Changes to reporting standards welcomed

Deloitte technical partner Denise Hodgkins has welcomed the government’s recent initiative to make financial reporting more relevant and to reduce the reporting requirements for small businesses.

Commerce Minister Simon Power announced last week that small and medium-sized companies (with annual revenue of less than $30 million or assets less than $60 million) will no longer have to provide financial statements in accordance with generally accepted accounting practice (GAAP) unless their owners require them to.

“While there are winners and losers based on the proposals, the overall outcomes have a ring of common sense to them. Essentially they refocus the requirements for financial reporting on to the entities where these are needed most resulting in the cost/benefit equation being better met,” says Ms Hodgkins.

“The minister estimates that compliance costs for companies may reduce by $90 million per year, but the extent of relief will not be clear until the IRD releases its proposals for financial reports required for tax purposes.”

Conversely, registered charities which accept donations from the public will be required to report the results of their activities. The reporting requirements have been focused to recognise that for the vast majority of these entities, a form of simple format reporting will be sufficient rather than full GAAP financial statements.

Shortening the deadline for non-listed companies with reporting obligations will also ensure timelier financial reporting, with the deadline dropped from five months to three months. This will mean companies may have to change their year-end reporting processes in order to meet the challenge of the shorter deadline, says Ms Hodgkins.

The External Reporting Board (XRB), which oversees reporting standards, proposes a multi-standards approach, with for-profit entities following a suite of standards based on International Financial Reporting Standards, and public benefit entities following a suite of standards based on International Public Sector Accounting Standards. This change should address the needs of the differing user groups of financial statements.

However, Ms Hodgkins urges some caution on extending the approach too far.

“It is vital that the XRB ensures modifications in New Zealand are limited to only those that are necessary to ensure ongoing international comparability.

“It is anticipated that differing standards between for-profit entities and public benefit entities will add complexity for a small number of mixed groups where reporting obligations exist.

“While some decisions are still to be made, in particular for incorporated societies and assurance requirements for registered charities, and there are some inconsistencies and some clarifications needed, these proposals are a good step forward for New Zealand reporting.”