RESOLUTIONS FOR 2017
No 40 SUMMER 2016
MONEY TALKS Why Christmas is the ideal time for a family discussion
DANCING FROM THE BALCONY Leading your business' culture
EXIT STRATEGY Smoothing the succession of your business
INVESTMENT 101 Going back to basics
www.staplesrodway.co.nz
www.staplesrodway.co.nz NUMBERS Summer 2016 • 1
DIRECTORS AUCKLAND
David Searle
HAMILTON
Rosanna Baird (07) 834 6800
(09) 373 1128
TAURANGA
Chris Downey (07) 578 2989
HAWKES BAY
Stuart Signal
(06) 878 7004
TARANAKI
Chris Lynch
(06) 757 3155
WELLINGTON
Robert Elms
(04) 472 7919
CHRISTCHURCH Ross Erskine
(03) 343 0599
DISCLAIMER No liability is assumed by Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this document. It is 2 • NUMBERS 2016 recommended thatSummer you consult your advisor before acting on this information.
No 40 SUMMER 2016
CHAIRMAN'S MESSAGE As 2016 draws to a close it is worth reflecting on what has been an eventful year, with Brexit in the UK, the election of Trump in the US and the surprise resignation of our Prime Minister. Even with a number of global political upsets, our economy locally continues to perform well, with housing, tourism and construction all booming. While this is tempered in the regions by a dairy sector where the majority of farmers made a loss this year, thankfully things are looking up, with milk prices recovering. It has been a year of strong growth and economists are predicting this to continue at a steady pace in 2017. As the country experiences aftershocks from Kaikoura’s recent 7.8 magnitude earthquake it has been encouraging to see a coordinated and rapid response. While the quake has caused disruptions to local businesses and aftershocks continue in the area, it is predicted that the long term impact on tourism will be limited. We are anticipating a good year for 2017, with Ted Verkade recently appointed as CEO and President of the Baker Tilly International network. This is further enhanced with the appointment of Ben Lloyd, Asia Pacific’s Regional Director to the newly created position of COO. We are proud to be part of Baker Tilly International, which was awarded Network of the Year at The Accountant & International Accounting Bulletin (IAB) awards 2016. Ted Verkade recently visited New Zealand and we are excited by his vision for the network, especially in the Asia Pacific Region, where Baker Tilly is now ranked as the 6th largest network in this region. To all of our staff, clients and their families, we wish you a Merry Christmas and a Happy New Year and look forward to seeing you in 2017. Peter Guise CHAIRMAN, STAPLES RODWAY NEW ZEALAND
IN THIS ISSUE 2 Money talks Using Christmas to talk to your family about money
4 Start small, think BIG A new initiative to teach kids financial literacy
6 Business success How the right KPIs can lead the way
8 On the balcony and on the dance floor Leading the culture of your business
10 Women in Business Lisa King, Eat My Lunch
13 Financial reporting Knowing your obligations
16 Ask an expert 18 Smoothing the succession of your business What to consider when planning for the future
20 Investment 101 Getting back to basics
22 Look-Through Companies Tax changes on the horizon
24 Auditor rotation What is it and what does it mean?
26 Staples Rodway Challenge 27 #TrendingInJapan 28 Movers & shakers
2016 Network of the Year BAKER TILLY INTERNATIONAL
www.staplesrodway.co.nz
MONEY TALKS USING CHRISTMAS TO TALK TO YOUR FAMILY ABOUT MONEY
Article by Will Roberts STAPLES RODWAY ASSET MANAGEMENT will.roberts@sraminvest.co.nz
The holidays are a time when we set aside demanding schedules to come together with our loved ones. For some far-flung families it’s one of the few times that everyone comes together in a single place. Using these gatherings to have a family financial discussion is probably not high on many peoples’ agendas, although it’s something to be encouraged. These get-togethers create an opportunity to discuss sometimes sticky financial issues that involve different generations — from gift-giving traditions to estate planning.
T
ALKING TO YOUR ADULT KIDS about your finances and how you plan to divvy up your money after your death may be one of the most important conversations you'll ever have. It gives you the chance to tell the kids how you want your estate to be handled. It lets your kids know whether they need to worry about supporting you in your old age or whether they'll get help paying for their children's university education. It also sets them straight as to whether they will get a windfall, a topic that can be a huge disconnect between parents and children. A recent study by MFS, a money-management firm, found that the majority of Gen X and Gen Y respondents expected an inheritance to help with their own retirement, but less than half of baby-boomers agreed it was important to leave one.
WHERE SHOULD WE HOLD IT? You want everyone to feel comfortable in the setting, but you also need to get things done. For some families an outdoor fire and wine may help to set the mood. For others, around the kitchen table will work well. If you think you’ll need neutral turf, consider booking room at a restaurant.
WHAT TOPICS NEED TO BE ADDRESSED NOW? The best family financial meetings have a predetermined agenda. What do you feel needs to be discussed as a family? Are there issues that have been swept under the rug and need to be raised? A single topic is just fine by the way. You don’t need a laundry list, especially when you’re getting started. Everyone’s list of topics might be different and it might be that you stick to care and housing for aging parents. For another family, it might be preparing a younger generation to inherit what may be a significant amount of money. Given the time of year and www.staplesrodway.co.nz
how we like to spend our holidays, it could be how the family holiday home is dealt with in estate planning. Before coastal property became so valuable this wasn’t so much of an issue, but where beneficiaries are in very different financial situations this has the potential to create tension. Where trusts are involved a shared understanding of the trust’s objectives can help ensure the intentions behind its existence are met. At some stage there might be a transition to younger trustees. Where this is happening, it’s useful they understand the relationships the trust has with external advisers such as lawyers and investment professionals, as this will smooth any hand-over taking place between generations.
LISTEN TO YOUR PARENTS AND TREAT THEM WITH RESPECT Keep in mind that you may not agree with every financial decision your parents make. Still, there is no need to parent your parents. Instead of telling them what to do, ask questions that clearly express your concern: "What can I do to help you?" "How do you think we should handle this?" "Do you feel overwhelmed by any aspect of your finances?" With good intentions and a willingness to listen carefully, your family can work through this challenging topic, one issue at a time. And when the hard work is done, your family will act and react more effectively. Staples Rodway Asset Management is a boutique investment advisory service that specialises in providing personalised and impartial investment solutions for individuals and trusts. An adviser can be contacted at enquiries@sraminvest.co.nz or on 0508 220 022. NUMBERS Summer 2016 • 3
START SMALL
THINK BIG
Staples Rodway is launching an initiative to promote financial literacy at home and in the classroom, helping kids understand the importance of saving and planning for the future.
Article by Kylie Hollard STAPLES RODWAY TARANAKI kylie.hollard@staplestaranaki.co.nz
4 • NUMBERS Summer 2016
"
WHY DO MUM AND DAD have to go to work today?" It’s a question that breaks the hearts of many parents across the world. Of course many of us would much rather be at home with our children, but that’s just not realistic. If we are to put a roof over our children's head, give them warm, comfortable clothing and take them on adventures, we need money! The reality is we have to work hard, save hard and plan for our future (as well as our children's!). Money is important and as the saying goes, it makes the world go round. But how many children actually understand this? Our children are growing up in a society where almost everything is centred around money, yet education in this area isn’t hugely encouraged. With global debt at an all time high* and consumers spending more than they have earned (according to Statistics NZ**) it is vital that we help younger generations to prepare for their future. As parents, it is our job to teach our children how to be financially savvy. It’s becoming an essential skill and one that is also being included in schools.
