New financial reporting should save
Accountants are sceptical that a new financial reporting framework which comes into effect tomorrow will save businesses the millions of dollars in compliance costs the Government says it will.
From April 1 most companies will no longer be required to prepare general purpose financial statements under a rewritten Financial Reporting Act.
Under the revised bill businesses would fall into one of four tiers, each of which had different requirements and was customised to best meet the information needs of those who use the financial statements.
Most small and medium enterprises (SMEs), which made up 97 per cent of all New Zealand businesses, would fall into a tier which would not require general purpose financial reports.
The Inland Revenue Department (IRD) would administer the new requirements and the Government expected savings in compliance costs of up to $90 million a year.
But accountants were skeptical SMEs would save any extra time or money in compliance.
Even the New Zealand Institute of Chartered Accountants (NZICA) said most businesses would not reduce compliance costs.
However a NZICA spokesman John Hodge said the changes were more about promoting business growth, producing easier to understand financial information and increasing engagement between business owners and accountants.
"Overall this is about making small businesses life a lot easier."
The changes would also help businesses be more responsive to international markets, he said.
"The savings are about the collective, looking at New Zealand Inc rather than the individual business."
Deloitte Private partner Stephen Nicholas said the reforms could create more work for businesses and accountants.
"Some of the requirements being specified may be more onerous than the current requirements," Nicholas said.
Once the industry adjusted to the reforms there was an opportunity for future savings, he said.
There would probably be a varying degree of preparedness across the industry and SME owners should discuss the changes with their accountant, he said.
If an accountant was unable to explain the new framework clearly the business owner should reconsider whether that person was a suitable accountant, he said.
BDO Palmerston North general manager Billie Stanley said the reforms allowed businesses to regularly access easy to understand financial information.
Business owners should look at where they fit in the framework and use the changes as a growth opportunity, she said.
"There are probably more dollars to be made by focusing on growing the top line rather than a reduction in compliance costs especially for developing businesses."
Grant Thornton spokesman Mark Hucklesby was unsure what the Government's $90 million savings figure was based on.
"That really was a back of an envelope calculation in my view."
Although the legislation comes into effect tomorrow "the rubber really doesn't hit the road until 12 months later" because the first set of accounts under the new regime would not come out until March 31, 2015, he said.
Xero head of accounting Grant Anderson said the accounting software business welcomed the changes and had adjusted its packages accordingly.
"Xero certainly supports anything that reduces compliance costs for small business and makes financial statements easier to understand. Whatever is good for them is good for us and good for New Zealand as a whole."
The framework would make financial documents easier to understand and allow SMEs to worry less about the more technical aspects of reporting, he said.
"Hopefully small businesses will engage more with these statements."