Newsletter

Auditors Under The Spotlight

08 July 2010

The recession and subsequent turmoil in financial markets has inevitably lead to a global call for an increase in regulation to prevent a similar meltdown occurring in the future.

New Zealand is not immune to the call for greater regulation with the Commerce Minister Simon Powell recently announcing that the Government is creating a new regulator for New Zealand’s financial markets.

The audit profession is watching these developments with interest. Indeed, in recent times auditing and the audit environment has experienced significant change and further change is likely. I thought I would take the opportunity this month to update you all on what some of the changes have been and what further changes are on the horizon.

Specialist NZIFRS Team

In recent times we have poured a tremendous amount of staffing resource and energy towards being compliant with New Zealand equivalents to International Financial Reporting Standards (NZIFRS). Bit of a mouthful but what it really means is that certain entities are now required to report under international accounting rules. Whilst it seemed onerous and expensive for many of our clients we found that with good planning and proper guidance that clients have found the process to be beneficial. In fact, some of our clients are now opting to comply with the international rules and follow best practice procedures regardless of their statutory obligations.

We have a specialist NZIFRS team at UHY Haines Norton who are always happy to answer any questions relating to this area.

New Auditing Standards

Just when we thought that we could take a breather after the demands of implementing NZIFRS there is now a requirement to comply with NZ equivalents to International Auditing Standards. There is just no winning!

From 1 October 2009 New Zealand became the first country to adopt the full suite of new International Standards on Auditing (ISAs). The adoption of international standards is a means of ensuring the comparability, consistency and credibility of information on which investors and other stakeholders depend.

UHY Haines Norton has again invested significant time and effort in ensuring that our systems are compliant and we are able to assert compliance with International standards. Our specialist team of auditors are continuously maintaining their skill and expertise in this area and are always available to assist with any questions you may have.

Regulation of auditors

At present the Institute of Chartered Accountants of New Zealand is the only professional accounting body that is directly able to regulate accountants and auditors offering services in New Zealand. There are two main problems with the status quo. The main problem is that the current self regulatory system for regulating auditors is weak. The other problem is that self-regulation is no longer internationally acceptable. For this reason, New Zealand auditors cannot carry out company audits in Australia. There is also an increasing risk that New Zealand auditors will not be able to perform the audit of overseas owned New Zealand entities if self-regulation is retained. Two solutions are available to deal with this problem - these are:

• To introduce auditor specific regulation;
• To introduce either government regulation or co-regulation.

A Cabinet paper has been issued and is currently going through the standard discussion and consultation process. We will keep you updated on this matter however it is likely that in the future some form of audit regulation will be implemented.

If you have any questions in relation to any of the above topics then please do not hesitate to contact one of our directors. We would be happy to discuss with you further.

Kind regards

Sungesh Singh
Director

UHY Haines Norton Continues to Grow

UHY Haines Norton continues to grow and we are pleased to announce that in May 2010 we purchased the Helensville accounting practice of Ken Downer.

UHY Haines Norton Director Mark Foster is managing the integration of Ken’s practice with UHY Haines Norton.

Mark commented that “we see this as an exciting opportunity to widen our client base and to assist new clients in growing their business and in meeting their business goals”.

Ken will continue to be involved in the practice for at least the next 12 months. If you would like any further information on this matter please contact Mark Foster at 839 0299.

BACK TO TOP

Seven Deadly Mistakes of Small Business

Being in business and staying in business is one of the greatest challenges that an entrepreneur faces. There are no ‘rules’, no ‘courses’ or ‘seminars’ that can explain exactly how things will turn out.

On one hand running a business can be fun, exciting, creative and interesting. On the other hand, it can be nerve-racking, tiring and challenging.

Being aware of potential business problems before they arise is one way to avoid business incidents and failure.

Steve Strauss, a respected business columnist in the US identified seven deadly sins that small businesses commonly make. The following briefly discusses the seven deadly sins identified:

1. Financial mismanagement

Financial mismanagement can include any one or all of the following:

Undercapitalisation: A common and often telling mistake when starting up a business is not having enough money invested in the business from the word “go”.

Too much overhead: If cash flow is the life-blood of a business, then high overhead is the Dracula that will suck it out – often with terminal consequences.

One of the best pieces of advice for new businesses is "keep your overhead low."

Too much debt: Like overhead, too much debt can cripple a business.