There is only so much we can do to help with this campaign; we also need to see other businesses and organisations getting on board to promote financial education. We would love to see Government funding increase to allow more education in the classroom.
WHAT TO TELL OUR CHILDREN
*SOURCE: International Monetary Fund **Statistics NZ reported that in the last 20 years households have generally spent more money than they have earned especially since 2001. This spending is on consumer goods such as food, electrical goods, car repairs etc but does not include income tax, interest or buying property. Spending stopped when it was harder for households to access credit.
We all must go to work to make money. However, you can have a great start to life when you learn to manage your money at a young age. Tips to teach financial life skills: Encourage children to start saving SMALL amounts when they are young (saving pocket money for bigger purchases). Encourage your child’s school to talk about savings and investments and everything in between (e.g. Banqer, a new app for classroom use that simulates online banking for the classroom, providing hands on learning for kids to develop confidence with money).
WHAT YOU CAN DO TO HELP Do your research and utilise the tools on offer to support you. Most banking websites have calculators that help you work out how much your child will need to save to reach a savings goal and how long it will take, along with different ways to save with the bank, whether it is in a savings account, PIE fund, or term deposit. Banks have different packages available for those parents wanting accounts for kids, school leavers, graduates, those buying homes and senior citizens. Better education should lead to higher national savings and lower debt in the future, so let’s keep the conversation going. If you’re still unsure, keep an eye on the Staples Rodway website.
WHAT IS STAPLES RODWAY DOING TO HELP? Staples Rodway is launching a campaign in December for wider teaching of financial literacy at home and in schools, as a way to help younger generations prepare for the future. As part of the Start Small Think BIG campaign our Taranaki office will be visiting schools in the region to promote the importance of savings for children and will be giving away Banqer memberships as part of an art competition. Staples Rodway Taranaki is also giving away $1,000 to a child at the popular Christmas at the Bowl event in New Plymouth this month, which will be the start of a KiwiSaver fund for the lucky winner. It is our way of introducing finances into the classroom so children start discussing how money is earned (and that it doesn’t grow on trees), what it means when Mum and Dad say they are going to “work” and how money can increase over time and decrease with the costs of running a household. We are passionate about teaching the importance of saving now for a better future. www.staplesrodway.co.nz
A simple savings account with a bank, where you deposit $20 a week ($1,040 a year) will give you $43,159 after 25 years at a rate of 5% interest and 2% inflation. If you put that money into a KiwiSaver fund instead, once a child reaches 18 the Government will add another $520 a year to increase the savings further. Anyone in a KiwiSaver scheme for 3 years can withdraw their contributions, their employers’ contributions, government tax credits and any earnings made on the investment to put towards a deposit on their first home. Small steps can help kids in the future.
NUMBERS Summer 2016 • 5
DRIVING YOUR BUSINESS SUCCESS WITH KPIS Does what you measure match your objectives?
Article by Mark Kingsford STAPLES RODWAY AUCKLAND mark.kingsford@staplesrodway.com
6 • NUMBERS Summer 2016
K
EY PERFORMANCE INDICATORS (KPIS) ARE the critical business metrics which demonstrate how well your business is achieving certain identified objectives. KPIs may be pointers of operational effectiveness, gauges to successful execution of strategy, or allow benchmarking and assessment of business performance.
LAGGING VS LEADING INDICATORS KPIs that measure and benchmark past performance are lagging indicators. For example, a simple lagging indicator, used by most businesses is gross sales month to month. Leading indicators provide signals of how your business is going to fare in the near future. An example of a leading indicator is customer satisfaction, as it indicates ongoing customer retention. Ideally a business would use both lagging and leading indicators.
“PEOPLE RESPECT WHAT YOU INSPECT” KPIs can ensure that the staff are focussed on the inputs or activities required to drive a good result. KPIs can also provide a mechanism to motivate, and possibly remunerate staff, without needing to show them full financial information, which may be confidential or deemed too sensitive to release.
MEASURE AND ADAPT The use of KPIs can help you measure the effect of different initiatives, to ensure maximum value and lessons are extracted. For example, for an online retailer the number of website hits is crucial, therefore tracking unique visits can help assess and compare the impact of different marketing campaigns such as Google AdWords or social media.
GOOD KPIS KPIs will differ from business to business and can depend on a number of factors, including specific industry, stage of life cycle, strategic initiatives, and customer engagement model. Your business may have a vision, mission, BHAG (Big Hairy Audacious Goal) or Single Organising Idea. Putting KPIs around these gives you a greater ability to drive aligned activities. Keep KPIs to a minimum. There can be a desire to measure and report against many things. However when you boil it down you find that there are usually a few things that have the most effect. Define these, measure them and report against them. KPIs can be a great tool to help achieve your business goals, but every KPI that you add takes time to measure and report on. Your KPIs should be clear and succinct otherwise you are diluting your business focus and diverting your peoples’ energies.
www.staplesrodway.co.nz
HOW A good reporting tool is needed, so that capturing and reporting against KPIs is simple and in real-time. If it takes too long or is too complicated to calculate, then it will not be effective. Good tools can report financial as well as non-financial data. Our Staples Rodway RealTime Reports, for example, can incorporate financial data such as sales, gross margins and other key metrics, straight from your financial system, and nonfinancial data from websites or via uploads. Technology also enables greater comparison of your business KPIs (although largely financial) to those of like businesses. This helps you establish what “normal” or “good” is and how others are tracking.
SUMMARY This may seem simple (the best KPIs often are) but can have a massive effect on your business. The very process of selecting appropriate KPIs assists the business focus on what is really important, and what needs to be done to be successful. At Staples Rodway we have experience at identifying appropriate KPIs and implementing mechanisms to capture and track performance against them. Talk to your local advisor or contact Mark Kingsford, one of our Auckland Directors, on (09) 373 1125.
A CLIENT'S EXAMPLE When working with the board of a chain of real estate agencies, obviously the number of house sales is a critical indicator of financial success. Therefore our first step of establishing a KPI framework was effective reporting on house sales and the method of sale – auction or by negotiation. However, we quickly realised that the volume of house sales was hugely dependent on the number of listings held. Sales was in fact a lagging indicator. Based on an expected conversion rate we could, based on opening listings, calculate how many sales would cover the following months. This gave us great insight as to expected profitability and future cash flows. It allowed us to more proactively manage the business. Listings was the leading indicator. Based on this information the branch manager’s functions altered from trying, largely unsuccessfully, to drive agent behaviour towards sales, to driving behaviour conducive to obtaining listings and measuring and reporting on these initiatives. The agency was more successful in terms of sales and gained market share and profitability as a result.
NUMBERS Summer 2016 • 7
ON THE BALCONY AND ON THE DANCE FLOOR
Article by Julie Rowlands STAPLES RODWAY TARANAKI HR julie.rowlands@staplestaranaki.co.nz
In every business, no matter how small, there is a force at work stronger than any other factor - the organisations’ culture. If the culture does not support and embrace your business goals, then you are not likely to achieve them.
