Do I have to comply?
Unless you have an exemption from us, all FMC reporting entities must comply with the reporting requirements in part 7 of the FMC Act. It is your responsibility to determine whether you are an FMC reporting entity.
How do I determine if I am an FMC reporting entity?
The concept of 'FMC reporting entity' is broader than 'issuer'. It is defined in section 451 of the FMC Act.
What has changed from the requirements in the Financial Reporting Act 1993?
See Your obligations for a summary of the changes.
How do the financial reporting requirements for FMC reporting entities relate to the reporting requirements in other Acts?
If you are required to produce financial statements under the FMC Act, then these requirements will take precedence over any other NZ law. For example, the Companies Act specifically says it's financial reporting requirements do not apply to companies that have to comply with the FMC Act's requirements.
I only issued equity securities under the Securities Act (not the FMC Act) Do the FMC Act financial reporting obligations still apply?
If you issued securities under the Securities Act 1978, requiring an investment statement or a registered prospectus, (or both) and those securities have not been cancelled or forfeited, some parts of the FMC Act apply to you.
This includes the financial reporting obligations in Part 7. See Part 7 for more information about financial reporting obligations.
The link between the old regime and the new regime is set out in clause 20 of Schedule 4 of the FMC Act.
The issued securities will be treated as a regulated product. This means the obligations of being an FMC reporting entity apply to you, unless the exclusion under section 452 of the FMC Act applies.
As an issuer of securities, you have a higher level of public accountability. See section 461K of the FMC Act for more information.
What is 'higher public accountability' and how does it affect me?
All FMC reporting entities have a designated level of public accountability. This influences which tier of the External Reporting Board Accounting Standards Framework you are in and whether you will have to use full accounting standards (eg, NZ IFRS) or reduced disclosure accounting standards (eg, NZ RDR) when preparing your financial statements.
The FMC Act identifies FMC reporting entities deemed to have ‘higher public accountability’. All other types of FMC reporting entities, therefore, have lower public accountability. These are default designations - under the FMC Act, we can vary designations for either individual FMC reporting entities, or classes of FMC reporting entities. Our exemptions page includes a summary of the designations by class of reporting entity.
Can I prepare my financial statements using the disclosure concessions of the reduced disclosure regime?
Most FMC reporting entities with lower public accountability can report using a reduced disclosure regime (eg, NZ IFRS RDR or PBE Standards with disclosure concession). FMC reporting entities with higher public accountability must comply with full NZ IFRS or PBE accounting standards.
Can I apply the differential reporting framework?
No. The differential reporting framework cannot be used by FMC Act reporting entities. Differential reporting has been replaced by the reduced disclosure regimes of the External Reporting Board - only FMC reporting entities with lower public accountability can apply the disclosure concessions allowed by the reduced disclosure regime.
Can I use financial statements prepared in accordance with overseas financial reporting standards?
You can only use overseas financial reporting standards for ongoing reporting if we have granted you an exemption to do so. See here for details of financial reporting exemptions.
Am I still a FMC reporting entity if I haven't issued anything to the public?
Businesses can be FMC reporting entities irrespective of whether or not they have issued financial products - for example, banks, insurers, licensed fund managers and licensed supervisors. Check our 'who needs to comply' page to see if your business is an FMC reporting entity.
What are my financial reporting obligations if I offer financial products under the trans-Tasman mutual recognition scheme?
Issuers of regulated products are ‘FMC reporting entities’.However, if you are an Australian business and your offer is a ‘recognised offer’, then you are exempt from many of the provisions of the FMC Act, including the disclosure and financial reporting requirements for offers of financial products.
However, you may be an FMC reporting entity for another reason, for example, if you are also listed on the NZX, the financial reporting obligations of the FMC Act will apply.
Can we use special purpose financial reporting for our one-person superannuation scheme?
Yes. You can prepare special purpose financial statements where scheme members are able to obtain special-purpose information that meets their needs. These schemes are required to prepare financial statements that comply with generally accepted accounting practice and send a copy of these to the FMA. To comply with this, we believe NZ IAS 26 still applies including paragraph 1.5. Accordingly, we accept special purpose financial statements. The exact content of the special purpose financial statement is not prescribed and therefore is at the discretion of the trustees. We suggest special purpose financial statements include; a profit and loss balance sheet and a cash flow statement, as well as appropriate accounting policies and notes that reflect the investments of the scheme.