2. Failure to plan and brand

It's easy for a business owner to get caught up in the day-to-day running of the business and fail to see the big picture. Knowing where to go, and planning how to get there is essential to achieving business success.

This is especially true when it comes to branding, a business owner must know what it is they are promising customers/clients (i.e., the business brand), and then reinforce that promise with their actions.

3. Putting your eggs in one basket

It may be comforting to have that one big customer, but what happens when they say goodbye? Like any good investor, a business owner should look to diversify their customer portfolio.

4. Not using available technology

The computer-internet-technology revolution is one of the most important tools available to small business. It allows small business to compete on an even playing field with larger businesses and in far more markets. Not taking advantage of this revolution is a huge mistake!

Powerful PCs, small business servers, web sites, business software, wireless networks, cell phones and more are all available to help the business owner succeed.

5. Failure to market adequately

Most small business people find and use a few marketing tricks and then get complacent, comfortable in the supposed knowledge that they know what they are doing. But the fact is, things change. Customers come and go. Viewing, listening and reading habits have changed. And suddenly existing marketing methods become stale, outdated and obsolete.

Small business owners should not rest on their laurels and should keep experimenting with marketing techniques and finding new ways to grow.

6. Not knowing the numbers

Many small business owners are long on ideas and short on detail. Want to open a second shop? Well, what exactly will that cost, and what is the return on investment? Business owners have to be able to adequately find and crunch the numbers if they are going to succeed in business. If the business owner doesn't feel comfortable with numbers, they should find the right financial advisor/accountant, or take some lessons.

7. Relying on yourself for everything

A small business owner has to wear many hats, but that doesn't mean they should try to wear every hat. Get some help! In addition, successful small business people understand that they don't know everything. They bring in experts to fill the gaps. That may mean using the services of an accountant, lawyer or a marketing whiz.

That is a summary of the seven deadly mistakes that small business owners should avoid. Avoid these mistakes and the chances of long-term success in business can increase dramatically.

BACK TO TOP

Tax Planning – A Change in Approach

The IRD has issued a Revenue Alert after the well publicised Court of Appeal decision in CIR v Penny and Hooper.

The decision has implications primarily for people carrying on a business of personal services where the income attribution rules don’t apply (medical practitioners, accountants, engineers, architects, consultants, etc.) through a structure using a company to facilitate the service and a family trust that owns the shares in the company.

Secondly the decision resurrects the long standing debate about whether a company should be required to pay a market rate salary to the effective owners i.e. those who control the company whether or not a trust is used.

The case relates to a period when the company and trustee rates of tax were both 33% and the highest personal tax rate was 39%. From that time onwards the company/trust structure discussed here was, and still is, used by many to minimise tax by taking advantage of the difference in tax rates, which was a 6% saving i.e. a minimal salary taken from the company resulting in more profit left in the company, taxed at the lower 33% rate instead of 39%.

IRD has said they will now continue to investigate similar arrangements where there are significant tax benefits. Note that with the company tax rate currently at 30% and falling to 28% from next year and top personal rates falling to 33%, taxpayers may be tempted to continue to keep shareholder salaries to a minimum. The principles in this case might also be applied by IRD where a trading trust is used and it pays a below market salary to an employee/beneficiary.

In tackling this, the options available to IRD include deeming all income to be derived by the individual, or deeming that the individual received some other amount of remuneration personally. IRD acknowledge that there may be legitimate circumstances when it is appropriate to pay a below market salary, but these seem to be limited to times when the company is not profitable or during start-up when reinvestment is required.

Where avoidance is alleged by IRD, the department will charge late payment penalties and use of money interest. Shortfall penalties may also be applied, although these may be reduced where a voluntary disclosure is made.

In light of these changes we recommend you talk to your UHY Haines Norton director to discuss how these changes may affect you and whether other tax planning opportunities exist.

BACK TO TOP

Cash Flow Corner: Tips on Improving Cash flow & Profits

In Cash Flow Corner, UHY Haines Norton Managing Director Grant Brownlee, provides useful tips on how to improve and grow business profitability and cash flow.

This month’s tips are:

• Review your strategic plan. Are your growth strategies still relevant? Are you investing too much resource into speculative sales? How long will it be before you get a return on investment?


• Brainstorm with staff to find ways to make processes and procedures more efficient. Focus on saving time and costs.


• Review how efficiently you are using resources for example could you sublet unused space, are you renting too much storage, could you reorganise to save resources?