8 • NUMBERS Summer 2016
A
S LEADERS YOU PARTICIPATE IN the businesses’ culture every day, and influence it in everything you say and do. It is vital that you maintain an awareness of your influence at all times. Business experts Ronald Heifetz and Martin Linsky explain that as the leader you have to be able to “move in the dance and to watch the dance from the balcony at the same time”. Mostly, we do one better than the other. To be a leader of culture you must care about both. It is certainly worth investigating what “walking the talk” means and also gathering feedback and reflecting on how long your leadership shadow really is and the impact of that shadow. Recent research by Professor John West at the London School of Economics shows clearly that culture influences a company’s performance eight times more than strategy alone. That is concerning when you consider that most businesses typically focus on markets, understanding the numbers, their competitors and core strategy. Daily, businesses are failing or thriving and it is the culture that is having the greatest impact. What is business culture – and how would you describe yours? Here are some really important questions to help understand culture: What is actually expected of people? How are they expected to behave and interact with others? What are they expected to believe in and commit to? Is it safety, productivity, quality, customer delivery, or even strong constructive working relationships? What do people in your organisation tell others about their experience of working for you? How engaged and enabled are all those who work in your business? Why do people choose to stay or leave?
the company was impacted by massive losses. When Ralph Norris took over as CEO, his major achievement was to refocus company culture and business’ intent specifically to the needs of customers. The key message was: “At Air New Zealand we fly people not planes.” This shift in culture was crucial to their turnaround and ongoing success. Ask yourself: what do we need to do to create a company culture that engages employees, which people are proud of and that is worth contributing to? You can start by: 1. Building a common understanding of where you are now and where you want your culture to be. 2. Link strategy and business goals with your desired culture. 3. Start with your current strengths and use these as building blocks. 4. Let people know what you expect of them. 5. Determine the informal influencers within your business and get them on-board. 6. Make culture an agenda item in management meetings. 7. Identify a process to measure and monitor cultural changes. Top performing companies understand that the secret is not to fight the company culture but to work with it and help it evolve in the right direction. People practices and processes have a significant impact; therefore the following questions should be answered: 1. How do we recruit people that fit our desired culture? 2. Does our induction process reinforce our desired culture? 3. Do we have processes for managing performance and expectations, as well as giving regular feedback? 4. What development and growth opportunities do people have? 5. How do we show people we value and appreciate them?
Hay Group describes culture as being “what we do”, “what we reinforce” and “what we stand for”. Australasian recruitment firm, Robert Walters recently asked over 2,000 professionals and managers to rank which factors were the most important to them. 29% said remuneration, but the remaining 71% identified cultural aspects such as flexible work and ethical standards. People often cite culture as the key reason for leaving their jobs.
As Michael Henderson, Corporate Anthropologist says, “Culture is more often than not, your organisation’s first point of failure, and therefore your most confronting competitor”. By approaching culture as a way to bring your company’s purpose to life and create a brand that uniquely meets customers’ needs, you can build a foundation for outstanding performance. Always remember that leadership is practiced not so much in words, as in attitude and actions.
LEADING THE CULTURE
If you would like some guidance on how to understand your culture and the impact it is having, please contact one of our HR consultancy team; Julie Rowlands, Taranaki; Andrea Stevenson, Hawke’s Bay, Chris Wright, Auckland.
New Zealand has many examples of business cultures that have been transformed by leadership. In 2001 Air New Zealand’s staff and management were demoralised and
www.staplesrodway.co.nz
NUMBERS Summer 2016 • 9
LISA KING EAT MY LUNCH Lisa King is the founder of Eat My Lunch, a social enterprise that operates using a simple business model: buy one; give one. Lisa started Eat My Lunch in 2015 after working in FMCG for over a decade. 16 months on, Eat My Lunch has received a growing number of awards, including the Westpac Auckland Business Excellence in Innovation and Supreme Business Excellence Awards; the TVNZ NZ Marketing Awards in the Transformational, Innovation and Sustainability categories; and Lisa herself won the Women of Influence Business Enterprise Award.
Interview by Nicola Hoogenboom & Jo-Anne Randall STAPLES RODWAY WOMEN IN BUSINESS www.staplesrodway.co.nz/wib
Q: What made you move from FMCG to social enterprise? A: Having come from an FMCG background where I was promoting confectionery, chips and energy drinks, you get to the point where you go: “I would not feed this stuff to my own kids” and my kids were never allowed anything I marketed, so there was a bit of irony. Since school I have always volunteered; giving back has always been important however the reality of having to work was also important. With Eat My Lunch I get to combine both; a social enterprise business where commercial realities and impact are combined. Q: Is it a big change moving from products to people? A: Logistically it is a complicated daily operation and there are lots of people involved, so we use technology to support that. We have an app that tracks all of our couriers so that helps; people know in real time when their lunch is arriving. We recently made a significant investment upgrading our website, enabling us to be able to do more in the back end as well. It’s a complicated system so it’s really quite a miracle every day that we get these lunches out! Q: You have moved very quickly from your home kitchen to this impressive space in the city, and now Wellington. Do you have plans to expand further? A: Sometimes we forget that we are only 16-17 months old. We want to make sure we can have national reach and are looking at different ways of doing that. There will be different options for other cities, and it’s very much a work in progress. I recently met with the Children’s Commissioner, Andrew Beacroft, he was saying that one of the measurements for child poverty is whether a child has breakfast and lunch every day. There are 140,000 kids in New Zealand that don’t meet that criteria. The fact we are currently only feeding 1,300-1,400 children per day means that the need is not going to run out anytime soon. I think it is great to see people starting to realise that there is this problem and looking for ways to get on board. Subscribing to Eat My Lunch is a great start. Q: How do people respond to the “for profit” element? A: For us sustainability is really important, and that is why we never chose to be a charity, even though this is a social mission. I think we wanted to be commercially sustainable and for Eat My Lunch to fund itself, so we are not always asking for grants or donations or sponsorships. When we first started, people really struggled with the idea of a social enterprise and that we were not a charity, and that we might be making money. However in time people have embraced that idea and it is not such a new, foreign concept. Q: Social enterprise is growing overseas, particularly for young women. Why do you think that is? A: For me maybe it’s that natural thing, being a mum and having a nurturing side. In the past I think when people were really passionate about something it was a struggle to know how to do something about it, but the social enterprise model enables you to have a job, while doing something worthwhile. It is not one or the other. When I was working, there was never www.staplesrodway.co.nz
time to go and do community work and the only time I did was when I had babies and I took some time off. It was hard to work and make an impact, but this new model enables me to do both at the same time. Q: Starting at 6.30 in the morning, how do you fit that around your parenting demands? A: It was actually really easy when we were based in our home, as you would just wake up and everyone was there and they would just fit in amongst it. It is kind of interesting as everyone says you must love having the production out of your home, but one of the big disadvantages is the kids. The kids still come here in the morning. They will have their breakfast here, make their lunch and hang out, so that is really nice. When you are starting a business, it doesn’t matter what it is, it is 24/7, 120% and particularly for the first 12 months it was really full on. Now there is a bit more of a balance and I can actually leave and go and pick them up from school. Q: Was your partner involved at all? A: Yes, Iaan is my business partner. The two of us started this with Michael Meredith, so it is a real family affair. Having someone like Michael involved, with all of his experience with running kitchens and how to make things work has been invaluable. From a values perspective, he really wants to give back as well. So we all share that ethos, which is just fantastic. Q: Michael Meredith is a celebrated Auckland Chef, does he get involved in making lunches? A: One of the nice things for Michael is he gets to make stuff. He is incredibly hands on and I love that he has no ego. He is sweeping the floors and doing the dishes. In fact, the first time he swept my kitchen floor I was like, “don’t do that!” Michael is fully involved, he delivers the lunches to the kids, hangs out with them. We’ve been incredibly lucky in that regard.
