Beyond the Numbers Issue 7 by Nexia Auckland (formerly Hayes Knight)

11 Tips & tales

Accountants with advice AND a sense of humour

issue seven autumn 2013

14 Practical business advice

Doing your homework on property investment pays off

15 Zeroing in on Xero

Kiwi ingenuity at the fore of software innovation

beyond the numbers | keeping your business future fit

Silverdale’s Healthy Glow Keeping up with growth in Hibiscus Coast the 2 Seeing big picture

How top-notch strategic planning helps

4 Better communication

The answer for improved transparency and accountability

you be 6 Could caught unaware? New anti-money laundering legislation

issue seven

contents

beyond the numbers | keeping your business future fit

Business is a curve.

Some things change and some stay the same… Successful business involves knowing what needs to change and what fundamentals must remain unchanged. Nothing is more certain than change. To remain competitive and relevant one must always be aware and open to it. As business advisers we spend a lot of our time assisting clients identify the opportunities and challenges facing them and then helping ensure their organisations are best structured and best placed to continue to succeed. Since we formed Hayes Knight in New Zealand back in February 2001 we have continued to restlessly review, change and improve our business. We aim to:

Where are you on it?

features

Picturing the scene

Transparency and accountability

Anti-money laundering legislation

Healthy growth

1. Provide relevant, valuable and professional client services 2. Operate an innovative organisation that attracts and develops high quality people 3. Ensure a sustainable business model that meets the needs of all of the owners As a result we have made some structural refinements to keep the Hayes Knight Group in New Zealand future fit. Recognising the differing desires of the owners and to allow maximum flexibility going forward we have restructured our ownership to operate as three Hayes Knight firms. Business advisory and taxation advisers being Hayes Knight North and Hayes Knight City, and our specialist audit and assurance practice Hayes Knight Audit NZ. As part of these ownership changes former directors Matthew Bellingham and Aaron Wallace have decided to leave the Hayes Knight Group to establish a boutique advisory practice. We wish them well. So what does this mean for clients? Simply put, just a new office in Newmarket for Hayes Knight City. Hayes Knight North and Audit remain in the same offices and everything else is business as usual. You will be dealing with the same Hayes Knight advisers with our absolute commitment of delivering the same high quality Hayes Knight services you are used to. This edition brings you some of the latest news, views, and stories – we hope it’ll both inform and inspire you.

How strategic planning helped GreensceneNZ

Communication is key to improvement

Are you caught?

A pioneering medical centre in Silverdale

News, views & tools for success

Tips & tales

Changes afoot for your holiday home

Accounting standards update

Capital conundrums

Xero – what’s all the fuss about?

Hayes Knight Group update

Keeping you safe online and more!

Taxation rule changes coming into force

Further developments on proposed changes to accounting framework

Practical business advice on property investment

Game changing accounting software

The latest news from Hayes Knight

Enjoy!

Craig Fisher Chairman, Hayes Knight

Today it isn’t enough to know what you do, and simply do it well. You also need an eye on your future, and a knowledge of what that might mean. At Hayes Knight, we don’t just work the numbers, we interpret them. The result is a more empowered, knowledgeable client who knows what tomorrow might bring – curve balls and all. Visit hayesknight.co.nz

The information and advice contained in Beyond the Numbers cannot cover every financial situation or requirement. If you have further questions, we encourage you to contact a Hayes Knight business adviser for advice tailored to your specific circumstances. Hayes Knight is an independent member of Morison International and Hayes Knight Group.

Beyond the Numbers is published for Hayes Knight by Tangible Media www.tangiblemedia.co.nz Editor: Andrea Benvie. Account manager: Nikki-Lee Mark. Designer: Edgar Vadauskas. Cover Photo: Dr Warren Groarke.

business strategy

Planning to succeed Never considered using someone to facilitate, manage and add value to your business planning? Below we summarise what it entails… Why plan formally? Planning a business is about controlling your direction and moving it at a pace that is consistent with your objectives. Every organisation requires a different approach to building value. It may be finding new markets or changing the way current business is done.

What is the planning cycle? • Planning in business is never-ending • It is that on-going cycle of review-analyse-plan-implement-measure • Hayes Knight, it’s broken down into 3 stages of: Analyse, Plan, Action

What does each stage of planning involve? 1. Analyse the business • Analyse your competitors and compare your business against industry benchmarks • Survey of your management team and employees to provide insights on the strengths and weaknesses of your business • Survey of the business owners to establish the vision, values and current strategy of your organisation • Analysis of your current financial statements, budgets and forecasts to determine the financial performance of your business

Picturing the scene “Implementing a formal planning process has really helped GreensceneNZ build solid foundations for commercial success”

Main image: GreensceneNZ directors pictured left to right Blake Cameron, Mike Jack, Stacy Colyer. Inset image: Hayes Knight North Director Brendon Cutler with the GreensceneNZ team.

