Statement of reasons
This notice comes into force on the day after the date of its notification in the Gazette and is revoked on the close of 28 February 2018. This notice revokes and replaces the Financial Reporting Act (Australian Parent Entity Financial Statements) Exemption Notice 2011 (the APE Notice).
This notice exempts the directors of companies incorporated in Australia that are issuers for the purposes of the Financial Reporting Act 1993 (the Act) from various provisions of the Act. The notice relates to ongoing financial reporting requirements of those issuers. It does not affect the financial disclosure of the issuers in offer documents for offers of securities.
The notice is divided into 2 parts, which address different groups of Australian-incorporated issuers.
Part 1 of the notice provides exemptions for Australian-incorporated issuers that have relied on certain specified exemptions from the Securities Act 1978 and have not offered securities to the public in New Zealand other than in reliance on one of those specified exemptions or the Securities (Mutual Recognition of Securities Offerings—Australia) Regulations 2008 (exempt issuers). It applies both to companies that have subsidiaries (which would have been able to rely on the APE Notice) and to companies that do not have subsidiaries (which would not have been able to rely on the APE Notice).
Exempt issuers are exempted from the requirements in the Act relating to the preparation, content, audit, and registration of financial statements subject to conditions requiring the issuer to prepare group financial statements in accordance with Australian law and generally accepted accounting practice in Australia (Australian GAAP), have those group financial statements audited by an Australian-registered auditor, and register those financial statements with the Registrar of Companies. Exempt issuers that have subsidiaries are not required to prepare or register parent financial statements, but must include material information about the parent entity in the notes to the financial statements as required by Australian law.
Exempt issuers that have a New Zealand business are also required to prepare and register the following financial statements in respect of that New Zealand business:
group financial statements that comply with Australian law and Australian GAAP, and have been audited by an Australian-registered auditor in accordance with Australian law, as if that New Zealand business was a separate Australian company; or
parent and group financial statements that comply with, and have been audited by a New Zealand-licensed auditor in accordance with, the Act.
Part 2 of the notice provides exemptions for all other Australian-incorporated issuers that have subsidiaries (Australian parent companies). Australian parent companies would have been able to rely on the APE Notice. Part 2 does not apply to “exempt issuers” because the effect of the exemptions granted in Part 2 is addressed in the broader exemptions granted to exempt issuers in Part 1. It also does not apply to Australian-incorporated issuers that do not have subsidiaries, as for those companies there are no material differences between Australian GAAP and New Zealand GAAP and, therefore, these issuers can already comply with Australian, rather than New Zealand, law and GAAP in relation to the content of their financial statements (without exemptions).
The exemptions in Part 2 allow the directors of Australian parent companies to register consolidated financial statements for the group and summary information on the parent entity that comply with the preparation and content requirements of Australian law and Australian GAAP, instead of the financial statements usually required by the Act (which include full separate parent entity financial statements). These group financial statements must be audited by a New Zealand-licensed auditor. Australian parent companies will not need to prepare, have audited, and register full separate parent entity financial statements, because this is no longer required under Australian law.
As for exempt issuers, Australian parent companies will be required to prepare financial statements for their New Zealand business (if any) either in accordance with Australian law and Australian GAAP or in accordance with the Act. Financial statements relating to an Australian parent company’s New Zealand business must be audited by a New Zealand-licensed auditor and registered with the Registrar of Companies.
In the event that an Australian parent entity is not regulated as an issuer under Australian law and is, therefore, entitled under Australian law to use a reduced disclosure regime in preparing its financial statements, it will not be permitted to use those financial statements to comply with this notice. However, it may elect to prepare financial statements in accordance with full Australian financial reporting standards in order to rely on this notice.
The primary difference between Part 2 of the notice and the exemptions previously granted in the APE Notice is that Part 2 does not allow Australian parent companies to use an Australian registered auditor who is not licensed in New Zealand (except during the transitional period). Exemptions from using a New Zealand auditor were available to these companies under the APE Notice.
The Financial Markets Authority (FMA), after satisfying itself as to the matters set out in section 35A(2) of the Act, considers it appropriate to grant the exemptions (which will enable most Australian issuers to prepare financial statements in accordance with Australian GAAP) because—
changes made to financial reporting laws in Australia in June 2010 removed the requirement for consolidated financial statements to be accompanied by separate parent entity financial statements. Associated changes, however, require specified summary financial information about the parent entity to be provided in the note disclosures of the consolidated financial statements:
the exemptions reduce regulatory compliance costs of Australian issuers that are reporting entities under the Financial Reporting Act 1993 by exempting them from the need to prepare and register with the Registrar of Companies financial statements that comply with New Zealand generally accepted accounting practice, including parent entity financial statements, that they are otherwise not required to prepare in Australia:
FMA has had regard to the financial reporting requirements with which Australian issuers must comply and considers that the financial reporting obligations under the laws of Australia, together with any additional information required under the conditions of the exemption, will provide New Zealand security holders with adequate financial information about companies in which they invest. FMA also considers that Australia has adequate regulatory and enforcement mechanisms in this regard:
FMA considers that full consolidated financial statements of a company supplemented with summary financial information on the parent entity will, in most cases, provide sufficient information to satisfy the information needs of an entity's investors. However, there may be some circumstances where additional material information on the parent entity needs to be disclosed for investors to understand the financial position, performance, and cash flows of the parent entity as those matters affect their investment. The conditions of this notice require directors of the exempt issuers to consider and disclose any such information:
in the light of the Australian requirements, and the additional information that must be disclosed under the conditions of the notice if necessary to provide investors with all material information about the financial position, financial performance, and cash flows of the parent entity, FMA does not consider the exemption will cause significant detriment to New Zealand security holders of the exempt issuers. Further, the exemptions only apply to Australian issuers, and those issuers are still required to prepare, have audited, and register financial statements in New Zealand but may do so on the basis of compliance with Australian laws and the additional information required by this notice. Accordingly, FMA is satisfied that the extent of the exemptions is not broader than is reasonably necessary to address the matters that gave rise to the exemptions.
FMA, after satisfying itself as to the matters set out in section 35A(2) of the Act, considers that it is appropriate to grant the exemptions that will enable certain Australian issuers to use an Australian auditor because—
the effect of the exemption is to allow Australian issuers that are regulated by Australian Securities and Investments Commission (ASIC) to use an Australian auditor who is registered with, and regulated by, ASIC, rather than a New Zealand licensed auditor:
FMA has had regard to the auditing requirements that Australian issuers must comply with, as well as the regulatory regime to which Australian registered auditors are subject, and considers that the audit provisions of Australia’s financial reporting requirements will provide New Zealand security holders with adequate assurance as to the quality of the financial information being provided by those issuers. FMA also considers that Australia has adequate regulatory and enforcement mechanisms in this regard:
there will not be any significant detriment to subscribers, as the exemptions are only available to issuers that are regulated as issuers in Australia. FMA is satisfied that the financial reporting and audit requirements, and the nature and extent of regulatory oversight, for Australian issuers and their auditors is equivalent to that which exists for issuers in New Zealand. As such, investors in the issuers to whom this notice applies will have access to broadly similar, and equivalent, information that has been subject to an audit of a comparable standard:
as the exemptions are only available to issuers that are regulated as issuers in Australia and require the exempt issuer's financial statements to be audited by an Australian auditor, the exemptions are not broader than is reasonably necessary to address the matters that gave rise to the exemptions.