The increasing use of non-GAAP financial information presents challenges to investors and analysts – in particular, the non-professional but prudent-but non-expert investor. To ensure that information is helpful to investors and gives them a better understanding of a company’s financial performance, it needs to be disclosed properly - reflecting an honest assessment of how successful management has been in its stewardship and execution of strategy. And it should come with clear linkages to information which has been prepared using GAAP.
Our guidance note on disclosing non-GAAP financial information is designed to:
The following information is designed to help entities better understand and apply our guidance and will be updated periodically. Our examples are not exhaustive and we encourage entities to apply their judgement and focus on the spirit of the guidance to equip their investors with high quality information.
Does the definition of non-GAAP in the guidance note capture all information disclosed outside of the financial statements?
No, our guidance note primarily focuses on how entities should present non-GAAP financial information in communications and other documents when that information has a potential to be misleading. It does not apply to:
While our guidance note does not apply to these categories of information, the general principles in the guidance note (eg relating to relative prominence) may be useful to preparers of this information.
How should the principle of prominence be applied?
Entities must strive to give a balanced “whole” picture of their performance, exercising their judgement to ensure that non-GAAP information is not given undue and greater prominence than GAAP information. Consideration should be given to various factors, such as, for example:
While a directly comparable GAAP figure should appear in every document containing a non-GAAP figure, this does not mean that the GAAP figure must appear every time a non-GAAP figure is mentioned in a document.
What are some examples of undue and greater prominence?
The following are examples of giving undue and greater prominence to non-GAAP financial information and are therefore potentially misleading:
The following are examples which may not give undue and greater prominence to non-GAAP financial information compared to directly comparable GAAP financial information and are therefore unlikely to be misleading:
The examples listed in the above paragraphs are not exhaustive and are provided to assist in understanding the approach to the guidance note.
Can entities describe items that have occurred in the past or are reasonably likely to occur in a future period as ‘one-off’ or ‘non-recurring’?
Entities should be careful when describing items as one-off or non-recurring, in particular, if non-GAAP financial information is presented as an alternative to a GAAP profit measure. This is particularly relevant for items that are reasonably likely to recur over a life of a business (albeit they may only arise in some years), or are activities that affected the entity in the recent past. This also includes items which are reflective of operational circumstances of an entity’s business, for example, impairment losses recognised from closed down or underperforming stores. For many entities restructuring and impairment costs reflect the activities and performance of their business and, as such, should not be adjusted for in non-GAAP financial information that represents an alternative performance measure or an operating measure. These items should also not be referred to as non-recurring or a one-off cost.
How detailed does the explanation need to be of why non-GAAP financial information is useful to investors?
The level of detail will be down to management’s judgement taking into account the complexity of the information and how familiar the investors are with the measure. However, your explanation should be specific to the entity and provide enough detail to enable a prudent but non-expert investor to understand how non-GAAP financial information can assist them in evaluating and understanding the entity’s performance or position, as compared with the GAAP financial information. Entities with unique non-GAAP measures, or measures that are similar to their competitors but with different calculations, must not imply their measures are comparable and should highlight the key differences. A generic explanation like “we consider this information is useful to the investor as it allows a better comparison of the entity with the other entities in industry X” must have reasonable grounds.
Entities are required to disclose whether non-GAAP financial information has been subject to an audit or review. How does this apply to non-GAAP financial information which components have been extracted from audited financial statements?
We do not consider non-GAAP financial information to have been subject to an audit or review merely by virtue of the adjustment or a component being taken from audited or reviewed financial statements. It is only appropriate to label non-GAAP financial information as ‘audited’ or ‘reviewed’ when that information has been subject to an assurance engagement separate to the assurance engagement of the entity’s financial statements. As well as complying with the provisions as dictated by the relevant assurance standard, this will include, for example, separate materiality and risk considerations as well as a separate assurance report.
What factors should you consider when deciding where to present your reconciliation?