• Monitor your profit results monthly and forecast your cash position monthly.

UHY Haines Norton can prepare cashflow forecasts for any business so as to enable it to effectively manage its cash resources. Contact UHY Managing Director Grant Brownlee on 09 839 0297 or 021 988 433 if you would like to discuss how we can help you better manage your cashflow.

BACK TO TOP

UHY Client Named Australasian Design Agency of the Year

At UHY Haines Norton we love celebrating our clients’ successes, we are thrilled therefore to acknowledge the latest success of our client, Alt Group. Alt Group has taken out two of the top spots in Australia’s prestigious CREATIVE Hotshop Awards, with the company crowned Design Agency of the Year and In-House Agency of the Year.

The Creative Hotshop awards are in their sixth year and recognise excellence and creativity in the areas of design, advertising, production, post production and sound and music. Alt Group was successful in the design category heading off New Zealand and Australian firms to win its awards.

Alt Group is a multidisciplinary design firm based in Auckland. It has previously been successful in winning a Red Dot Grand Prix Award at the Red Dot Design Awards held in Germany refer to our February 2010 newsletter for further details.

Has your business recently received or been nominated for an award or have you been successful in growing your business if so let us know we would love to spread the word about your success.

BACK TO TOP

TAXING MATTERS

Taxing Matters provides a summary of topical tax information relating to individuals and business.

1. ACC has two programmes in place that enable small to medium sized-enterprises to get a discount on the ACC work levies that they pay. The two programmes reward safely run workplaces and are called the ACC Workplace Safety Discounts Programme and the ACC Workplace Safety Management Practices Programme, the main features of each programme are as follows:
   
   ACC Workplace Safety Discounts (WSD)
• The programme is aimed at small-medium sized businesses in high risk accident categories including construction, road freight and motor trades;
• To apply for an ACC WSD the business must operate in one of the identified high risk industries and have 10 or fewer full-time equivalent workers, or an annual payroll of $450,000 or less;
• If a business qualifies for the ACC WSD it gets a 10% discount on its ACC work levy (the levy that is used to cover the costs of work-related injuries);
• To qualify for the discount a business needs to complete a safety-oriented self assessment and demonstrate that it has capability in hazard management, staff training in safe work practices, and emergency readiness;
• Industry-specific training courses are available to help businesses get their safety practices to the required standard so as to enable them to qualify for the discount – only one person from a business needs to attend.

ACC Workplace Safety Management Practices Programme (WSMP)
• The programme is best suited to businesses with more than 10 full-time staff, however anyone can apply;
• To qualify for this discount a business is required to undergo a comprehensive workplace health and safety assessment. This is carried out by an independent auditor at ACCs cost;
• Depending on the results of the assessment a business can receive a discount on its ACC work levy of between 10% and 20%.

Further information about the two programmes can be obtained from the ACC website.

For further information about ACC options for the self-employed refer also to our May 2010 newsletter.


2. The IRD has issued a reminder to businesses completing an Employer monthly PAYE schedule (IR348) which includes schedular payments (previously withholding payments) to complete the “Earnings and/or schedular payments not liable for ACC earners’ levy” box in addition to box 3 “PAYE and/or schedular tax deductions”, failure to complete the former box may result in ACC levies being incorrectly applied.


3. Fixed assets costing $500 (including GST if not registered or excluding GST if registered) or less can be expensed in the year of purchase for tax purposes rather than being capitalised and depreciated.


4. Gift duty may be abolished. The National government is investigating repealing gift duty, subject to concerns over people giving away assets to defraud creditors or to claim benefits. The duty was originally introduced to prevent people avoiding estate duty but remained after the latter was abolished in the early 1990s.

For further information regarding the above, or for any other tax matters please contact us.

BACK TO TOP

PASS ME ON

If you know someone that would find articles contained in this publication to be of interest please feel free to pass a copy on to them.

BACK TO TOP

UHY Haines Norton (Auckland) Ltd is a member of UHY Haines Norton, an association of independent firms throughout Australia and New Zealand and a member of UHY, an international association of independent accounting and consulting firms. UHY firms operate in over 180 offices based in more than 60 countries around the world.

Disclaimer

The comments in this publication are for general information purposes only. This publication and the information contained within it is not intended to constitute professional advice. If you wish to receive specific professional advice please contact a UHY Director.