Michael Meredith & Lisa deliver lunches to school
Q: You had a PledgeMe campaign to fund a cooking school for under-privileged kids to educate them about cooking and nutrition. Did that come to fruition? A: Yes! Another one of our supporters donated ovens, so we hosted our first cooking school with twenty-four 8-year-olds from Mangere Centre. NUMBERS Summer 2016 • 11
It was pretty amazing, these 8-year-olds were incredible, Michael would crack an egg and they would be like “Wow”. Stuff we take for granted. I taught my kids to cook from a very early age, but a lot of these kids did not know how to use a peeler so they had never peeled a carrot and never cracked or cooked an egg. The kids just loved it. We are planning to do those on a regular basis.
Q: You have had some great wins, what has been your biggest challenge? A: In any business, big or small, it is always about the people. For us managing the growth meant having to bring on a lot of staff so hiring the right people has been about trying to find a balance. We go for people who are actually here because they believe in what we do. We’re at a point now, 16 months on, that the people management side of it has become quite important, so having processes and systems around HR in place for us is quite corporate, but we need it. Q: How do you make sure that you are all heading in the same direction? A: We have people around us who guide and mentor us. We brought on Derek Handley as an investor because his ethos is the same as ours. His connections and knowledge of social enterprises globally is also valuable. Everything we do is driven by a social purpose. There is office space in our premises that we have rented out to a lady who runs a programme called Bridge The Gap. She helps rehabilitate youth coming out of prison and part of that is having to do community service, so they come and work at Eat My Lunch. We are really trying to bring together similar people with similar values. Every time we run an event or someone rents the place out for an event the money goes out to buy more lunches for the kids. Q: What are your tips for women starting out in business? A: I was working 16 hour days for the first 6 -7 months. You have to go in with your eyes open and realise that you have to give it that much commitment or else it is not going to fly. Surrounding yourself with experts, knowing what you know, and knowing what you don’t and getting people to help you. We recognised that really early on and we were very lucky with people, like Michael, we had come on board.
Q: So this also teaches kids healthy eating? A: Many of the kids at these schools are obese, yet they are not eating. Unfortunately, what they are eating is really not good for them. I think what the schools really like with our lunches is that they’re wholesome and balanced. Everyone likes the freshness and the healthy focus of the lunches that we make. We work on the philosophy that if it’s something I would not feed my own kids, it does not go in the lunches. Healthy food can be expensive and for some kids they have never tried yoghurt or honey before. All of this we take for granted. I have seen some of their lunches when I go to schools and it is a small bag of chips or those snake lollies. It is cheap and convenient, but highly processed and there is absolutely no nutritional value whatsoever. The great thing is some of the unexpected outcomes. These kids become the health police at the school and they all go around telling the other kids that “that is not healthy!” At our first school in Mangere Central we actually reduced the number of lunches they needed because some of the parents realised it wasn’t really that hard.
12 • NUMBERS Summer 2016
Michael Meredith & Lisa King in Eat My Lunch's Auckland premises
KNOWING YOUR FINANCIAL REPORTING OBLIGATIONS
Article by Daniel Merckle & Sonia Gaskin STAPLES RODWAY AUCKLAND daniel.merckle@staplesrodway.com sonia.gaskin@staplesrodway.com
For many companies, we are coming to the end of the first set of compliant financial statements under the new reporting regime. Changes to the financial reporting requirements means that for most 'non-large' companies, audited general purpose financial statements are no longer required to be prepared, or filed with the New Zealand Companies Office. However, this does not mean that these companies have no financial reporting obligations at all. We take a closer look at the financial obligations of profit oriented companies to help you get it right
S
INCE THE NEW RULES HAVE come into force, we have noted that a number of matters are frequently overlooked.
FINANCIAL REPORTING FOR NEW ENTITIES The definition of a large company requires that certain thresholds are exceeded at balance date of each of the two preceding accounting periods (refer to flowchart on the following page). The thresholds vary depending on whether the company is New Zealand or overseas owned. This definition has led to some confusion for the financial reporting requirements of new entities that were not in existence for two previous accounting periods.
The financial reporting obligations for new companies depends on the number of shareholders: ďż˝ for companies with fewer than ten shareholders, there is no requirement to prepare or file audited general purpose financial statements unless 5% or more of the shareholders require the company to do so ďż˝ for companies with ten or more shareholders, audited general purpose financial statements are not required to be prepared or filed if 95% of the shareholders vote in favour of opting out If an entity expects to become 'large' in the near future, it may be appropriate to comply with GAAP
WHAT ARE MY FINANCIAL REPORTING OBLIGATIONS? Is the company an FMC reporting entity?1
START
Within 4 months of balance date prepare GPFS, have them audited and file them.
YES
NO Currently only applies to New Zealand owned companies. Will apply to all companies on the passing of the Regulatory Systems (Commercial Matters) Amendment Bill.
Is the company part of a group that has a New Zealand registered or incorporated parent that prepares and files group consolidated financial statements?
Separate Financial Statements do not need to be prepared and filed for Companies Office purposes. Must meet Inland Revenue requirements.2
YES
NO
Less than 25% overseas owned
What is the ownership of the company?
50% or more overseas owned or controlled by other means (subsidiary)
to 50 5%
%
YES
overs 5%
2
an s th 2
YES
Is the company large (i.e. revenue > $30m or assets >$60m*)?5
les
Within 5 months of balance date prepare GPFS, have them audited and file them.6
How many shareholders does the company have?
9 or less
10 or more
No requirement to prepare GPFS, be audited or file. Must prepare GPFS and be audited within 5 months of balance date if required by 5% or more of shareholders. Must meet Inland Revenue requirements.8 14 • NUMBERS Summer 2016
YES
Within 5 months of balance date prepare GPFS and have them audited (unless opt out). No requirement to file.7
s own ea
NO
overse
d
Is the company large (i.e. revenue > $10m or assets >$20m*)?4
owne as
Is the overseas company large (i.e. revenue > $10m or assets >$20m*)?3
25% to 50% overseas owned
ed
Overseas company with a branch in NZ
Within 5 months of balance date prepare GPFS, have them audited. There is no requirement to file.
GPFS: General purpose financial statements (i.e. financial statements prepared in accordance with generally accepted accounting practice.) For FMC reporting entities, GPFS must be prepared under the requirements of New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”); all other for-profit-companies that must prepare GPFS can do so under the requirements of the NZ IFRS Reduced Disclosure Regime (“NZ IFRS RDR”). NZ IFRS RDR has the same recognition and measurement requirements as full NZ IFRS, but provides considerably reduced disclosure requirements. GPFS of an overseas company may be the financial statements of that company that comply with the laws of the country in which it is incorporated (subject to the Registrar’s satisfaction).
requirements from the beginning to minimise transition disruptions between SPFS and GPFS once the entity becomes large. It is also important to review company constitutions, bank covenants or other legislative requirements (such as the Charities Act) to ensure that the entity does not have financial reporting and auditing obligations as a result of these. We have seen a number of SME constitutions require GAAP compliant financial statements. In both cases, however, Inland Revenue’s minimum financial reporting requirements would still need to be met. This is an area that appears to have been overlooked by many companies.