While a reconciliation from GAAP to non-GAAP information doesn’t need to be presented in every document, they are an essential piece of information for investors - therefore you should exercise careful judgement when considering where to present it. In particular, you need to make sure that if you’re providing reconciliation by reference, it will be easily and readily accessible to the investor. As a general principle, providing the reconciliation close to where non-GAAP financial information is first mentioned will facilitate investors understanding of the information. However, in determining the most appropriate location for the reconciliation you will always need to take into account the information needs of the investors and their familiarity with the non-GAAP financial information. This also includes their ability to access a reconciliation provided by reference including how tech-savvy they are likely to be. For example, where the communication is provided in hard copy it is unlikely that providing reconciliation by reference would be appropriate. Listed below are additional suggestions for entities to consider when deciding where to disclose the reconciliation:
The examples listed in the above paragraphs are not exhaustive and are provided to assist in understanding the approach to our guidance note.
How do I avoid cluttering my reconciliation?
We expect an entity to consider which adjustments are necessary to be made in order to support investor’s understanding of the measure. Keeping adjustments to a minimum will also:
The guidance note states that entities should itemise and explain each significant adjustment separately. How much detail is required when explaining each significant adjustment?
Every significant adjustment has to be quantified and explained. The level of detail will vary depending on the nature and complexity of the adjustment but should be sufficient to enable a prudent but non-expert investor to understand why the adjustment is important and necessary. The adjustments made should reflect the explanation on why the information is useful to investors and how it is used internally. Explanations should also go further than just what the item represents, but also cover the circumstances that give rise to the particular adjustment. For example, an adjustment for impairment of goodwill to an operating profit measure should be supported by the cause of the impairment.
Here are some areas to consider when preparing your policy on disclosing non-GAAP financial information
First, consider if it is actually necessary to use non-GAAP financial information or if the movements in GAAP financial information, such as net profit after tax, can be explained in management commentary. When preparing an internal policy on using and disclosing non- GAAP financial information, consider the following:
- the nature of the non-GAAP financial information
- its purpose
- the types of communication
- their understanding of your non-GAAP financial information.
You could also consider making your organisation’s policy on the use and disclosure of non-GAAP financial information available on your website.
What if I can't comply with the financial reporting requirements?
If appropriate, we can exempt you from your financial reporting obligations. Please refer to our exemptions section for more information on qualifying for an exemption and how to apply.
Who can audit my financial statements?
Generally, only licensed auditors or registered audit firms can audit financial statements of FMC reporting entities. However, the Auditor-General can audit FMC reporting entities that are public entities. Where appropriate, we can grant an exemption to enable you to use another auditor. Please refer to our policies for granting exemptions.
Where can I find a list of licensed auditors or registered audit firms?
The register of licensed auditors and registered audit firms is maintained by the Ministry of Business, Innovation and Employment.
What happens if I have a qualified audit report?
Not all qualified audit reports indicate that you have breached your financial reporting obligations. However, if your auditor's report indicates that you have breached your obligations, your auditor must notify us, and we will take appropriate action.
Can I use an auditor from another jurisdiction?
You can use an overseas auditor if:
- the auditor is licensed by us, or
- we have permitted you to do so by an exemption.
What if I can’t find an auditor?
If you can no longer comply with the financial reporting requirements, for example, because you can’t find an auditor who will take you on, or you can’t afford to comply, you cannot remain an FMC reporting entity. You should take steps to wind up your regulated activities.
Who should the audit report specify as having responsibility for preparing the financial statements?
Audit reports should state that “the directors’ are responsible on behalf of the entity for the preparation of the financial statements and fair presentation of these financial statements in accordance with New Zealand Equivalents to International Financial Reporting Standards and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.” Although FMC reporting entities, rather than their directors, have the primary responsibility for preparation, audit and lodgment of financial statements, the directors are also treated as being liable for contraventions of any financial reporting obligations. Directors are responsible for the governance of the FMC reporting entity, including preparation of compliant financial statements.
When do I have to lodge my financial statements?
You have 4 months after your balance date to lodge your financial statements with the Companies Office.
How do I lodge my financial statements?
Please lodge your financial statements using the Companies Office online services.
Do I have to lodge my financial statements with the FMA?
Generally, no. Exceptions include:
What happens if I am late lodging?
