Reduced financial reporting requirements for SMEs


Recent changes to the Financial Reporting Act 2013 (FRA 2013) have changed the requirements for entities that are not “large” by definition.

Broadly, this means that most NZ businesses will no longer have to prepare financial statements that comply with New Zealand Generally Accepted Accounting Practice (NZ GAAP). Recognising that this could lead to a reduction in the disclosure of financial information by a business, the IRD has introduced its own minimum standards. The standards are aimed at providing the IRD with a basic level of information so that it can adequately assess a business’s performance.

From 1 April 2014, the IRD requires companies (including look-through companies) that have annual revenue of $30 million or less, and assets of $60 million or less (or subsidiaries of multinational companies with less than $10 million of annual revenue and assets of less than $20 million) to prepare financial statements that meet its stated minimum requirements.

Entities that exceed these thresholds are required to prepare more extensive financial statements as per the standards set out by the External Reporting Board.

Some extremely small companies will be exempt from the IRD’s minimum requirements, as follows:

  • Companies that:
    • are not part of a group of companies, and
    • have not derived income of more than $30,000, and
    • have not incurred expenditure of more than $30,000 in an income year.
  • Non-active companies who are not required to file a return.

Minimum Requirements

Under the IRD’s minimum requirements, the financial statements must contain:

  • a balance sheet setting out the assets, liabilities and net assets of the company at the end of the financial year,
  • a profit and loss statement showing income derived and expenditure incurred for the year,
  • a statement of accounting policies describing the basis on which the accounts have been prepared, and a description of any material changes in accounting policies used since the previous income year.


The statements must be prepared using double entry and accrual accounting principles. There are also certain valuation principles that may be applied. Tax values may be used where they are consistent with double entry and accrual accounting, or historical cost when tax values are not consistent with the accounting principles used, or when historical cost provides a better basis for valuation. Market values may be used if they provide a better basis of valuation than tax values or historical cost. Interest and dividend income must be grossed up to include resident withholding tax and imputation credits.


There are also presentation requirements that state the accounts must show:

  • comparative figures for the prior income year,
  • if the accounts are GST inclusive or exclusive,
  • tax reconciliation to accounting profit,
  • tax fixed asset register,
  • reconciliation of shareholders equity for the year,
  • relevant amounts from the financial statements summary (IR 10),
  • notes to support any amounts disclosed as exception items on the IR 10.


In addition to the above requirements, specific disclosures are required for foresters, livestock owners, and transactions with associated persons.

These are a minimum set of requirements. A higher level of reporting can be adopted if required. The IRD will also accept accounts prepared under NZICA’s special purpose framework.

In recent years the IRD has become more adept at collecting and analysing financial information for investigative purposes. Care needs to be taken to disclose the right level of financial information, but always put it through an IRD lens to ensure it is presented in the most favourable light. A misunderstanding by the IRD when reviewing information could lead to unnecessary and costly IRD scrutiny.


Scroll to Top