Seeing the big picture is one of the key attributes behind the success of Auckland arboricultural and landscape company GreensceneNZ. We find out how this success has been possible through Hayes Knight’s strategic planning services. It’s all in the planning – at least that’s exactly how Hayes Knight North’s client GreensceneNZ see it. The Auckland central based arboricultural and landscape firm has had a relationship with Hayes Knight for four years. Over that time, the business relationship has evolved into where their advisor, Hayes Knight Director Brendon Cutler, is working closely with the business owners on an almost weekly basis. Brendon also attends the company’s quarterly board meetings as an independent advisor. “To me, Brendon is effectively a coach. He keeps me focused on our goals and he has pulled me away from always working in the business to working on the business” says Stacy Colyer, the founder of GreensceneNZ. Having started in 1994, GreensceneNZ is now a leading arboricultural and landscape design, build and care company. Big on experience and passion for all outdoor environments, their ethos is ‘to enhance and protect living environments’. Initially specialising in tree resource consents, monitoring works around trees, tree asset management and green project implementation, GreensceneNZ began a landscape division two years ago. The new business is headed up by Mike Jack and

Blake Cameron, two leading figures in the New Zealand landscape design and build industry. Whilst the company’s initial strategic work planned for growth (GreensceneNZ now employs over 30 staff), the company’s owners found it difficult to remain focused on the business’s top priorities. When each milestone was reached, new opportunities and challenges arose. In this situation, Hayes Knight was able to add value by building on the initial business planning and really challenge the owners and their strategic thinking, as well as adding financial and commercial insight. This experience proved to the GreensceneNZ management team that outside expertise can motivate company owners to focus on the important things in business. Simply put, the independent view and support that Hayes Knight has offered GreensceneNZ has been invaluable to the company’s performance. Implementing a formal planning process has really helped GreensceneNZ build solid foundations for commercial success. Brendon is convinced that proper strategic planning is an essential ingredient in the recipe for growth

2. Create a plan

in any business - “Without a detailed plan, not only is it difficult to remain focused, but it is often hard to get any traction without having specific action plans required to achieve your strategic goals”. A little-known fact is that Hayes Knight offer tailor-made business planning workshops. GreensceneNZ are now very familiar with the benefits of participation - “To have the opportunity to come to Hayes Knights North’s office, use their boardroom and have on tap specialist advice created the platform for us to get the most out of our strat day.” GreensceneNZ’s experience of looking to Hayes Knight for guiding the company throughout the strategic planning process is not an isolated case. Brendon explains that many businesses these days are demanding that their accountants are ‘more than bean counters’ and that they become an integral part of the team. The words ‘trusted advisor’ have become a typical description of how quality accountants are seen by their clients and that is certainly part of Hayes Knight’s ‘beyond the numbers’ philosophy. In fact, Stacy goes so far as describing Brendon as “an essential part of our team”.

• Review the current environment you are operating in with a SWOT and PEST analysis • Develop a clear vision and set of goals for your organisation based on analysis above • Provide financial performance recommendations • Develop strategies to increase profits, grow your business and boost performance • Create a strategic plan on where your business should head

3. Take action • Design a list of key tasks, costs, and resources needed to achieve your goals • Develop an action plan with key dates and responsibilities to achieve your strategic plan • Create milestones to measure and monitor your success along the way

How do I get started? At Hayes Knight no two clients are the same, which is why there are a number of planning options available to suit all budgets and business backgrounds. Starting from around $1000+GST for a consultation and provision of planning templates, through to full strategic planning workshop days, planning packages are tailor-made to accommodate your particular needs and circumstances. The best way to get started is to contact your Hayes Knight advisor for an exploratory chat about the best option for you. Keen to arrange a strategic planning workshop? Register your interest in a planning workshop today. Email Brendon Cutler on brendon.cutler@hayesknight.co.nz or call 09 448 3236

governance and reporting

Transparency and accountability The holy grail in not-for-profit entity financial reporting is easier to achieve with better communication.

We have some great not-for-profit (NFP) entities in New Zealand providing some fantastic social good. However many of these organisations struggle to compete and secure funding from stakeholders because they are not telling the full story about their contribution.

“Bare minimum financial reporting that doesn’t really help to tell the organisation’s full story”

Add to this is the increasing public demand for greater transparency and accountability of NFP entities, as well as new legally binding accounting standards and it is becoming critical to look “beyond the numbers” for NFPs to survive in this changing landscape. Back in 2009 I was privileged to be the keynote speaker at the then Charities Commission AGM, speaking on the hot topic at the time of transparency and accountability. This was part of the Commission’s initiative to promote the qualities of an effective charity. While the target audience was charities, the same messages equally apply to the wider NFP sector. The Charities Commission came up with a great quote: “An effective charity (you can equally read “NFP entity”) understands that the public has a valid interest in it and manages its accountabilities to its stakeholders and to the public in a way that is timely, transparent and understandable”. We couldn’t agree more. Since that time, the importance of transparency and accountability has just continued to grow. However as assurance providers in this sector, we see some reporting practices that are not helpful in meeting those objectives, including; • Bare minimum financial reporting that doesn’t really help to tell the organisation’s story; and

• attempts to ‘massage’ financial results so entities don’t appear wealthy. This comes from perceived concern that funders may not fund entities that make surpluses or appear to have funds in the bank. Competition for fund raising in New Zealand remains tough. What can an organisation do?

Tell the full story Its actually not just about the numbers!....a scary statement coming from accountants...but then perhaps not surprising from one whose byline is ‘Beyond the numbers’. The key to improving transparency and accountability is better communication with your stakeholders and especially your funding bodies. Here are the top 5 messages you should be sharing through your annual report to help give funding bodies the assurances needed for complete confidence in your organisation as a credible entity; 1. Your raison d’etre. A clear message of why the organisation exists and what it stands for. 2. Who you help and how. Stories, testimonials, and pictures are great here. 3. What you set out to do and how you performed. This is where KPIs and reporting against those can be really powerful. Don’t over-complicate and don’t overload. It is more powerful to give a few key indicators than to overwhelm people with too many. Also the most important may not be financial KPIs. 4. How you govern and manage. Who is involved and your structures and why this means you are a soundly run organisation. The message you are trying to get across is that funders and donors can trust you with their money.