INLAND REVENUE MINIMUM FINANCIAL REPORTING REQUIREMENT The Tax Administration (Financial Statements) Order 2014 (the Order) provides that if financial statements are not required to be prepared under the Companies Act 1993, they are still required to be prepared under the Order. The only exemption is for companies whose income and expenses are both less than $30,000. Inland Revenue’s minimum financial reporting requirements apply from income or accounting years that commenced from 1 April 2014. Inland Revenue Requirements The information required to be disclosed in the financial statements is as follows: 1. Summarised Balance Sheet and Profit and Loss Account. 2. Statement of Accounting Policies. 3. Associated Persons Disclosure - the requirements of this disclosure differ to previous related party disclosures under GAAP. ‘Associated persons’ is defined by reference to the Income Tax Act 2007 that provides a broad definition of who a company will be associated with. A disclosure is required of all transactions between the company and any associated non-corporate (such as an individual or trust), or between the company and a non-resident company. 4. Exceptional Items Disclosure - there must be a separate disclosure detailing any large one off transactions during the year. 5. Reconciliation of the company’s financial statements to taxable income. 6. Tax fixed asset register.
The information contained in the associated persons’ disclosures will provide Inland Revenue with valuable information, especially where the transactions indicate non arms’ length dealings. We recommend that these disclosures are reviewed by a tax advisor to ensure it does not bring undue Inland Revenue scrutiny.
SIMPLE YET ROBUST CAANZ has developed a minimum reporting Framework to provide guidance on the preparation of special purpose financial statements, which will provide users with further information about small and medium-sized enterprises over and above Inland Revenue's minimum requuirements. The Framework also provides the option to 'step up' to NZ IFRS for more complex transactions whilst asserting compliance within the Framework.
FUTURE CHANGES The introduction of the Regulatory Systems (Commercial Matters) Amendment Bill on 12 October 2016 signals a number of simplifications in the financial reporting requirement for groups of companies. The amendments provide that if audited general purpose financial statements are prepared for a group of companies that include the parent and all subsidiaries, then the New Zealand subsidiary will not be required to prepare separate audited general purpose financial statements. This is provided that the New Zealand subsidiary does not itself have subsidiaries. In regards to the filing of group financial statements with the New Zealand Companies Office, the amendments propose that the New Zealand subsidiary may file the audited group financial statements in satisfaction of its filing obligation. While the above amendments reduce compliance costs in regards to the preparation of audited general purpose financial statements, it should be noted that financial statements meeting Inland Revenue’s minimum financial reporting requirements must still be prepared for each New Zealand company. These are not required to be lodged with the New Zealand Companies Office, but should be readily available in the event they are requested by Inland Revenue.
NOTES 1. T he term “FMC reporting entity” is defined in the Financial Markets Conduct Act 2013. FMC reporting entities include issuers of regulated products under the Financial Markets Conduct Act 2013, listed issuers, operators of licensed markets, recipients of money from a conduit issuer, registered banks, licensed insurers, credit unions and building societies. 2. Where separate GPFS are not prepared, Inland Revenue’s minimum financial reporting requirements must be met. 3. For an overseas company trading in NZ, size is based on the overseas company (and its subsidiaries), not just on the NZ operation.* 4. For a NZ registered company that is a subsidiary of an overseas company, size is based on the NZ registered company (and its subsidiaries).* 5. For a NZ registered company that is New Zealand owned, size is based on the www.staplesrodway.co.nz
NZ registered company (and its subsidiaries). * 6. If the NZ branch of an overseas company is large, the financial statements must include, in addition to the financial statements of the overseas company, financial statements for its NZ branch. 7. Can opt out of both requirements with 95% shareholder approval (meaning that 95% of voting shares must be cast in favour of the proposal to opt out). If the company opts out of preparing GPFS, it must meet Inland Revenue’s minimum financial reporting requirements. 8. Non-large companies with fewer than 10 shareholders are not required to prepare GPFS or have them audited, but must do so if at least 5% of shareholders require them to. *As at the balance date of each of the two preceding accounting periods. NUMBERS Summer
2016 • 15
ASK AN EXPERT In our new regular feature we answer readers' questions on any area in the world of finance, accounting, audit, tax, and other business-related areas. This issue’s question is in relation to upcoming changes to banking payments. Take advantage of our expertise and send your question to questions@staplesrodway.com and one of our specialists may answer it in a forthcoming issue of NUMBERS.
16 • NUMBERS Summer 2016
?
My bank manager told me that my electronic payments will be changing to same day payments on business days. How could this affect me?
Answer from Mark Kingsford, Business Advisory Director, Staples Rodway Auckland
From 1 December 2016 New Zealand banks made changes (if they hadn't already) to how they process domestic payments including: Same day payments now processed throughout the day Payments sent hourly Retry of electronic payments to reduce dishonoured payments Send future dated payments before midday Treat incoming payments as available funds While this is great if you need to receive same day payments from customers or make same day payments to suppliers, it could result in delayed payments in some cases.
OLD SYSTEM
TAKE THIS EXAMPLE
NEW SYSTEM
4AM TUESDAY BALANCE $1,000
4AM TUESDAY BALANCE $1,000 Auto payment from customer $1,300 Pay Chris $2,000 Not enough funds to pay Alex & Sam BALANCE $300
10AM Deposit cash $1,200 BALANCE $2,200
10AM Deposit cash $1,200 BALANCE $1,500
12PM Pay bill $1,800 BALANCE $400 11PM EFTPOS settlement $5,000 BALANCE $5,400 Pay Chris $2,000 Pay Sam $1,500 Pay Alex $1,800 BALANCE $100 Payment from customer $1,300 BALANCE $1,400
In this example it is great for Chris, as he gets paid early, but Sam and Alex will be disappointed, as their pay will come through later. To avoid this situation, you will need to ensure that you have enough funds in the account to cover wages for everyone on the night before.
12PM Cannot pay bill $1,800 BALANCE $1,500 11PM EFTPOS settlement $5,000 BALANCE $6,500 Pay bill online $1,800 BALANCE $4,700 4AM WEDNESDAY Pay Sam $1,500 Pay Alex $1,800 BALANCE $1,400
Note: The above is general advice only and should not be relied upon as specific circumstances can vary. Please contact your Staples Rodway advisor for specific advice.
www.staplesrodway.co.nz
NUMBERS Summer 2016 • 17
SMOOTHING THE SUCCESSION OF YOUR BUSINESS Tracy Hickman explores areas to think about when planning for the future transition of your business.
Article by Tracy Hickman STAPLES RODWAY AUCKLAND tracy.hickman@staplesrodway.com
18 • NUMBERS Summer 2016
W
E REGULARLY HEAR FROM BUSINESS owners that their exit strategy will be to list the company on a share market via an initial public offering (IPO). However, a successful IPO will be one where the company has huge potential for growth and an executive team who are able to implement that growth strategy. If the founders of the business are a vital part of the executive team, an IPO is likely to mean more work, rather than an exit.
PREPARATION FOR TRANSITION So what are the other options to consider for transitioning or exiting your business? When selling a property, most owners will spend time tidying up and doing repairs. Similarly when selling a car, a valet never goes amiss. It’s the same when exiting a business, whether passing on to family, becoming a passive investor or selling up. Spending time preparing the business will ensure a smoother transition and will clarify exactly which options are available. For example, if it becomes clear that the next generation are not interested in taking over the business, awareness of that fact will enable owners to prepare for a transition to management or for a sale process. Just as home buyers may place value on quality carpets and fittings, your business is likely to increase in value if you thoroughly address any potential issues. Think about which aspects of a business you would perform due diligence on if you were buying it, and look at those same areas in your own business to see if they would stack up (vendor due diligence). Preparations include ensuring the financial statements are ‘clean’ and straightforward to understand. That is, make sure any non-business expenditure is excluded and any abnormal items can be explained. Untying personal assets from the business, such as cars, boats and property, makes it easier for those analysing your business to understand where the value lies. It’s also a good time to review important contracts, whether lease documents, employment contracts or key customer and supplier contracts. Consider the needs of those who will be running the business going forward. In particular, if you are looking to sell, it may be convenient for potential purchasers not to be locked into a premises lease, or to have flexibility with customers and suppliers, so a short-term or easily exited contract may be a positive factor.
