WK7 Financial Reporting, Auditing, and Disclosure Flashcards
S 189
Company records
List of documents a company must keep at its registered office
What section relates to company records?
S 189 Company records
List of documents a company must keep at its registered office
S 194
Accounting records must be kept
Board of company must ensure accounting records are kept at all times that
1. correctly record the transactions of the company; and
2. enable the company to ensure financial statements comply with GAAP; and
3. Will enable financial statements to be readily and properly audited
What section relates to accounting records?
S 194 Accounting records must be kept
Board of company must ensure accounting records are kept at all times that
1. correctly record the transactions of the company; and
2. enable the company to ensure financial statements comply with GAAP; and
3. Will enable financial statements to be readily and properly audited
Maloc Construction v Chadwick
S 194
Court held accounting information must be collected, recorded, and organised so it enables financial state of company to be determines at any time
Basic accounting records e.g., bank statements, bills, invoices do not suffice
What are the consequences of breaching S 194?
S 194(4)
If board fails to comply every director is company commits an offence and is liable on conviction to penalty set out in S 374(3) fine not exceeding $50,000
S 300 Liability if proper accounting records not kept
If company is liquidation and unable to pay all debts has failed to comply and court considers failure to comply has contributed ot has resulted in substantial uncertainty as to assets and liability of company or substantially impeded orderly liquidation court may declare any 1 or more directors personally liable for all or part of debts of company if it thinks proper to do so
S 300
S 300 Liability if proper accounting records not kept
If company is liquidation and unable to pay all debts has failed to comply and court considers failure to comply has contributed ot has resulted in substantial uncertainty as to assets and liability of company or substantially impeded orderly liquidation court may declare any 1 or more directors personally liable for all or part of debts of company if it thinks proper to do so
Central Tyres Waipukurau v Pallesen
S 300
Sole director of CTW left employee to manage financial records without proper training and was aware proper accounting records were not kept
Director held personally liable for all debt and liquidator costs
S 201
Financial statements must be prepared
What section states financial statements but be prepared?
S 201
S 207
Financial statements must be audited
What section states financial statements must be audited?
S 207
S 208
Obligation to prepare annual report
What section relates to obligation to prepare annual report?
S 208
When does part 11 not apply?
If the company is required to prepare financial statements under the Financial Markets Conduct Act (FMCA) 2013 e.g., if they are a FMC reporting entity
Includes
Issuer of regulated product
Licenced supervisor
Listed issuer
Registered bank
Licenced insurer
Credit union
Building society
What is a large company and what is their reporting obligation?
SS 201 and 202
Assets greater that $66m or revenue greater than $33m
NZ IFRS RDR
What is a large overseas company and what is their reporting obligation?
SS 201 and 202
Assets greater than $22m or revenue greater than $11m
NZ IFRS RDR
What is reporting obligation of a company with greater than or equal to 10 shareholders?
GPFS by default, IRD SPFR if opted out
Can opt out though 95% shareholder majority (special resolution) S 207I
What is the reporting obligation of a company with less that 10 shareholders?
IRD SPFR by default, GPFS if opted in
Can opt in if a shareholder or shareholders who together hold at least 5% of voting shares require company to comply S 207K
What is the consequence for non-compliance with part 11?
S 207G Financial reporting offences
Company commits offence and is liable on conviction to fine not exceeding $50,000
Every director of company commits offence and is liable on conviction to penalty set out in $374(3) fine not exceeding $50,000
Directors have defence under S 376
Defence if board took all reasonable and proper steps to ensure requirements of Act would be complied with or director took all reasonable and proper steps to ensure board complied with requirements of Act or could not have been reasonably been expected to ensure board complied with Act
What is an audit?
An objective examination and evaluation of financial statements of company to make sure financial statements of the company give a true and fair view of the financial affairs of the company
What is the prupose of an audit?
To obtain reasonable assurance whethe the financial statements as a whole are free from material misstatement or omission whether due to fraud or error to ensure they give a true and fair view of the financial affairs of the company
What companies need to be audited?
S 207
Large companies, large overseas companies, companies with 10 or greater than 10 shareholders unless they opt out, and companies with less than 10 shareholders if they opt in
What must an auditor do?
S 207A Audit must be carried out in accordance with auditing assurance standards
S 207B Auditor’s report must complay with requirements of all applicable auditing and assurance standards
S 207C Auditor’s report must be sent to Registrar and XRB if requirements have not been complied with (by company)
Financial Reporting Act 2013 S 39
Auditor may require information and explanations from director or employee
CA S 377 False statements
Commits and offence and is liable on conviction to penalties set out in section S373(4) imprisonment not exceeding 5 years or to fine not exceeding $200,000
S 207P
Auditor must be appointed in financial statements must be audited
What section requires company to appoint auditor?
S 207P
S 207Q
Registrat may apoint auditor [if company does not]
What qualification must an auditor have?
CA ANZ certified
Registered
What are the liabilities of an auditor?
Contractual liability to company
Duty of care (tort)
CA ANZ membership obligations (professional and ethical frameworks)
Caparo Industries PLC v Dickman
CIP owed shares in F
D’s (auditor) audit of F was inaccurate
CIP invested in F
F’s profit’s were inaccurate and overstated
CIPLC sued D
Held: Not close enough proximity; duty of care owed to F, not shareholders of F, and investment was not purpose of financial statements.
What are the requirements negligent misstatement?
Duty of care (proximity, other policy considerations)
Breach of duty of care
Harm and causation (breach of duty of care must cause harm)
Remoteness of harm (harm must be reasonably forseeable)
Reliance is only reasonable if the purpose for which the statement was relied upon is the same purpose for which the statement was made and the person who relied upon the statement was the intended user of the statement
S 208