5. Intentions. What your intentions are, and hence why you need on-going support so that you can achieve even more as a worthwhile organisation. Note that our practical advice is further supported by the government’s standard setter that is currently developing new accounting standards for small New Zealand nfp entities. They have also shared their view that the reporting requirements they are developing should allow a NFP entity to tell its full performance story with the most important part often being the non-financial information, specifically: • Who are we & why do we exist? • What did we do and when did we do it? • What did it cost, how was it funded and how did we account for it? • What do we need to continue?

Practical steps for improved communication • Include a succinct Chairperson’s report, or report from the board. This should generally be the first thing in your annual report. Effort into making this easily readable, attractive, informative etc, helps consign the financial statements more to being a “hygiene component” of your annual report, rather than being the main event. • Never underestimate the power of pictures – especially of people, need, and achievement. • Think of your reporting as an annual report rather than just financial statements (they are only part of the picture). Most not-for-profit entities have focused primarily on their annual financial statements in the past. They have done this because of history and obligation because funding providers request them. Your financial statements are still important, however they are often not the most important thing in helping your organisation get your message across to key stakeholders.

• Tell a good story. The reality is that numbers bore and confuse many people (including, from our experience, some in grant funding bodies). Sad as it may seem to us accountants, numbers are also intrinsically unexciting. (I know; go figure! But there you have it). To tell your story successfully you need to do just that; tell stories. Make it interesting, make it about people, share the struggle, success, achievement, and importantly educate people what more there is still to do. • Order and structure information in the most userfriendly way. There are a number of commonly recognised statements that some not-for-profit and public sector entities have prepared in the past to try and better tell their stories. Examples are a “Statement of Objectives and Outcomes” or a “Statement of Community Contribution” or a “Statement of Social Responsibility”. These are often best at the front of the financial report with the actual “numbers” pushed further back and possibly summarised and reformatted. • It’s also a marketing document – make it easy to read, with a friendly tone. The statements mentioned above are practical and worthwhile, however be aware that it also communicates your organisation’s culture, values and philosophy, so make sure they are well written. You can even play with their titles along the lines of; Who we are, What we do, This year’s successes, The year ahead and How you can help. Remember, your annual report is fundamentally a communication document and hence needs to communicate to your audiences easily. Hayes Knight Audit are regularly holding workshops on topics similar to that covered in this article. If you would like to register your interest in attending the next one, please call Christine Hare on 09 367 1656.

Summary There is no single best practice model for telling a NFP’s story. It should always be a reflection of the uniqueness of the entity. The Hayes Knight team will happily assist with ensuring the essential hygiene elements of your NFP financial statements meet the required level. We are also happy to inject ideas into how your team can tell your NFP story more holistically. If you would like to discuss this further please contact Craig Fisher on 09 367 1654 or email: craig.fisher@ hayesknight.co.nz

compliance

compliance What is money laundering? Money laundering is the process by which criminals attempt to assert that the proceeds of their crimes are ‘clean’. Once an asset is changed from one kind to another, the money has been ‘laundered’. The actions used to ‘launder’ money are carried out legitimately every day; for example depositing cash into an overseas investment, purchasing an asset, borrowing and lending money, or cancelling an insurance product. However, money laundering becomes a criminal offence when the funds have been derived from another serious offence. The challenge for governments is to define effective legislation and regulation to assist in identifying which laundering transactions are legitimate, and which are criminal offences. This issue has taken on increased significance internationally in recent years in relation to the illegal financing of terrorism activities. As this has been proven to be a cross border issue there has been significant pressure placed on the New Zealand Government to adopt measures of a comparable standard with other major economies such as the US, UK, and Australia. Unusually, New Zealand is relatively late in introducing this legislation compared to our main international counterparts. However the legislation and regulations will be fully effective by 30 June 2013.

What types of transactions are caught? A person falls within the definition of a “financial institution” if, in the ordinary course of business, they undertake any of the following activities:

Anti-money laundering legislation – are you caught?

• accepting deposits or other repayable funds from the public; • lending to or for a customer, including consumer credit, mortgage credit, factoring (with or without recourse), and financing of commercial transactions (including forfeiting); • financial leasing (excluding financial leasing arrangements in relation to consumer products) • transferring money or value for, or on behalf of, a customer • issuing or managing the means of payment (for example, credit or debit cards, cheques, travellers cheques, money orders, bankers drafts or electronic money) • undertaking financial guarantees and commitments; • trading for the person’s own account or for the accounts of customers in any of the following: • money market instruments (for example, cheques, bills, certificates of deposit, or derivatives); • foreign exchange; • exchange, interest rate, or index instruments; • transferable securities; • commodity futures trading;

• participating in securities issues and the provision of financial services related to those issues; • managing individual or collective portfolios; • safe keeping or administering of cash or liquid securities on behalf of other persons • investing, administering, or managing funds or money on behalf of other persons; • issuing, or undertaking liability under, life insurance policies as an insurer; or • money or currency changing.

Requirements: If caught by the Act, entities need to implement comprehensive policies and procedures to assess and cover potential risk. They need to demonstrate that they are complying with the Act and regulations and will need to report to the relevant statutory supervisors (please see list of websites for these agencies at the end of this article). The requirements include: • Developing a written assessment of the money laundering and terrorism risks you face • Appointing an AML/CFT compliance officer • Vetting and training staff • Undertaking customer identification and identity verification • Undertaking on-going customer due diligence • Reporting suspicious transactions • Record keeping, auditing the system and annual reporting Significant penalties exist for parties that fail to comply with the Act. If you would like to discuss this further please contact Craig Fisher on 09 367 1654 or email: craig.fisher@hayesknight.co.nz

Did you know? Hayes Knight Audit is now a registered audit firm and our three audit directors are all licensed auditors under the Auditor Regulation Act 2011. This means we are qualified to audit all types of entities in New Zealand and is recognition of our audit expertise.