GROOMING SUCCESSORS If your exit strategy includes moving to a passive investment, it will take time to groom management or the next generation to run the business. Setting up an advisory board, if you don’t have a board structure already, will help both in terms of mentoring those taking over and providing you with on-going oversight at a governance level. Introducing managers to clients, suppliers and other key stakeholders (such as your lawyer, accountant and banking relationship advisor) takes time. It’s worth starting this process well in advance to allow for relationships and trust to develop, to maximise the chances of success in creating a stand-alone business that can continue to flourish without your day-to-day involvement. Preparing your business for transition is important to ensure that the business is in the best possible state for those taking www.staplesrodway.co.nz
over to continue to grow, ensuring longevity and long term sustainability. It’s hard for former owners to see their business fail under new management due to avoidable issues, such as ill-informed decision making. Sadly, there are many examples of founders stepping back in to rescue a business, particularly from a poorly prepared next generation.
GROOMING SUCCESSORS If your plan is to sell the business, it’s worthwhile thinking about who the potential purchasers could be. You may wish to reflect on scenarios to realise the value that you have built over the years. For example, consider whether your business could represent a strategic purchase, enabling one of your customers or suppliers to expand vertically. Or would one of your competitors be interested in purchasing your business in order to grow, or to gain access to assets such as prime locations or your intellectual property? You may also wish to seek advice on the value of your business. A business valuation specialist can assist by advising on the indicative value of the shares or assets of your business. Business brokers may be able to share information in relation to other similar businesses that have been recently sold. During the transition, it’s important to keep operating the business as usual, avoiding being distracted by the handover or sale process. Bear in mind that, especially for a business sale, the timeline may take much longer than expected. Continuing to invest in and identify growth opportunities will preserve value and ensure that the new management or owners are best placed for success.
POST-TRANSITION What’s next after the transition process is complete? You’ll need to reflect on your options. Perhaps you are keen to establish a new venture or focus on other interests. The concept of ‘retirement’ appears to be less appealing to baby boomers than previous generations. Instead, we are seeing business owners who are ready to slow down, reducing hours, working from home (or beach) and moving towards more of a governance or strategic role. They maintain a level of involvement in their own business, or exit and take on board roles to help other businesses. Your overall wealth will also be an important factor in determining which options are available to you, whether you can afford to take a step back or need to find other sources of income. If you don’t already use a financial adviser, it’s helpful to start building a relationship with one. By the time you are ready to invest significant sums in a portfolio, you will be able to call on a trusted adviser for help. In summary, consider the options for transitioning your business and start preparing well in advance to ensure a smooth process, maintaining maximum value and positioning the business for future success under new management or with new owners. For further advice on planning for the transition of your business, business valuations and vendor due diligence, feel free to email Tracy Hickman at tracy.hickman@staplesrodway.com or call her on 09 373 1133. NUMBERS Summer 2016 • 19
INVESTING
101
Sometimes it can be useful to refresh our basic understanding of investment principles, rather than getting lost in the details. This article aims to refresh well-known concepts that should be familiar to most, but could also be a primer for new investors.
Article by Marylynn Pereira STAPLES RODWAY ASSET MANAGEMENT marylynn.pereira@sraminvest,co.nz
20 • NUMBERS Summer 2016
W
HILE INVESTING CAN OFFER A means to achieve your financial goals, don’t forget to consider that investing involves taking risks. The success of your investing depends, in part, on the ability to control risk without sacrificing return. A successful investor maximises gains and minimises losses. It is important to have clear investment goals and objectives and to resist the temptation to be sidetracked into making reactionary decisions by the latest investment trend or “hot tip”. The following are a few principles to help provide clarity and confidence to those trying to achieve investment success.
1. COMPOUNDING Also, known as the rolling snowball effect, compounding is the process where principal and accumulated interest also earns interest, and the process is repeated for the term of the investment. The longer time frame that this process can continue, the greater the gains. Another benefit compounding has is that it works from the first dollar you invest, so you won’t need a large sum of money to get started.
2. DIVERSIFY The principal of diversification comes from the old adage that you shouldn’t put all your eggs in one basket. The belief is that properly diversified portfolios enable investors to achieve their return objectives by mitigating risk and volatility in their portfolio. For the majority of investors their portfolios consist of a mixture of cash, bonds, property, shares and possibly alternatives both internationally and locally. Overall the goal of diversification isn’t return maximisation but to limit the impact of volatility.
3. THINK LONG TERM The financial marketplace can be volatile. Volatility is the degree which prices change over time. The main advantage of long term investing is found in the relationship between time and volatility. Generally, the longer investments are held, the smaller the impact of any price movement will be on the investment. This is best illustrated by a series of graphs, with price movement over different time periods, e.g. 1 week, 1 month, 1 year, 3 years, etc (see graphs below for 1 week vs 5 year examples). Any price movements in the 1 week graph will appear significant but as the term increases, the impact of the price movement diminishes. Long term investments also benefit from lower transaction costs. Normally, the more a portfolio is traded, the less the total return over the life of the investment portfolio.
4. BE CONSERVATIVE ABOUT YOUR ASSUMPTIONS During periods of high investment returns, investors tend to become overly optimistic about the prospect of their investments. It is best practice to remember to err on the side of caution, especially when estimating expected future returns. As an investor it is necessary to have realistic expectations for investment outcomes which are based on long-term average returns, rather than short-term exceptional returns. It is not only important to ensure that a portfolio is soundly constructed to meet your investment goals and objectives, but also to resist the temptation to make short-term emotive changes when markets become volatile. A well-constructed portfolio will be designed to handle the volatility that is expected over the life of the portfolio. Successful investing requires patience and stamina.
5. SET APPROPRIATE GOALS Try not to set goals that are too generalised, such as ‘a comfortable retirement fund’ or ‘financial security for your family in the future’ as you can easily lose sight of these and you will have trouble measuring progress as you go. It is recommended that you have specific goals, which can keep you interested and will lead to you giving more than just a halfhearted effort. One way of doing this is by putting a price tag on a goal, for example: $300,000 by age 40. These are concrete goals, and while there is no right or wrong when it comes to investment goals, some are just more ambitious than others. Different investment time horizons will mean that different asset mixes will be required. A short-term goal that has a time horizon of 12 months will be constructed quite differently to a long-term goal, such as retirement funds, which may have a time horizon of 30 years or more. One of the main barriers to successful investing is myopia, focusing on short-term goals. When the investment portfolio is being constructed it must represent the time horizon for the investment goal of the investor. The investor needs to be patient and allow the portfolio time to produce results. Successful investing is a journey, not a one-time event. Staples Rodway Asset Management is a boutique investment advisory service that specialises in providing personalised and impartial investment solutions for individuals and trusts. An adviser can be contacted at enquiries@sraminvest.co.nz or on 0508 220 022.
