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.