More information This is an area where you may need legal or other professional assistance to determine the impact on your business or organisation. Your Hayes Knight advisor would be happy to discuss this with you.

New legislation to combat money laundering and the financing of terrorism takes effect in New Zealand on 30 June 2013. The Anti-Money Laundering and Countering Financing of Terrorism Act 2009, a mouthful referred to as the AML/CFT Act by most users, is significant legislation that imposes requirements on many different types of entities.

Some further helpful information from the relevant agencies charged with providing general information and policing this area is provided on their websites:

This Act applies to “reporting entities” which are defined by the types of transactions they undertake. The type of transactions list has been drafted very broadly and casts the net very wide, meaning a large number of entities will be captured by this legislation.

Ministry of Justice: www.justice.govt.nz Department of Internal Affairs: www.dia.govt.nz Financial Markets Authority: www.fma.govt.nz

We believe this includes many that are likely to be unaware that the legislation applies to them.

“The challenge for governments is…identifying which laundering transactions are legitimate, and which are criminal offences”

innovation

Healthy growth The Hibiscus Coast is blossoming into a vibrant commercial and residential hub, and the recently opened Silverdale Medical Centre is providing for the health needs of its growing population. Text by Deirdre Coleman.

innovation Thanks to a significant investment in roading and infrastructure, and the increasing appeal of living outside the busy city, the former Rodney district is now one of New Zealand’s fastest growing areas. The township of Silverdale has taken off and it’s set to become the commercial heart of the Hibiscus Coast with development worth hundreds of millions of dollars currently taking place. The town centre has been redeveloped with a large new retail centre to cater to the needs of the existing residents and an estimated 10,000 people who will eventually move into the nearby 3000-section Millwater housing development. Naturally, the medical facilities in the area have had to keep pace with this growth, and December 2012 saw the opening of the new purpose-built Silverdale Medical Centre. Designed by Warren and Mahoney architects, the multimillion dollar two-level facility sits on the corner of the Hibiscus Coast Highway and Millwater Parkway. It provides a mix of primary care services all on one site and includes traditional general practice and family medicine with additional expertise in accident and urgent medical care. The ground level also houses an on-site pharmacy as well as radiology, physiotherapy and dentistry services. These are complemented by a number of specialist clinics for asthma, diabetes, lung-function testing, family planning, musculoskeletal medicine, sports medicine and hearing testing, among others. Visiting specialists also provide clinics in cardiology, midwifery, gynaecology, orthopaedics and spinal surgery, dermatology and ENT. The building’s second floor has been leased by Southern Cross Hospitals, which has plans to build four day-stay operating theatres there. What sets the new Silverdale Medical Centre apart from others in the region, says GP and part owner Dr Warren Groarke, is that it offers extended hours, highly qualified staff and a comprehensive range of services, making the centre a true one-stop shop for the medical needs of the local community. “We provide a gold-standard general practice service as well as a variety of GP special-interest areas” he says. Dr Groarke and his three colleagues from the original Silverdale Medical Centre – Alison Sorley, Martin Denby and Marcus Platts-Mills – have joined forces with GPs Andrew Webster and Kirsty Laws from the Red Beach Family Medical Centre to form Silverdale Medical Ltd. The company owns an 80 per cent stake of the Silverdale Medical Partnership (SMP), which focuses on the business side of the centre. The remaining 20 per cent stake of SMP has been sold to Southern Cross Primary Care (SCPC). It’s the first partnership of its kind between a general practice and SCPC, which is part of the not-for-profit Southern Cross Healthcare Group and operates independently from the Southern Cross Hospitals and insurance businesses. Dr Groarke and his colleagues had been in separate discussions with Southern Cross Hospitals about building a new home for the Silverdale Medical Centre. The new facility, with a construction cost of $8.8 million (excluding the fit-out), is also part owned by Southern Cross Hospitals. “The relationship developed four years ago when both organisations [Southern Cross Hospitals and SMP] realised that there was a need for a larger medical facility in Silverdale, especially with the substantial increase in property building and population occurring on the Hibiscus Coast” says Dr Groarke.

tips & tales

innovation

Jargon busting…

Hayes Knight is among the professionals that have been helping Dr Groarke and his colleagues get Silverdale Medical Centre set up and keep it running smoothly.

Accounting can be a strange world, full of foreign terms for people that are not living and breathing it day-in, day-out. Here are a couple of sentences that might shed some light on terminology you’ll hear around Hayes Knight offices:

“Hayes Knight have been involved with us for approximately two years, and came highly recommended after Marcus PlattsMills had worked with them extensively at the Skin Institute,” says Dr Groarke. “They’ve helped structure the organisations and provide financial advice to us and the banks, allowing us to raise and structure capital in the most advantageous way.”

Safety tips for electronic payments

“We quickly developed a close relationship with the staff and partners at Hayes Knight. They’ve been responsive to our needs, and have given us accurate and timely advice.” Hayes Knight tax director Phil Barlow has been working with the Silverdale Medical Practice directors in a number of areas, including structuring advice, the preparation of financial accounts, filing income tax returns, and compliance, as well as any day-to-day enquiries. “We’ve been actively involved from the beginning and kept a keen eye on the building progress. In the latter stages we assisted with tax issues associated with securing tenants,” says Barlow. “There have been a few changes recently to the legislation around the taxation of lease inducement payments offered by commercial landlords, and this is an area we’ve been working on with SMP.”

