2  The content of the annual report

2.1  Organisational coverage of the annual report

The annual report is focused on giving an account of the Crown entity's performance. It encompasses the whole of the Crown entity's business, including interests in other entities. If the Crown entity is the parent of a Crown entity group, its annual report must also cover the activities performed by the group. With the exception of multi-parent subsidiaries, no other entity in the group needs to prepare an annual report.

2.1.1  Single-parent subsidiaries

Section 7(1)(c) and 8(2) of the CEA define Crown entity subsidiaries as companies incorporated under the Companies Act 1993 that are controlled[11] by one or more Crown entities.

Where such a subsidiary is controlled by a single parent, for reporting purposes it forms part of that parent's "Crown entity group" (as defined in section 136(1) of the CEA). This term also includes any entity that is a subsidiary for the purpose of a financial reporting standard that applies to the Crown entity under GAAP. This captures non-company subsidiaries such as trusts and incorporated societies, as well as companies that are not Crown entity subsidiaries.

The parent of a Crown entity group is required to prepare consolidated financial statements in relation to the group, for inclusion in its annual report. The subsidiaries are not required to prepare a separate annual report, but may be required to produce audited financial statements (if a Crown entity subsidiary or if required under the Financial Reporting Act 1993).

2.1.2  Multi-parent subsidiaries

Where several Crown entities jointly have a controlling interest in a company, but none has a controlling interest in its own right, that company is itself a Crown entity subsidiary and is defined by section 2(1) to be a "multi-parent subsidiary".

Such subsidiaries may be established to provide shared services to their parents. They do not form part of a Crown entity group and so are not included in any consolidated financial statements prepared by its parents under the CEA. Instead, the multi-parent subsidiary is required to produce its own annual report in compliance with the CEA.

If, however, the Minister of Finance is satisfied that it would be unduly onerous on a multi-parent subsidiary to produce an annual report, the Minister can grant an exemption. Any exemption does not cover the requirement to produce audited financial statements, given that, as Crown entities, multi-parent subsidiaries remain subject to section 154 of the CEA. The "unduly onerous" test is not defined in the CEA. Assessing for an exemption is on a case-by-case basis[12].

The Minister of Finance may set conditions as part of an exemption eg, that one or more of the parent Crown entities covers the multi-parent subsidiary in its own annual report.

Where an exemption is sought, the parent entity or multi-parent subsidiary should contact its monitoring department in the first instance. That department should liaise with the Treasury.

Where no exemption has been granted, parent Crown entities should remind their multi-parent subsidiaries of the reporting obligations applicable under section 157(1).

2.1.3  Multi-parent subsidiaries with more than one entity group

Some multi-parent subsidiaries have parents in more than one entity group (eg, District Health Boards and Tertiary Education Institutions). In these cases, reporting requirements must be established by reference to the CEA and any entity-specific provisions in the parent's establishing Act(s).