Financial Reporting Act 1993 (FRA) defines companies into two categories: Exempt companies and Reporting Entity.

Exempt Company audit requirements

Exempt companies need not to comply with the auditing requirements.
Section 6A of FRA defines exempt company:
Exempt company must not be an issuer or overseas company or the subsidiary of another body corporate and did not have any subsidiaries. Further more it must meet two of the following criteria:

• the value of the total assets of the company (including intangible assets) reported in the statement of financial position did not exceed $1,000,000
• the turnover of the company did not exceed $2,000,000
• the company has 5 or fewer full-time equivalent employees

Reporting Entity audit requirements

A company need not to appoint an auditor if a unanimous resolution is passed by the shareholders that no auditor be appointed. 
However the above exemption does not apply for the following four situations, where the reporting entity must submit the audited financial statements with the registrar of companies as per the FRA- 
1. Section 19 (1) (a) : An Overseas company carrying business in NZ

2. Section 19 (1) (b): Any company which is large AND in which 25% of more voting power at a meeting of a company held by:
     a. Subsidiary of a company or body corporate incorporated outside NZ
     b. A company or a body corporate incorporated outside NZ
     c. A person not ordinarily resident in NZ

3. Section 19 (1) (C): Any company that is subsidiary of a company or body corporate incorporated outside NZ
     a. Exemption is 19 (2) if the company is a subsidiary of a company which is incorporated in NZ.

4. Section 18: Is an issuer within the meaning of section 4 of the FRA

Definition of Large

A company is a Large company if it meets at least two of the following criteria: section 19 A (1) (b) of the Financial Reporting Act 1993:
• Consolidated total assets of NZ$10 million
• Consolidated total income of NZ$20 million 
• 50 full time equivalent employees.

Definition of overseas company

Section 2(1) of companies Act 1993: overseas company means a body corporate that is incorporated outside New Zealand. An overseas company can operate in New Zealand in one of three ways:
By establishing a wholly owned New Zealand subsidiary company and registering on the New Zealand register under Part II of the Act (sections 11 to 15).
By establishing a branch operation and registering as an overseas company on the overseas register under Part XVIII of the Act (sections 332 to 337).
By transferring its incorporation from the country in which it is registered to New Zealand under Part XIX of the Act and becoming a New Zealand company by registering under Part II of the Act (sections 344 to 349 and 11 to 15).

Definition of subsidiary

A company is a subsidiary of another company if (section 5 of the Companies Act 1993_:
 a. That other company—
   i. Controls the composition of the board of the company; or
   ii. Controls more than one-half of the voting rights/ issued shares/ entitled to receive dividend or profit or capital.

As per above section 19(1)(c) of the Financial Reporting Act 1993 sets the requirement to register financial statements of a company that is a subsidiary of any company or body that is incorporated outside New Zealand.

The word ‘subsidiary’ in the Financial Reporting Act 1993 refers to all levels of subsidiary of a company, therefore if there are five levels of subsidiaries, all subsidiaries may be required to file financial statements.
However, the exceptions to the requirement to file for companies that satisfy section 19(2) may apply.
For example, if Company A is a subsidiary of a New Zealand company which is a subsidiary of a New Zealand company which is a subsidiary of a company incorporated outside New Zealand, Company A will not need to file accounts if the first subsidiary incorporated in New Zealand files group accounts.

Definition of Body Corporate

A Body Corporate is an organisation which has been incorporated as a company, a cooperative company, an incorporated society or a charitable trust. (www.business.govt.nz)

Differential Reporting for reporting entities:

Entities that not have public accountability, provided there is no separation between the owners and the governing body, or the entity is not large.

Reporting entities that do not qualify for differential reporting exemptions must also prepare a Statement of Cash Flow.

Registration of Financial Statements

Section 10 (1) FRA: Reporting entities must ensure that financial statements are completed within five months after balance date.

Non Active Companies need not to prepare financial statements:

Section 10 of the FRA outlines the criteria for non active companies:
Non-active entities not required to prepare financial statements if the entity was non active and declaration of which has been filed with the Registrar.

An entity is a non-active entity in respect of an accounting period if the entity is not an issuer and, during that period, the entity—
o Has no income or expense, not disposed any assets
o Not involved in activity which would give rise to its tax obligation.

Except:
o statutory company filing fees or associated accounting or other costs; or
o bank charges or other minimal administration costs totalling not more than $50 in the accounting period; or
o interest earned on any bank account during the accounting period, to the extent that the total interest does not exceed the total of any charges or costs incurred by the entity

About the author:

Saurav Wadhwa is an Auckland based chartered accountant and a director of IBBZ Accounting Limited. Saurav is a tax specialist with Masters in Tax with Distinction (Auckland) and have 10 years of experience in the industry. He is very passionate about helping small business owners. His easy going personality and a friendly nature makes him easily approachable. For all your tax problems including overdue tax returns, management of tax debt, tax consultancy, and IRD audits & disputes  you can contact him at This email address is being protected from spambots. You need JavaScript enabled to view it.">This email address is being protected from spambots. You need JavaScript enabled to view it.">This email address is being protected from spambots. You need JavaScript enabled to view it.  or 027 5555 458.

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Information above is provided for general use only, if you are intending to rely on any of the information above please consult with us or seek a professional advice. If information provided above result in any kind of loss to you we can not be held responsible.