Wide-sweeping reform of accounting for Kiwi SMBs
Accounting continues to undergo changes for the better. Around the world more and more accountants are focusing on regular management reporting and providing business advice to SMBs. Clearly the New Zealand Government understands this too. Yesterday the Ministry of Economic Development (MED) announced wide sweeping reform to the annual reporting requirements for NZ businesses. The big news for the majority of SMBs is that from 2013 your annual reporting requirements will be so much simpler.
Right now NZ companies need to prepare an Annual Report that includes financial statements with rules about what you must disclose and how you have to treat various items and transactions. These reports are called General Purpose Financial Reports. Under the new rules a company will only need to produce reports that help support their income tax return. These are called Special Purpose Financial Reports. Conceivably all you will need is a profit and loss and a balance sheet. You may chose to do more at year-end, but this will be ‘your’ decision and one we’re sure will be influenced by the advice of your accountant as they consider the needs of all stakeholders.
The approach in NZ is very similar to that in the UK which allows for Abbreviated Accounts and in Australia which already has Special Purpose Financial Reports.
The new Financial Reporting Framework in NZ has yet to confirm the reporting requirements for issuers (such as public listed companies), registered charities, not-for-profit entities and public entities. Entity types such as these will still have reporting rules, however the intention is to make these rules clearer and more consistent. Good news indeed. Another important aspect to note is that the definition of a ‘large company’ is changing. To be large you will now need to have more than NZ$30 million of annual revenue or assets greater than NZ$60 million. This only applies to about 2% of all NZ companies.
In fact the changes will reduce the number of companies required to prepare general purpose financial reports from 460,000 to fewer than 10,000, and it’s expected to cut business compliance costs by about NZ$90 million a year.
Given this won’t take effect until mid 2013, there’s still FY11 & FY12 in which to continue under the old rules.
As Xero evolves we will continue to enhance the ability, from within the application, for all SMBs to have their annual reporting requirements met.
For the nuts and bolts we suggest you go to the the MED website. Next week we will feature a video interview with Mark Hucklesby, the NZ Technical Director of chartered accounting firm Grant Thornton, talking about the changes.
This is huge for accounting in NZ.