Changes to reporting legislation
Annual reporting in New Zealand will be simpler and less time consuming for small to medium size enterprises (SMEs) when new reporting legislation takes effect on 1 April 2014.
Under the new legislation, SME’s will no longer need to produce statutory accounts in accordance with External Reporting Board (XRB) standards. Although they will have to produce general purpose accounts for management, the IRD and the bank. Since most SMEs really only prepare end of year financial reports for the tax man, the new legislation will allow them to use tax requirements as their minimum reporting threshold.
As much of the content of end of year financials is not well understood by SMEs, and not really used, accountants will only embrace the new minimum reports framework. As of April, accountants will have the freedom to report whatever their client wants, as long as it meets IRD minimum standards.
The minimum tax reporting won’t be enough for everyone though, particularly SMEs with bank loans. Lenders will be looking for more information than just the required IRD minimum. SMEs in this situation will be able to adopt a voluntary framework that is being developed by the NZ Institute of Chartered Accountants (NZICA) and will be available later this year.
Xero fully supports this change in reporting legislation. Any move that makes financial statements easier to understand will be of great benefit to the New Zealand business community and will improve the engagement between SME owners and their accountants. Accountants will instead become coaches and advisors, rather than scorekeepers. SME owners who are more engaged with their financial results will help lift the financial performances of their businesses and also those of New Zealand as a whole.