Phil Barlow, Director, Hayes Knight North When it came to attracting tenants for the new facility, Dr Groarke says interest was strong from many providers. To ensure the right mix, the selection criteria involved careful assessment of their professional and financial capabilities as well as consideration of the need to provide a team that would work constructively together. Dr Groarke admits that getting the centre up and running was a sometimes slow and frustrating process, but it’s provided some useful learnings and has been well worth the effort. “Always keep the end in sight!” he says. “It’s also important to develop a network of professionals, politicians and interested parties, especially from the local community, at an early stage.”

“We provide a goldstandard general practice service as well as a variety of GP specialinterest areas”

Silverdale Medical Centre mainly services those living on the Hibiscus Coast and the Whangaparaoa Peninsula, but its patients come from as far afield as Helensville, Warkworth, the North Shore and even Auckland. Dr Groarke says the response to the new centre has been really favourable from the majority of their patients. But, as is the case with anything new, some have taken time to familiarise themselves with the new building and the merged teams now working in it. The centre’s standing in the healthcare sector has been recognised with Cornerstone Accreditation, the gold-standard quality programme of the Royal New Zealand College of General Practice.

Over the last 10 years electronic banking has by far become the main method of payment to suppliers and employees – here are some tips to keep you safer online. There are two basic steps everyone can do to make sure their environment is robust: 1. Use a strong password for your banking: and change this regularly. Obviously this password should not be shared. Sharing your online banking password is like handing over a cheque book full of blank, pre-signed cheques! 2. Keep your computer up to date: make sure you’re doing your electronic banking on a computer with up to date antivirus/antispyware software, and using a recent version of your internet browser. Older versions will not necessarily have all the security features.

The importance of internal controls Unfortunately it is relatively common for us to hear about clients whose internal controls have let them down – and allowed payments through that were not appropriate. Typically this is through manipulation of the bank account numbers to which amounts are paid. Prevention is the key and there are a variety of systems available to assist with that – one common solution is to use your accounting or payroll software package to pull through bank account details into your electronic banking system. If you are responsible for approving payments, it is important that you understand how your system works:

Top of mind tips for undertaking new developments 1. Include your advisors early on. This includes accountants, lawyers and your bank 2. Get your advisors around the table talking to each other so that everyone is on the same page 3. Implement appropriate processes and systems to help with projections, cash flow and monitoring

Lessons for landlords Hayes Knight tax director Phil Barlow says for owners of commercial buildings like the Silverdale Medical Centre, it’s important to get sound advice around tax depreciation entitlements. “The rules around depreciable assets and what’s capitalised to the building changed on 1 April 2011,” he says. Tax depreciation allowances on building structures are no longer claimable, but building owners can still claim depreciation on the fit-out of commercial and industrial buildings. This includes assets such as plumbing, electrical and air conditioning systems, and lifts. “As a landlord, it’s important to work with your accountant to establish how much of the build is fit-out and how much is capitalised to the building so that you can claim your correct tax depreciation entitlement.”

• Who can add or modify suppliers/employees bank account details in your system? • Who checks that the bank account details added or modified are correct? However in most NZ SME’s there will be one person doing both of the above steps! If this is the case, then you could consider taking these further steps: 1. Occasional spot checking of bank account details 2. Getting a report of changes made to suppliers/ employees details on a regular basis – where your system can generate this These may sound onerous – but the very knowledge that someone will occasionally check or ask to see support for bank account details could be the deterrent that prevents this from ever occurring.

Novopay – name of a new payroll system for schools. Otherwise known as a very dirty word in the school sector. PBE – public benefit entity. An organisation established for the public benefit rather than any private monetary gain. From an accounting standards perspective we now have two types of entity in New Zealand; PBE’s or For-profit entities. Differential reporting – The ability for certain qualifying entities not to have to comply with all the accounting standards. This exemption will disappear after upcoming legislative changes. Reduced reporting Regime – Exemption from following all disclosure requirements in accounting standards. Still have to follow the measurement criteria though. Replaces differential reporting regime.

Contrary to popular belief… accountants DO have a sense of humour

Hayes Knight Audit team having St Patricks Day social event

A guy in a bar leans over to the man next to him and says, ‘Want to hear an accountant joke?’ The man replies, ‘Well, before you tell that joke, you should know that I’m 6 foot tall, 200 pounds, and I’m an accountant. And the guy sitting next to me is 6 foot 2 inches tall, 225 pounds, and he’s an accountant too. Now, do you still want to tell that joke?’ The first guy says, ‘Goodness no. Not if I’ll have to explain it twice.’

Definition of a taxpayer = a cross section of the public! Accountant after reading nursery rhymes to his young child: “No, son. When Little Bo Peep lost her sheep that wouldn’t be tax deductible, but I like your thinking”

new standards

tax changes

Accounting standards update

Changes afoot for your holiday home In 2011 the Government announced a review of the taxation of “mixed use assets”. Two years on and the proposed changes are now close to becoming law. The Government has estimated the new measures will generate more than $50m of revenue. The proposed changes, whilst likely to produce a dramatically different result, appear to be a “halfway house” to where the Government could have taken the changes. Once enacted the rules are set to apply from 1 April 2013. While the new rules will apply to any asset that is used both privately and to produce income, it has by far the greatest impact on holiday homes. The focus of our article is therefore on holiday homes/ baches. An asset will come within these rules if: • It is used privately by the owner or close relative, and associates; and • It is used to generate income; and • There are more than 62 days in the year when the asset is not actively used; and • The asset costs more than $50,000. • The rules are aimed at assets owned by individuals, trusts, Look Through Companies (LTCs) and close companies.

