are open for discussion and a number of questions are set out within them that affected entities should be discussing. Submissions must be made by 29 January 2010.