New Financial Reporting Standards: Simpler, Cheaper – or Not

There’s been quite a bit of publicity in the media about how, for the 2014/2015 financial year, Companies and Partnerships will be able to have simpler (and therefore cheaper) Annual Accounts prepared.

Unfortunately the reality is a little different. It is true that the reporting requirements will be less for some fairly large Companies compared to current requirements. And it is true that for some it will also be cheaper, this would be the case if your Chartered Accountant currently prepares more reports than are required – which we don’t.

At Savage & Savage we strive to prepare Financial Reports (Annual Accounts) that meet the user(s) needs and legal requirements, not more, not less, so for most of our clients there won’t be any major changes. Many of the companies we prepare financial statements for already take advantage of the current simplified statements option under the Financial Reporting Order and the only report not required in the future is the Annual Report. There will, in fact be two or so additional reporting requirements.

Some things haven’t changed. All companies must still keep proper accounting records and apply solvency test and prepare financial statements for other reasons and users. The following users of financial statements all have their own requirements:

Inland Revenue Department (see below)

Banks (if you have an overdraft, revolving credit, loan, mortgage or any type or facility with a security attached)

Industry regulatory bodies eg TAANZ, Law Society

Companies Office Act

Other specific legislations

 

IRD’s minimum requirements S&S current practice Change
Profit & Loss, balance sheet, notes & schedules Yes N/A
Using double entry, historical cost and accrual concepts, tax values acceptable Yes N/A
Statement of accounting policies Yes N/A
Financial statement to taxable income reconciliation No – not currently required *NEW*
Comparable figures for the previous year Yes N/A
IR10 key points alignment Mostly – as currently required *NEW*
Associated persons transactions (from 2015-16 year) including a reconciliation to Shareholders’ Current Accounts No – not currently required except as a note *NEW*

 

The only exemption to these minimum requirements is for small companies were neither income nor expenditure exceed $30,000 for the year and they are not part of a group. The only requirement for these companies by IRD will be to file a tax return. For clients that may fall into this category and don’t need financial statements for the bank, industry regulatory body or other legislation we will give you the option of not having Annual Accounts prepared. However, we still need to compile the information and prepare a summary of income and expenses that can be used in the tax return.

The New Zealand Institute of Chartered Accountants (NZICA) has developed a new framework that will be acceptable to IRD and other users including most banks for most clients, but each case is different. If you have an overdraft, revolving credit, loan, mortgage or any type or facility with a security attached you will need to contact your bank. In the next few days we will send clients a template letter to send to your bank.

As members of this professional body we are required to follow their recommendations and use the new framework for preparing financial statements.

It is likely the above will be extended to apply to non-Company entities in the near future.

Workplace Health & Safety Reform 2014

Health & Safety in the workplace rules and regulations are changing.

The Health & Safety at Work Act is currently open for submissions and the proposed changes are significant. WorkSafe NZ is the new regulator and this organization has already been established, the proposed new Act provides wide ranging powers to WorkSafe NZ and includes new definitions for who is responsible for workplace accidents, and the definition is very wide.

The new primary duty holder or person responsible is the PCBU – Person Conducting Business or Undertaking and they must take all steps ‘reasonably practicable’ with regards to workplace safety.

The new primary duty holder definition (PCBU) covers all relationships between those in control and those affected, including upstream participants and these could include designers, engineers, architects, manufacturers of equipment that caused an accident, suppliers of the equipment and importers. And let’s not forget business owners, directors, trustees, board members and managers.

Depending on the circumstances and ownership structure there may be multiple PCBU’s involved in work at one location and WorkSafe NZ can prosecute each and every one of those people.

The Act givers workers the right to greater participation in work place health and safety with worker Health and Safety reps able to direct unsafe work to cease.

While many of these changes are designed to improve safety in areas like mining and forestry the rules apply to EVERY workplace and the penalties or potential fines are highly significant – starting at up to $50,000 at the very low end to up to $3m for corporations and up to five years in jail for Individual PCBU’s or workers.

As a business owner you need to know about this, it affects every business!

IRD changes to payment dates

We recently received the following notice from IRD

 

“Changes to the Inland Revenue payment service at Westpac

From 1 October 2014 customers will no longer be able to make cheque payments or drop off returns or forms at a Westpac branch. They will be able to continue making cash and eftpos payments at Westpac.

Customers can post cheque payments, returns and forms directly to Inland Revenue so we’re removing these services at Westpac. Customers can continue to make payments using online banking, credit and debit cards and international money transfers.

Inland Revenue encourages customers to make payments online. Digital payment channels are secure and faster than traditional payment methods, and are available 24 hours, seven days a week.

Paying on time

From 1 October 2014, payments posted to Inland Revenue need to be received by Inland Revenue on or before the due date to avoid payment penalties and interest. This means cheque payments can no longer be posted on the due date.

Over 70% of our payments are currently made online and we want to encourage more customers to pay electronically. Removing the unintended advantage to customers who post cheque payments on the due date enables us to treat all customers equally, regardless of their payment method.

 

It is obvious IRD want to encourage as many people as possible to use on-line payment services, these are easy to set up and we can help you if you are unsure. The main point is you can’t rely on the post to get your payment there on time so if you want to post cheques you will need to put them in the post at least 10 days prior to the due date or about 3 working days if you send them fast post.