Apportionment of expenses The new rules provide a formula to apportion any expenditure incurred in relation to the asset. The apportionment will be based on actual income producing days over total days used to produce income and used privately.

Significant change to the way losses may be treated What many people are unaware of is any losses that are incurred will only be able to be offset against future profit derived from that asset. Accordingly the losses are ringfenced and potentially may never be usable. The ring fencing will only apply however if the gross income derived from the asset does not exceed 2% of the most recently available figure: either the acquisition cost OR Government valuation for the asset. This is another major change from the current position where losses would have been offset against any other income that had been derived, e.g. salary/wages, which in turn may have resulted in a partial refund of tax.

Refer to the example on this page which illustrates the result under the old and new rules.

“Once enacted the rules are set to apply from 1 April 2013”

The overhaul of the standards is a complex undertaking! To recap on the proposals, these include changing the accounting standards that drive your financial reporting to be:

stage which means there is no mandatory requirement to change the set of standards you comply with.

• Sector specific – different standards “for profit” and “public benefit entities” • A tiered approach – different standards depending on your economic scale and degree of public accountability.

These will be of benefit to you if: • you are a large ‘for profit’ entity (assets over $60m or revenue over $30m) • you are currently required to report under full New Zealand equivalents to Financial Reporting Standards (and are not applying differential reporting) • your organisation is not an issuer

A key aim of this overhaul is to reduce the compliance burden for smaller entities.

Taxpayers can choose not to declare the loss arising from the use of the asset, however, if a later year results in a profit, you will not be able to resurrect the losses that you have chosen not to claim.

If you’re not quite sure where your organisation will fit in to all this, take a look at our diagram at http://www.hayesknight. co.nz/home/news/news-items/2012/5/31/new-accountingstandards-framework-for-nz.aspx which will guide you through the relevant tiers of financial reporting.

Example

Latest progress in late 2012 and early 2013:

The example below looks at a property used both for private purposes and deriving rental income and how the results differ under the current rules and the new rules from 1 April 2013. Holiday home situated in Omaha. The family use the holiday home for 60 days during the income year. It is otherwise advertised on a website for rent. The home is rented to third parties for 90 days during the income year, earning $20,000 in rent. Costs incurred during the income year include, $1,000 advertising, $20,000 interest, rates, insurance and $3,000 of repairs.

2013 income year (current rules)

For the purpose of this formula “private use” includes the use of the asset by relatives/ associates even when a market rent is paid! This apportionment is a significant change from what has typically been accepted practice. To date expenditure would normally be apportioned to remove expenses relating to the days that the asset has been used solely for private use. (i.e. if a holiday home was used privately for 40 days, but used at some time during the rest of the year by third parties, expenditure claimed would have been apportioned on the basis of 325/365).

Last year we wrote on the planned changes to the New Zealand accounting framework. These proposals are now taking shape with the first changes now helping reduce the compliance burden.

Rental income

20,000

2014 income year (new rules) 20,000

Deductible expenditure: Advertising Interest, rates, insurance Repairs Tax (loss) / taxable income

1,000

17,808

12,000

2,671

1,800

(1,479)

5,200

For questions about how the changes to mixed use asset laws affects your business or for taxation advice please contact your Hayes Knight advisor or Tax Director at Hayes Knight North, Phil Barlow on 09 448 3233.

• Release of the Financial Reporting Bill - the proposed legislation that paves the way for the simplification of accounting standards for most of the for-profit entities in New Zealand – and also updates and aligns a host of other legislation. • Development of new standards by The External Reporting Board (XRB) has begun.

Financial Reporting Bill This is currently before the Commerce Select Committee (note, it is not law yet). There’s a host of technical legal considerations around this, but some key features to note: • Removes the requirement to prepare financial statements in accordance with accounting standards for small companies • Less entities required to file audited financial statements • Tightening of reporting deadlines – reducing to 3 months for companies • Changes to rules to opt-out of audit for large companies • Require charities to report under accounting standards

The XRB’s progress on standards The staff and Accounting Standards Board of the XRB have been very busy drafting standards in accordance with the new tier proposals. The “for profit” standards have been released in transitional phase whilst the legislation is enacted. All existing standards have been retained at this

Reduced Disclosure Regime (NZ IFRS RDR) for large companies

In these circumstances, you can use the new NZIFRS RDR standards to cut down the quantity of note disclosure within your financial statements. Get in contact with us to see how you can take advantage of this in the 2013 financial year!

Public benefit entity (PBE) exposure drafts The XRB is hard at work developing the PBE standards. The first sets drafted of relevance to a number of our not-forprofit clients are the “Simple Reporting” formats for smaller (Tier 3 and Tier 4 entities) PBEs. The XRB has released exposure drafts of these standards and has run a national road show to seek feedback. Whilst there are a couple of great features included in these exposure drafts, and they provide an accounting framework that is certainly much easier to follow than International Financial Reporting Standards, one of the more controversial features is the requirement for these entities to include a Statement of Service Performance. This statement is a way of formally reporting on non-financial outputs for each year.

Conclusion There is a significant amount of change coming for many of our clients. These changes will progress at different times depending on your sector, scale and degree of public accountability. As always we will endeavour to keep you up to date. Make sure you keep up to date by subscribing to our updates at http://www.hayesknight.co.nz/orphan-pages/register.aspx For more information contact your Hayes Knight Advisor or Jason Stinchcombe on 09 367 1658 or by email: jason. stinchcombe@hayesknight.co.nz

“A key aim of this overhaul is to reduce the compliance burden for smaller entities”

innovative software

investment advice

Capital conundrums

XERO – what’s all the fuss about?

