Changes to Audit Requirements for Some Foreign Owned Companies

Posted: 4th June 2010

April saw a change made to the Companies Act 1993 which has removed the audit requirements for some NZ companies with foreign ownership. This change was made to correct a rather illogical situation where certain companies were required to be audited, but were not required to file their financial statements for public viewing with the Companies Office.

The requirement to file financial statements comes from the Financial Reporting Act 1993. This change now effectively aligns the requirements between the two acts.

Who does the change apply to?

 Previously companies that had 25% or more of foreign ownership were required to have their financial statements audited and filed on the companies office website. Under the new rule only the following need to meet this requirement:

•  NZ companies that are large and have more than 25% foreign control. 
• NZ companies that are owned 50% or more by a foreign company or body corporate

 

A company is defined as "large" if it exceeds 2 of the following:

1. Total assets of the company and subsidiaries exceed $10m
2. Total turnover of the company and subsidiaries exceeds $20m
3. It has 50 or more full-time equivalent employees

 What impact will this have?

 Some companies that have been audited will no longer have to in the future. They now have the choice to resolve not to have an annual audit.

 This will be good news to some companies who only saw their statutory audit requirement as a pure compliance cost.

 We are aware that some NZ companies currently being audited under this requirement will continue to do so. In those cases the ongoing requirement will be to provide independent assurance over the annual financial statements as specified by the foreign owners or a bank or other funding body.

 When can the change be applied?

 Under s196 of the Companies Act shareholders need to pass a unanimous resolution not to appoint an auditor at or before the AGM. This is the meeting before the relevant balance date to which it applies.