Action against non-filing of financial statements pays off

 

Media Release
MR No. 2015 – 03
13 February 2015

A new report released today by the Financial Markets Authority (FMA) shows the proportion of companies filing their financial statements on time has improved significantly since the FMA’s initial review in 2014.

Eighty-two per cent of the companies reviewed had filed their statements by the due date, up from 73 per cent in the FMA’s 2014 report.

Additionally, the proportion of statements that remained outstanding after receiving a reminder notice decreased, from 10 per cent to six per cent.

The FMA’s 2015 report reviewed a similar sample of companies as the last report. These are companies who raise money from the public by issuing debt or equity securities to investors.

“These results demonstrate the success of the FMA’s approach to improving regulatory outcomes and ensuring investors have good access to financial information.  The combined effort of both the compliance and enforcement teams is raising standards of compliance among companies that issue securities to the public.

“We’ve taken a range of actions to improve compliance, including judicial action where we see the greatest harm to investors and the markets, and this has improved results overall,” said the FMA’s Director of Compliance, Elaine Campbell.

“Audited financial statements are an important reporting and communication tool and provide the public with an up-to-date picture of a company’s financial position and future prospects, allowing them to make informed financial decisions about their investments. Failure to meet filing obligations limits the availability of information to investors, the markets and the regulator,” she said.

The report also noted that no new companies were pinpointed for enforcement action for non-filing in 2014.

In addition to the significant amount of engagement carried out with companies, which has led to higher filing rates, the FMA has brought four cases to court against seven directors of eight companies. One director pleaded guilty to eight charges of non-filing under sections 18(1) and 38(b) of the Financial Reporting Act (FRA) and was fined $30,000. Another two directors pleaded guilty to four charges each of non-filing under sections 18(1) and 38(b) of the FRA and were fined $35,000 each. Two cases remain before the court and will be heard this year.

“We’re pleased with the results we’ve achieved from focussing our attention in this area. Not only does our work help to improve the availability of financial information for investors, the market and the FMA, it encourages better compliance and conduct and helps to increase confidence in New Zealand’s markets,” said Ms Campbell.

The full report is available here.

 

ENDS

Contact:
Shae Skellern
09 300 0­465
021 847 192
shae.skellern@fma.govt.nz

BACKGROUND
The sample of companies reviewed was the same as those reviewed in our last report.  The sample size has reduced as some companies have either had a change in their reporting balance date or are no longer issuers. The companies reviewed for this report have a 31 March balance date and were required to have their 2014 financial statements audited and filed with the Registrar of Companies by 26 September 2014.

Balance date

31 March 2013

31 March 2014

Sample of companies reviewed

416

368

Financial statements filed by the due date

305 (73%)

300 (82%)

Financial statements not filed by the due date

111 (27%)

68 (18%)

Financial statements filed before the deadline in the reminder notice

68 (16%)

44 (12%)

Financial statements outstanding after the deadline in the reminder notice

43 (10%)

24 (6%)

New financial reporting requirements came into effect on 1 April 2014, as part of the Financial Markets Conduct Act 2013 (FMC Act).The new regime retains the importance of filing financial statements but has new requirements and introduces a new penalty regime.

Under the FMC Act, if an FMC reporting entity fails to lodge financial statements, it may face a maximum fine of $50,000 (under the FRA the director faces a maximum fine of $100,000). Under the FMC Act, in addition to a fine on the entity, a director of an FMC reporting entity may be liable for a civil pecuniary penalty of up to $1 million in the event of a failure to lodge financial statements with the Registrar.

Under the FRA, issuers have five months for preparation and audit and an additional 20 working days for filing. Under the FMC Act, they will have four months to prepare, audit and file their financial statements. More information can be found here.

The five companies that have been before the courts as a result of the FMA’s review of March 2013 balance date include: Prosper Hills (2004) Limited, Prosper Hills (2006) Limited, NZFIL3 Limited, Heritage Park Taupo Limited and Prudential Real Estate Investments Limited.