NZX 50 INDEX - 5 DAY PERFORMANCE
NZX 50 INDEX -5 YEAR PERFORMANCE
AT 28 NOVEMBER 2016
6,950
AT 28 NOVEMBER 2016
8,000 7,000
6,900
6,000 5,000
6,850
4,000 3,000
6,800 Nov 23
www.staplesrodway.co.nz
Nov 24
Nov 25
Nov 28
2012
2013
2014
2015
2016
NUMBERS Summer 2016 • 21
WELCOME LOOK-THROUGH COMPANY TAX CHANGES ON THE HORIZON The tax Bill before Parliament will make the tax system more workable, removing some long-standing stumbling blocks, while eliminating some perceived loopholes.
N
EW ZEALAND IS CURRENTLY RANKED number one in the world for ease of doing business by the World Bank. We have been in the top five for a long time, and moved to the top spot for the first time this year. One of the factors taken into account is the ease and effectiveness of the tax system, and New Zealand’s tax system is simple, with tax laws that are relatively easy to follow. The Taxation (Annual Rates for 201617, Closely Held Companies, and Remedial Matters) Bill 2016 currently before Parliament is set to change the system for Look-Through Companies (LTCs) for the better.
CHANGES TO THE FIVE OR FEWER SHAREHOLDER TEST FOR LTCS The Government is changing the way they decide whether a company can be an LTC or not. Broadly speaking, for a company to be an LTC it needs to have five or fewer shareholders under the current rules. There were complex rules about how to calculate the “five or fewer” test, particularly with concessions regarding associated persons. Those rules are changing, and transitional rules are being introduced. There can be dire consequences for breaching these rules and falling out of the LTC regime, so care should be taken to discuss any proposed shareholder changes with your Staples Rodway advisor before they take place.
LOOK-THROUGH COMPANY ENTRY TAX Instead of paying tax at the company tax rate on untaxed retained earnings when becoming an LTC, the shareholders will pay tax at their marginal tax rates instead. This closes a loophole that existed during the transitional phase from the qualifying company regime, and is probably no longer needed.
COMPLEX DEDUCTION LIMITATION RULE IS GOING FOR LTCS The complex deduction limitation rules are being repealed for most situations. The rules were introduced to ensure that tax losses were only deductible where the losses had actually been suffered economically by the shareholders of the LTC, rather than an entity that did not have any stake in the ownership of the company. After five years it has been decided that the rule is not required, apart from in some very specific circumstances. This is good news for SME taxpayers, as the loss 22 • NUMBERS Summer 2016
limitation rule was widely perceived as overly complex and had the potential to give rise to adverse tax consequences for LTCs and their shareholders.
DEBT REMISSION FOR LTCS As the result of an oversight in drafting the existing legislation, income could result to shareholders where their LTC was liquidated with shareholder current accounts in debit or in credit. The proposals would eliminate this unfair result in certain situations, but care should be taken. There are still some situations where income tax could arise on liquidation where the shareholder current accounts have not been eliminated.
QUALIFYING COMPANIES CAN’T HAVE AN OWNERSHIP CHANGE OF MORE THAN 50% Qualifying companies, the precursor to LTCs, have some desirable qualities that LTCs do not have. No new QCs are allowed, but QCs existing at the time the LTC rules came in can continue to exist. There is presently no restriction on changing shareholding, so it became possible to purchase a QC from someone who does not need it anymore, and obtain the benefits of QC ownership (being primarily the ability to distribute tax free capital gains without liquidating the company). To stop this “trade” in QCs the Bill introduces a rule that says that if the ownership in a QC changes by more than 50% from when the law comes in, then the QC ceases to be a QC and becomes a normal company. This could have significant consequences for shareholders, so care should be taken with changes in the shareholding of QC’s. All in all the changes to the SME rules should be welcomed. An argument could be made that tax rules for SMEs are too complex for the amount of tax at stake and there are proposals for significant simplification as the IRD is going through a business transformation process. Smart ideas will reduce compliance costs in this important area, but the trade-off for taxpayers is the loss of options and alternative approaches when a “one size fits all” approach is required. Please note that this is not intended as professional advice, and should not be relied on as such. For advice on how these changes may impact you, contact your Staples Rodway advisor.
Article by Sybrand van Schalkwyk STAPLES RODWAY TAURANGA sybrand.vanschalkwyk@staplestga.co.nz
AUDITOR ROTATION WHAT IS IT AND WHAT DOES IT MEAN? There is some uncertainty about what auditor rotation is and when it is required. We've got the answers.
Article by Andrew Steel & Robert Elms STAPLES RODWAY WELLINGTON andrew.steel@stapleswellington.co.nz robert.elms@stapleswellington.co.nz
24 • NUMBERS Summer 2016
A
UDITOR ROTATION WAS INTRODUCED INTERNATIONALLY to improve audit quality after a number of high profile company failures, such as Enron, where the audit relationship was considered to be ‘too close’. The way that auditor rotation works is by changing the key audit partner(s), not necessarily the audit firm. So, what are the current requirements and what is ‘best practice’ when it comes to auditor rotation? Is there necessarily an issue with ongoing audit relationships, resulting in a poorer quality service? What can auditors and Boards do to mitigate the threats of familiarity and self-interest brought about by long association? We set out below some answers to these questions, which vary between different entities depending on their nature:
PUBLIC INTEREST ENTITIES Public Interest Entities are defined in the External Reporting Board Professional and Ethical Standard 1: Code of Ethics for Assurance Practitioners as “any entity that is required or opts to prepare financial statements to comply with Tier 1 for-profit or Tier 1 Public Benefit Entity (PBE) accounting requirements.” Professional standards for auditors state that an individual cannot be the key audit partner for a Public Interest Entity for more than seven years. After this the individual shall not participate in the audit or review of the entity, provide quality control for the engagement, consult with the engagement team or the client regarding technical or industry-specific issues, transactions or events, or otherwise directly influence the outcome of the engagement for two years. The International Ethics Standards Board for Accountants (IESBA) has recently revised their Code of Ethics to increase this ‘cooling-off’ period of the engagement partner from two years to five years. The External Reporting Board in New Zealand is likely to continue its deliberations in 2017 as to how these amendments will affect New Zealand requirements.
LISTED ENTITIES Entities listed on the New Zealand Stock Exchange are considered Public Interest Entities. The NZX Limited Main Board/ Debt Market Listing Rules state that one of the responsibilities of an Audit Committee is to ensure the external auditor or lead audit partner is changed every five years.
PUBLIC BENEFIT ENTITIES Under section 3.6.3 (2) of the NZX Limited Main Board/Debt Market Listing Rules the NZX may waive the requirement to change the external auditor or lead audit partner if the issuer is a “public entity” under section 4 of the Public Audit Act 2001. This relates to entities where the Office of the Auditor General (OAG) is the auditor, which has its own rotation expectations. www.staplesrodway.co.nz
ENTITIES OTHER THAN PUBLIC INTEREST ENTITIES Currently only Public Interest Entities have a formal or legislative requirement for the audit partner or key audit personnel to be rotated.
ISSUES AND SAFEGUARDS Familiarity and self-interest threats are created by using the same senior personnel on an audit or review engagement over a long period of time. The audit firm is required to evaluate the significance of these threats and apply safeguards to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards may include: Rotating the senior personnel off the audit or review team; Having an additional assurance practitioner who was not a member of the audit or review team review the work of the senior personnel; or Regular independent internal or external quality reviews of the engagement.