Failure to lodge financial statements on time is serious. We may serve an infringement notice on or prosecute FMC reporting entities who do not comply. The infringement fee for late filing is $7,500. A Court may also impose a fine up to $50,000. If you think you will be late filing, you should contact us, outlining the reasons:
What enforcement powers does the FMA have for financial reporting?
Under the FMC Act, we may issue infringement notices for failure to:
keep accounting records in English (infringement fee: $7,500)
allow directors, supervisors, ourselves or any other person permitted by an enactment to inspect of accounting records (infringement fee: $12,500)
We can also take summary proceedings in respect of the above offences (FMC reporting entity liable on conviction to a fine not exceeding $50,000).
Other actions we may take:
Do I have to prepare financial statements if I wind up my business, stop being an issuer or otherwise cease to be an FMC reporting entity during the year?
If you cease to be a FMC reporting entity during an accounting period (for example when you repay outstanding financial products or your license expires), you will still need to prepare and lodge financial statements for the period up until your next balance date. For example, if you are an issuer with a 31 March balance date and you repay all outstanding debt products on 1 January 2017, you will still need to comply for the period ending 31 March 2017.
I am considering applying for a market service licence. Do I need to provide audited financial statements by an FMA approved auditor in my licence application?
No. Essentially, there are no specific requirements to have previously used or engaged an NZ licensed auditor or registered audit firm prior to holding a licence. However, if you are granted a license, to meet the conditions of that licence you will need to engage a NZ licensed/qualified auditor. In the licensing process, we look for evidence that you have engaged, or in the process of engaging a NZ licensed or qualified auditor so we know, you will be able to comply with your conditions.
I manage a DIMS book of less than $250 million. Do I still need to provide audited financial statements and lodge these with the Registrar?
No. We have an exemption, subject to conditions, for small to medium DIMS providers with an independent custodian. The exemption takes a graduated approach to financial reporting requirements, with your obligations increasing as your business increases in size. You will still need to comply with your obligations under other Acts.
I am a fund manager and have a different balance date to my schemes. Do I really have to prepare my scheme’s financial statements within 4 months of my balance date?
Managers of registered schemes must prepare financial statements for those schemes within 4 months of their balance date. Where a manager’s balance date is different to its scheme’s balance date this make compliance difficult or impossible to comply. Because of this, we’ve granted an exemption that allows managers to prepare financial statements within 4 months of the balance date of their schemes – see our exemption notice that permits this.
My managed investment scheme has subsidiaries. Do I need to prepare both parent and group financial statements for my scheme?
Under section 461A of the Act managers are required to prepare financial statements for their schemes that comply with GAAP. In practice many schemes will meet the definition of an investment entity under NZ IFRS 10: Consolidated Financial Statements are required not to consolidate its subsidiaries. However, if your scheme doesn’t meet that definition we do not expect you to produce both parent and group financial statements. We consider that GAAP for the purpose of section 461A means group financial statements.
Is your business prepared?
The date for implementation of new accounting standards – NZ IFRS 9 Financial Instruments and NZ IFRS 15 Revenue from Contracts with Customers – is fast approaching. Many FMC reporting entities could be impacted significantly in a number of ways by the new standards - including financial statements, processes, controls, existing contracts and arrangements, and other associated systems. This means it’s crucial they allow time to assess how they may be affected, and if not already, put in place adequate implementation plans.
Earlier this year, we stressed the importance of the implementation process and the full, accurate and timely disclosure of any possible impact to entities of adopting the new standards. However we are concerned- as our reviews and recent industry engagement show many still haven’t started a proper assessment of the potential impact, or thought about an implementation process. We urge directors and management of FMC Reporting Entities to actively engage with each other – and with their auditors – to ensure readiness for the new standards from 1 January 2018. We will continue to review disclosures of known or reasonably estimable information about the possible impact on FMC reporting entities’ financial statements, as required under the relevant standard. Where necessary, we will engage with FMC reporting entities about their assessment implementation processes.
In December 2016, the International Organisation of Securities Commissions (IOSCO) published a Statement on Implementation of New Accounting Standards. This reinforced the same messages about the incoming accounting standards.
As a member of IOSCO, we are represented on their Issuer, Accounting, Audit and Disclosure Committee.