Doing some homework and seeking some practical financial advice upfront could mean the difference between a happy ending and disappointment.

Scott Travis, Director Hayes Knight North.

When considering the property investment market, you simply can’t have enough information, says Scott Travis, business advisory director at Hayes Knight North in Albany. The property investors who consistently do best are the ones who’ve done their homework , says Travis. They’ve talked to a reputable property manager about the sort of rental returns the apartment could give them; they’ve talked to the agents, compared recent apartment sale prices and sought valuations; and they’ve some idea about how the market is likely to perform. Every potential investor has their own financial circumstances and these will impact on how they fund the purchase and the level of risk they’re able or prepared to shoulder; what they should be borrowing against; and what’s the best way

“It’s quite a romantic idea: buying an apartment in the City. But you really need to put all that aside... If you do your homework, know your limitations and structure the purchase well, you’ve got the best chance of a happy ending.” Scott Travis, business advisory director, Hayes Knight North.

In hindsight... Educational consultant Terry Goodall admits his first foray into the apartment investment market was led by the heart, not the head. “We overpaid hugely. No one could have stopped us though. We were determined to go ahead because we just thought it was such a good idea.” Once they realised what they’d done, there were some sleepless nights, made worse because they’d been given poor financial advice and had put their new apartment in a trading trust structure, which Goodall says was simply far too complicated to understand. “It turned out to be the worst thing we could’ve done.” Fortunately Goodall sought new advice, at first so he could just understand the structure he’d been recommended. He turned to Scott Travis at Hayes Knight. “Scott showed us that our apartment was in completely the wrong ownership structure. We saved thousands of dollars a year by changing the structure to ensure our investments were taxed as efficiently as possible.” More importantly, Goodall could actually understand the structure for the first time. It’s actually not that complicated when the right person explains it, he says. Older and wiser Goodall’s gone on to make more considered investment choices, but he cautions others to get some good advice before taking the plunge. “Without the backing of a good accountant we simply would not have had the confidence or the knowledge to pitch in like we did.”

Xero accounting software is seriously big news in the accounting profession and is rapidly changing the way smaller businesses operate.

to structure their purchase, says Travis. “Each investment opportunity needs to be assessed on a case-by-case basis. But the first thing you must ask yourself is why you’re buying an apartment? What’s your long-term plan?” Next, look at how you intend to fund the purchase, says Travis. Do you have cash reserves? Should you use these or save these for other investments and borrow to fund the apartment investment? Having made the funding decisions, you need to figure out who should actually buy the property. Should it be a trust, a company or a personal transaction? “Again, this ties back to the purchasers’ existing financial situation; how their existing debt is structured and the opportunities there are to restructure their debt so they can obtain further tax relief against current income.” This is particularly important if the purchasers are a couple and one part of the couple earns substantially more than the other, says Travis. As well as offering independent financial advice, a good accountant should also be able to show purchasers how to keep appropriate financial records for their apartment investment. “It’s quite a romantic idea: buying an apartment in the City. But you really need to put all that aside and take a good look at the nuts and bolts of why you’re doing it, can you do it and how you do it. If you do your homework, know your limitations and structure the purchase well, you’ve got the best chance of a happy ending.”

Money matters: key questions you should ask: 1) Why are you buying an apartment; what’s your ultimate goal? 2) What’s your current financial position? What should you be borrowing and against what? 3) What’s the most tax efficient structure for this purchase given your aims and financial position? For all your financial questions either contact your Hayes Knight advisor or Scott Travis on 09 448 3232 or 021 414 569 or email: scott.travis@hayesknight.co.nz

In 2008 we attended the first Xero conference in Napier where around 25 New Zealand accountants spent a couple of days with CEO Rod Drury learning about the plans the company had and providing suggestions for what the software should be able to do. Last month I attended the latest Xero conference in Auckland, with around 800 other accountants. Xero is also hosting conferences in San Francisco, Sydney and London and now have over 130,000 users around the globe. Their growth is a fantastic success and a real show of Kiwi ingenuity.

imported each night and the system quickly learns how to treat recurring transactions, without needing human input. The system can also be operated from a smartphone, allowing you to raise invoices, complete bank reconciliations or check details at anytime from anywhere with cellphone reception or Wi-Fi. The level of development is staggering, with new time saving features regularly being added. The team at Xero genuinely want feedback and act quickly on it, often turning an idea that a user has into reality within a few months.

Easy access and versatility have been key

Becoming more accessible and functional for larger businesses

The most obvious advantage of Xero is that it is a web based system, allowing easy access from any computer with an internet connection. This has allowed us, as accountants, to log into clients accounting software quickly and easily, letting us either check how things are going, or fix problems. This ease of access is opening the way for many businesses to move to a ‘virtual CFO’ model, whereby Hayes Knight can provide a cost effective monthly reporting and advisory service, effectively being a remote, part time, financial controller. This can be a great permanent solution or a stepping stone for a business that needs more financial input but can’t yet justify having someone on the payroll. We’re also able to provide full business administration services through the Xero platform, doing everything from invoicing to paying creditors.

The nuts and bolts of Xero Xero is fundamentally designed to streamline accounting processes and functions. Bank transactions are automatically

While originally designed for small businesses, a new industry has emerged in building software products that integrate seamlessly with Xero, now allowing much larger businesses to utilise the software. These include such things as point of sale systems, stock management, job costing, payroll and time billing. While certainly not a solution for all businesses, Xero and their add-on partners are rapidly becoming relevant to a wider business audience. At Hayes Knight most of our accounting team are now officially ‘Xero certified’ and we are able to implement the software and train users, providing everything you need to get up and running. We regularly run free client Xero seminars which you can register for at www. hayesknight.co.nz. Alternatively, give Adam Catchpole a call on 09 414 5444 and we’ll arrange a free, no obligation consultation to decide if Xero is the right solution for you.

