WK7 Financial Reporting, Auditing, and Disclosure

Question 1

S 189

Answer 1

Company records
List of documents a company must keep at its registered office

Question 1

What section relates to company records?

Answer 1

S 189 Company records
List of documents a company must keep at its registered office

Question 2

S 194

Answer 2

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

Question 3

What section relates to accounting records?

Answer 3

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

Question 4

Maloc Construction v Chadwick

Answer 4

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

Question 5

What are the consequences of breaching S 194?

Answer 5

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

Question 6

S 300

Answer 6

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

Question 7

Central Tyres Waipukurau v Pallesen

Answer 7

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

Question 8

S 201

Answer 8

Financial statements must be prepared

Question 9

What section states financial statements but be prepared?

Answer 9

S 201

Question 10

S 207

Answer 10

Financial statements must be audited

Question 11

What section states financial statements must be audited?

Answer 11

S 207

Question 12

S 208

Answer 12

Obligation to prepare annual report

Question 13

What section relates to obligation to prepare annual report?

Answer 13

S 208

Question 13

When does part 11 not apply?

Answer 13

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

Question 14

What is a large company and what is their reporting obligation?

Answer 14

SS 201 and 202
Assets greater that $66m or revenue greater than $33m
NZ IFRS RDR

Question 15

What is a large overseas company and what is their reporting obligation?

Answer 15

SS 201 and 202
Assets greater than $22m or revenue greater than $11m
NZ IFRS RDR

Question 16

What is reporting obligation of a company with greater than or equal to 10 shareholders?

Answer 16

GPFS by default, IRD SPFR if opted out
Can opt out though 95% shareholder majority (special resolution) S 207I

Question 17

What is the reporting obligation of a company with less that 10 shareholders?

Answer 17

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

Question 18

What is the consequence for non-compliance with part 11?

Answer 18

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

Question 19

What is an audit?

Answer 19

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

Question 20

What is the prupose of an audit?

Answer 20

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

Question 21

What companies need to be audited?

Answer 21

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

Question 22

What must an auditor do?

Answer 22

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)

Question 23

Financial Reporting Act 2013 S 39

Answer 23

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

Question 24

S 207P

Answer 24

Auditor must be appointed in financial statements must be audited

Question 25

What section requires company to appoint auditor?

Answer 25

S 207P

Question 26

S 207Q

Answer 26

Registrat may apoint auditor [if company does not]

Question 27

What qualification must an auditor have?

Answer 27

CA ANZ certified
Registered

Question 28

What are the liabilities of an auditor?

Answer 28

Contractual liability to company
Duty of care (tort)
CA ANZ membership obligations (professional and ethical frameworks)

Question 29

Caparo Industries PLC v Dickman

Answer 29

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.

Question 30

What are the requirements negligent misstatement?

Answer 30

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

Question 31

S 208