Financial Reporting Act Class Exemptions for Australian and United States incorporated companies

In 2006, a new power was given to the Registrar of Companies to exempt certain overseas companies from compliance with various provisions of the Financial Reporting Act as part of the Government's programme to improve the workability of the financial reporting system and reduce business compliance. In this note, Bell Gully partner Glenn Joblin and solicitor Ryan Ellis provide an overview of the two class exemptions issued by the Registrar of Companies since the new provisions came into effect.

Financial reporting obligations

Under the Financial Reporting Act 1993 (FRA), all overseas incorporated companies carrying on business in New Zealand are required to prepare financial statements that comply with the FRA. Those financial statements comprise:

• financial statements in respect of the entire activities of the overseas company;

• consolidated group financial statements (if the company has any subsidiaries); and

• financial statements solely in respect of the activities of the overseas company's New Zealand business.

The requirements under (a) and (b) above are often onerous as many overseas companies that are part of a group of companies are not required to prepare financial statements under the laws of the country in which they are incorporated.

Following the 2006 amendments to the FRA, the Registrar of Companies may exempt the directors of an overseas company from compliance with various provisions of the FRA. The Registrar cannot grant exemptions for any overseas company that is an "issuer" under the FRA (eg. listed entities), although an issuer may apply to the Securities Commission for an exemption under the FRA.

The Registrar of Companies has recently issued two class exemptions and a specific exemption for a particular entity.

Class exemptions

The following class exemptions have been issued:

• the Financial Reporting Act (Overseas Incorporated Companies – United States of America) Exemption Notice 2007; and

• the Financial Reporting Act (Overseas Incorporated Companies – Australian Wholly-Owned Entities) Exemption Notice 2007.

The effect of these class exemptions is that Australian and United States incorporated companies carrying on business in New Zealand may be exempted from certain financial reporting obligations under the FRA.

United States overseas companies class exemption

The effect of this class exemption is to allow overseas companies incorporated in the United States to provide the group financial statements that they are required to prepare under financial reporting requirements in the United States.

Overseas companies relying on the class exemption will be required to:

• prepare and register financial statements for their New Zealand business and consolidated financial statements only (not stand-alone company financial statements);

• ensure that the consolidated financial statements comply with generally accepted accounting principles in the United States (rather than generally accepted accounting practice in New Zealand); and

• have those consolidated financial statements audited in accordance with the requirements set out in United States legislation and the auditor's report will provide the information required by United States legislation.

For United States incorporated companies to gain the benefit of the class exemption, the consolidated financial statements that are to be filed in New Zealand must be accompanied by a report by an approved auditor that complies with the requirements of Part 210 of the Code of Federal Regulations (US).

To access a copy of this class exemption, visit the Government's legislation website www.legislation.govt.nz or click here.

Australian overseas companies class exemption

The effect of this class exemption is to allow overseas companies incorporated in Australia, which are wholly-owned subsidiaries that have been granted relief under the Australian Securities and Investment Commission's Class Order [98/1418] Wholly-owned entities, to file consolidated financial statements for the parent entity only that are required to be prepared in accordance with the Class Order.

Exempted companies will not be required to prepare stand-alone financial statements, although they will remain obliged to prepare, and file with the Companies Office, financial statements for their New Zealand business.

The exemptions are subject to the following conditions:

• the consolidated financial statements prepared in accordance with the Class Order must comply with generally accepted accounting principles in Australia and include any additional information and explanations that are necessary to ensure that those financial statements give a true and fair view of the matters to which they relate; and

• the following documents must be delivered to the Companies Office:

• a copy of those consolidated financial statements;

• a memorandum signed by the directors of the overseas company providing various confirmations relating to those consolidated financial statements and the relief granted under the Class Order; and

• a copy of the deed of cross guarantee entered into by the overseas company in accordance with the Class Order.

To access a copy of this class exemption visit the Government's legislation website www.legislation.govt.nz.

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.