Jo Doolan and Claire Dilks
The most significant accounting changes for a decade have drawn a muted response from the beanie community. Maybe it’s a personality thing or perhaps it’s because accountants are always under pressure at this time of the year.
The changes are expected to reduce the number of companies required to prepare general purpose financial statements from 460,000 to fewer than 10,000, and cut business compliance costs by $90 million a year (as touted by then Commerce Minister Simon Power on 14 September 2011).
The key question is whether this makes any difference to your day and pay. And whether you can now fire your accountant.
The short answer is no. The longer answer is that you must work through the rules to determine how this reduced compliance burden works for you.
We have separate rules for large companies and small to medium companies; what these are depends on whether you are locally or overseas owned, and whether you are an issuer or have minority shareholders.
New rules apply to companies with an accounting year starting on or after 1 April 2014.
Locally owned companies, (less than 25% overseas owned), will be considered large if they, and any subsidiaries, have annual revenues of $30m or more, or assets of $60m or more, for at least the two preceding years.
Overseas owned companies, (more than 25% overseas owned), will be considered large if their annual revenues are $10m or more, or have assets of $20m or more. Again, these thresholds must be breached for at least the two preceding years.
Branches of overseas companies must prepare separate financial statements for a New Zealand business with revenue of $10m or more, or assets of $20m or more. They will also still need to file the financial statements of the overseas company as a whole.
It is not clear from the legislation if New Zealand branches that are not large themselves will still need to file their parent's financial statements.
If you are not large, not an issuer, and 5% of your shareholders have not insisted they be prepared, you have the option of producing less complex accounts.
(If you want to impress someone, these are now called “special purpose financial reports”.)
Rather than needing an intimate knowledge of all the accounting standards, you now need to prepare only accounts that comply with tax requirements. Of course your banks or financiers, or even shareholders, may still demand the complicated version.
The IRD has released minimum requirements for special purpose financial reports. Not surprisingly, these requirements include producing a balance sheet and a profit-and-loss statement prepared using double-entry accounting on an accruals basis (rather than cash accounting).
You also need to outline the accounting policies used, provide comparative figures for the previous period, reconcile tax and accounting profits, and disclose the company’s fixed and/or depreciable assets.
From 1 April 2015, you will also need to provide details of certain associated party transactions, (unless you are dealing with an associated New Zealand resident company).
The types of associated transactions you will need to disclose are:
- Interest expenses
- Outbound loans or advances
- Expenditure on services (including salaries, wages or management fees)
- Rent and lease expenditure or;
- Expenses on acquisition/use of intangible property.
A reconciliation of movements in shareholder equity will also be required.
These changes do not mean there is any letting up on the directors’ responsibilities for ensuring ongoing solvency, keeping proper records and so on.
If you are preparing general purpose financial statements, these must be audited. There are opt-out provisions if you are not required to file them with the Companies Office (companies other than issuers or overseas owned). Opt-out requires 95% of the company’s shareholders to agree either at the AGM or, if earlier, within six months of the financial period starting.
The filing deadline with the Companies Office has also reduced by 20 working days to just five months.
Any changes in a company’s balance date must be approved by IRD before notification is provided to the Companies Office.
Overall, these changes are positive and should enable you to spend more time and money growing your business rather than on administration.
Joanna Doolan is a partner with EY and Claire Dilks is a senior manager with EY