Start-ups tipped as winners

Michael Barnett. Photo / Natalie Slade

Changes to financial reporting regulations will enable start-up companies to focus their capital on growth, says a spokesman for the New Zealand Institute of Chartered Accountants.

The Financial Reporting Bill has wide cross-party support and is expected to pass its third reading.

Arguably the most significant change proposed will see smaller companies no longer required to file financial reports, a process that can be time consuming and expensive, while fewer companies will be defined as large.

New Zealand Institute of Chartered Accountants spokesman John Hodge said the changes would benefit start-up businesses.

"From a start-up perspective, this bill will be welcomed because a lot of new companies will not reach the threshold [of large]," Hodge said.

Many new companies invested a significant amount of their revenue into growing their assets, so the bill would ease their reporting requirements, he said.

"From a compliance perspective that allows them to focus their capital on growing the business."

Michael Barnett, chief executive of Auckland Chamber of Commerce, said the changes were generally positive.

"The compliance issue being removed is what the real gain is," Barnett said.

However, he said changes easing the compliance burden were not always good for business owners, and that having to produce accurate reports could lead to better business practices.

"The requirement to report puts on a strong discipline around your business."

Meanwhile, the definition of an issuer, as currently set out in the Financial Reporting Act 1993, has been removed from the bill, with issuers to instead refer to the Financial Markets Conduct Bill, which is also awaiting its third reading.

Hodge, NZICA's general manager of technical and quality assurance, said in practice this was mostly a linguistic change and almost all of the same protections and obligations would apply.

The most significant change in this area comes for non-listed issuers, which will have their deadline to produce a financial report reduced from five months to three.

Bell Gully partner Glenn Joblin said listed issuers already had to file stock exchange information within three months and would effectively be unaffected.

"It will mean that other issuers will have to produce their statements more quickly," Joblin said. "I think that's just the Government being keen to make sure information for investors is as current as possible."

It was proposed that the reporting deadline be reduced to three months for several other entities, but this change was reversed at the recommendation of the Select Committee.

The rules around audits and which companies will need them are being slightly relaxed, although changes here are generally minor.

A company will only be required to hire an auditor if its financial statements or group financial statements are required to be audited.

Companies that need to file financial statements will still need to be audited.

However, shareholders can opt out of having their company audited if enough voting shareholders agree to do so. Foreign enterprises will not need their subsidiaries to be audited, apart from any group statements.

The Financial Reporting Bill will amend more than 80 acts as it updates and replaces the Financial Reporting Act 1993.