Did you know that in future small businesses will not need to produce full accounts at each financial year end?
The effect of the new Financial Reporting Act 2013 on your company depends largely on the size of your business because the changes will impact many small and medium businesses. We’ve summarised the main points of the Act below – contact us to make sure you know which apply to your business.
When does this come into effect?
The new Act will only apply to accounting periods beginning on or after 1 April 2014. For example, for entities with a 31 March balance date, the new Act will apply to their financial year ending 31 March 2015.
What does it mean?
Under the new Act, most small and medium-sized businesses will not have to follow XRB accounting standards (also known as Generally Accepted Accounting Practice (“GAAP”).
Large companies (with over $60 million total assets or $30 million revenue) will need to follow XRB accounting standards (also known as Generally Accepted Accounting Practice (“GAAP”) therefore:
(a) prepare general purpose financial statements to an applicable reporting standard;
(b) have their financial statements audited unless 95% of their shareholders resolve otherwise;
(c) if they are 25% or more overseas owned, file their financial statements with the Companies Office; and
(d) prepare annual reports to be provided to their shareholders before their annual meetings.
(Assets are less than $60m or revenue is less than $30m) will still need to produce accounts for governance purposes, for the IRD and for the bank. IRD still requires most small-to-medium businesses to prepare special purpose financial reports to minimum requirements set by the IRD but is no longer obliged to prepare general purpose financial reports.
While there may be some compliance cost savings, we do not anticipate it will be significant for most small businesses. Ask yourself what your business financial information needs are, and whether reports prepared to the minimum standard can provide you with sufficient information to be able to make sound decisions.What will special purpose reports look like?
1. Special purpose reports for third party only eg. IRD
These minimum reporting standards are requiring:
a) A profit and loss statement and balance sheet( prepared according to double entry accounting method using accrual basis, rather than cash accounting)
b) A statement of accounting policies must be included
c) Reconciliation of income tax and disclosure of associated person transactions. (Takes effect from 1 April 2015)
2. Your bank may require financial statements to satisfy bank covenants, and these statements will need to include additional information specified by the lender. Chartered Accountants NZ has released an optional special purpose reporting framework which sets out best practice in this area.
The key features of the Framework which make it appropriate for SMEs are:
a) historical cost is the primary measurement basis,
b) disclosures are less complex than NZ IFRS,
c) reporting guidelines are principle based (can be applied across a wide range of industries), and can be readily audited.
If you would like further information, please contact Bruce Montgomery to discuss. 09 273 3682