“…Xero and their add-on partners are rapidly becoming relevant to a wider business audience”

Hayes Knight Group news

Hayes Knight Group update Welcoming In our on-going commitment to growing great professionals, Hayes Knight Audit have just taken on 6 new audit graduates in our 2013 intake. We’re delighted to welcome:

Winners Dominic Bigsby, Batu Yazici, Ethan Dick and Isaac Ross (not pictured) with Hayes Knight North Director, Tristan Dean.

Avinash Dutt, Jinny Park, Kurt McCarthy, Rushikesh Raniga, Shayne Lal, Shivani Chandra.

Global News • Hayes Knight Australasian Group - The Hayes Knight Group in New Zealand is part of the Hayes Knight Australasian Group of independent firms which has offices in Sydney, Melbourne, Brisbane, Perth, Adelaide, Darwin. We are delighted to see the Melbourne office grow to a 10 partner practice after merging with another local firm. • Morison International (MI) – We were pleased to hear our wider international network; Morison International, were announced winners of the International Accounting Bulletin Association of the Year and Rising Star Association awards in 2012. MI and member firms are now shortlisted for 5 awards in 2013, demonstrating how the association is going from strength to strength. The MI network is continuing to expand as a result of strong growth of member firms such as MHA MacIntyre Hudson in the UK, and securing further excellent member firms such as the highly regarded Marks Paneth & Shron in New York City, (the 32nd largest firm in the USA). This ensures we can continue to serve our clients with their offshore requirements.

Jinny Park Jinny started with Hayes Knight Audit in February and already feels part of the wood work. We talk to Jinny about what attracted her to Hayes Knight and what’s helped her settle in so quickly. How did you come to work at Hayes Knight Audit? “I first met people from Hayes Knight at a careers day in Auckland. My first impression was what a nice bunch of people they were”. What helped you decide to accept the job? “The chocolate brownies they were handing out at careers day! No, seriously, there was no bribery involved – I was keen to work for a great mid-tier accounting firm because you get more exposure to more clients and some fantastic hands-on experience. The great culture was the thing that really sold me on Hayes Knight though”. What’s been the most surprising thing about working at Hayes Knight so far? “Just how easy it has been to become part of the team and pick things up quickly. It’s really helped having great training, a supportive environment and the company of other graduates”.

Hayes Knight North welcomes • Yvette Boylan, Business Services Team. She has joined us from one of the big 4 accounting firms in the city • Adam Catchpole, Senior member of Business Services team. Adam has recently relocated from Christchurch • Christina Yu. Christine has joined as a graduate having worked with us as an intern last year whilst studying

Spotlight on…

Congratulations budding gymnasts Hayes Knight sponsored the North Harbour Sports Award’s Junior Team of the Year category Our congratulations go to winners from the North Harbour Gymnastics Club.

New Office for Hayes Knight City Hayes Knight City, led by directors Nigel Wilde, Luke van den Hurk and Peter Gray, have now opened a new Hayes Knight office in the MSD Building, Level 1 109 Carlton Gore Road Newmarket. The team look forward to welcoming you in their new premises soon.

Prompt payment paid off Sarah and Murray MacCormick were the winners of Hayes Knight North’s prompt payment competition. Having won, the couple enjoyed a fantastic 2 night break staying at the 5 star Azur Lodge (pictured) in Queenstown earlier this year. Well done!

Brendon Cutler Hayes Knight North are delighted to announce Brendon Cutler has become a full director. Brendon has been with Hayes Knight for 4 years most recently as an associate in our Business Services team. We ask Brendon a couple of questions about working with his clients at Hayes Knight North. What type of clients do you mainly look after? ”A large cross section of clients across a number of different industries. My clients range from small businesses through to large, multi-million dollar businesses”.

Celebrating Success! A significant goal and milestone for most accountants is to become fully qualified Chartered Accountants. This qualification requires academic qualifications, a specified period of practical experience and professional mentoring as well as passing the two stages of professional exams from the New Zealand Institute of Chartered Accountants. Hayes Knight are committed to supporting the team become full members of the Institute of Chartered Accountants. The Hayes Knight candidates are expertly guided by our experienced Training Academy Manager Wayne Tukiri and we are delighted to announce, yet again, a 100% pass rate for all who sat their professional exams in late 2012. Congratulations goes to all 17 members of the Hayes Knight team who passed their exams!

What are the most satisfying moments you have had in helping a client? ”Where client relationships form into friendships. I’ve really enjoyed working with clients and watching them grow not only as businesses but also as business owners and individuals – particularly where they have become more entrepreneurial in their thinking and actions”. What do you feel excited about with Hayes Knight’s future? ”For me the North Shore is a great place to live and work. I’m excited about the growth in our area particularly in Albany and Silverdale and the local opportunities that presents to Hayes Knight North. Our job is to be trusted advisors to clients, living our tagline “beyond the numbers” as that’s the future of accounting and something I think we do well”. Congratulations Brendon, we wish you every success.

To choose the right accountant, look beyond the numbers

Keeping your business future fit is about being better equipped to make bold and powerful financial decisions. At Hayes Knight, rather than just work the numbers, we interpret them. The result is a more empowered, knowledgeable client able to be proactive with the next steps of their business. To find out more, visit hayesknight.co.nz