HOW DOES STAPLES RODWAY REDUCE LONG ASSOCIATION RISK? Where there is no requirement for mandatory auditor rotation, Staples Rodway carefully consider the continued involvement in each audit. Where it is felt that there is an audit risk from long association we will evaluate and where necessary rotate personnel from the assignment – this may be at the senior staff level or engagement partner level, whatever is considered appropriate. Staples Rodway’s comprehensive quality review processes further enhance the individual evaluation of long association risk. As a New Zealand-wide network, we have 10 audit partners and in excess of 60 staff, giving us the ability to provide auditor rotation when required. To further simplify this our regional offices consisting of Christchurch, Hawkes Bay, Taranaki, Tauranga, Waikato and Wellington are amalgamating their audit practices into a new entity – Staples Rodway Audit Limited. This allows clients to rotate to another of the 7 audit partners when required or desired, without having to change audit firms. Audit services continue to be provided at a local level. Our Auckland firm consists of three audit partners, which creates the capability to deal with these long association risks internally and will continue to operate separately. If you or your audit committee would like to have your key audit personnel rotated, please contact your current partner to discuss how we can achieve your objectives. Please get in touch if you have any further questions or would like to enquire about how audit partner rotation might satisfy your ‘best practice’ governance requirements. NUMBERS Summer 2016 • 25
STAPLES RODWAY CHALLENGE O
UR HAWKES BAY TEAM WERE proud to host the annual Staples Rodway Challenge at Cape Kidnappers in Hawkes Bay on 12 November. The team from the local office are involved in all aspects of the event, with the behind the scenes organisers getting as much out of the event as the competitors themselves. The charity this year was the Graeme Dingle Foundation which runs, among others, Project K and Kiwi Can programmes for school age children. Their aim is to inspire all school age New Zealand children to reach their full potential through programmes that help build self-esteem, promote good values and which teach valuable life, education and health skills. The challenge takes individuals or relay teams of three along the beach from Clifton toward the point of Cape Kidnappers, back along the south side of the cape then across the headland down the Maraetotara River valley. The event is 32 kilometres in total and is mainly on private land and includes windswept beaches, native forest, waterfalls, river gorges and stunning coastal farmland. The area includes world renowned five star lodge "The Farm", Cape Kidnappers Wildlife Reserve and the largest gannet colony in the world. This year over 700 people completed the course, which is a great event for all ages. Director Libby O’Sullivan said “The wide range of people competing amazes us each year, we have the young and old running and walking all the way around this course. It’s great when we see whole families out there getting involved, with Mum, Dad and children doing a leg each. This is not a course for the faint hearted” Libby continues “it’s a great team building event, every year we see a lot of corporates entering teams, including many of the 7 Staples Rodway offices around the country”. The Staples Rodway inter-office competition was intense this year, with competitors including 48 Staples Rodway staff and family from four offices.
Andrea Stevenson tackles the 120 metre climb in Leg 2.
PHOTO: Lynda Forrest
ABOUT THE EVENT � Staples Rodway Hawkes Bay sponsors and runs the event through a local charitable trust � There are nine other Gold Sponsors and many other businesses who donate spot prizes � The event has been running for 8 years � To date $100,000 has been donated to designated charities � The charitable trust has also made donations in excess of $46,000 to local schools and orienteering clubs to recognise their contributions to the event and to the wildlife sanctuary to support their ongoing maintenance programme
The Staples Rodway Hawkes Bay team PHOTO: More Than Media
26 • NUMBERS Summer 2016
If you are interested in taking part next year, register for the newsletter at www.staplesrodwaychallenge.nz
#TRENDINGINJAPAN J
APAN IS THE THIRD LARGEST economy in the world and New Zealand’s fifth largest import and fourth largest export market. Annette Azuma, who is fluent in Japanese, runs 'Team Japan' out of our Auckland office, where our dedicated team of five provides business advice and services for companies operating in both Japan and New Zealand. New Zealand people and products are well respected in Japan, and with the Rugby World Cup taking place in 2019 and the Olympics in 2020, New Zealand has further opportunities to shine. So we decided to host an event to help New Zealand businesses looking to succeed in Japan. The seminar #TrendingInJapan was co-hosted by NZTE, JETRO and Japanese Chartered Accountancy firm Marunouchi Business Consultants, with special guest speakers Simon Watson from NZ Hothouse and Eddie Grooten from Dad’s Pies, a Staples Rodway client. The seminar had a great turnout and some insights shared were: There are great opportunities in a range of areas, including food and beverages, healthcare, renewable energy, software, electronics and engineering. You will probably need to improve the quality of your product – the Japanese have high standards and discerning tastes. Get a good interpreter. Japanese culture is one of consensus – things can and will take longer.
Annette Azuma (Staples Rodway) & Akemi Sunaga (Marunouchi Business Consultants)
R elationships are paramount, you will need to spend time building them… ...so make sure you invite them to see your facilities… …and take the most senior person in your business to Japan to meet your local contact. The key message on the day for Kiwis looking to do business in the land of the rising sun is one Annette's husband has long instilled in their children (and in her): gaman 我慢 - patience. The Japanese market is a lucrative one and if you can succeed there, you can succeed anywhere. If you are interested in establishing your business in Japan, contact Annette Azuma at annette.azuma@staplesrodway.com and check out staplesrodway.co.nz/trendinginjapan for a video of the presentations.
NUMBERS Summer 2016 • 27
&
MOVERS
SHAKERS
STAPLES RODWAY AUCKLAND APPOINTS THREE NEW ASSOCIATE DIRECTORS
Staples Rodway Auckland has promoted three of its team from Senior Manager to Associate Director. Kaison Chang, Sonia Gaskin and Sachin Patel have received the promotions in recognition of their dedication and expertise. Kaison Chang, from the Business Advisory Services team, has been with Staples Rodway since 2008. He returned to Staples Rodway in 2013 after some time in Toronto, Canada and at the NZ branch of a NYSE listed company. Kaison specialises in providing business advice to companies, trusts and high net worth individuals. He has worked with everything from start-up companies to long established businesses and provides French language services for clients. Sonia Gaskin, who works in the firm’s Taxation team, came to Staples Rodway in 2011 with five years’ experience as a tax advisor for a ‘big 4' firm in Auckland. This promotion will also see her join the leadership team of Women in Business. Sonia specialises in corporate tax compliance, taxation advisory and transfer pricing. Sachin Patel, of the Audit and Assurance Services team, has been at Staples Rodway for eight years and oversees the audits of a number of listed and medium to large entities. Sachin specialises in external and internal audits, consulting services and financial reporting. Auckland Managing Director David Searle says: “We are delighted to recognise the hard work, commitment and expertise of Kaison, Sonia and Sachin. Staples Rodway is a successful, growing practice and it is great to be able to promote such capable members of our team, in three key areas of our business.”
Kaison Chang
Sonia Gaskin
Sachin Patel
Staples Rodway has teamed up with Auckland Law School and will be awarding the student with the highest mark in University of Auckland’s Tax Law course with the Staples Rodway Phil Banks Memorial Prize in Tax Law.
28 • NUMBERS Summer 2016
STAPLES RODWAY ANNOUNCES NEW CHRISTCHURCH SENIOR MANAGER
Wendy Skinner
Staples Rodway Christchurch has recently appointed Wendy Skinner as a Senior Manager. Wendy has been a Chartered Accountant since 1996 and joins Staples Rodway following a successful career spanning 20 years with two 'big 4' accounting firms in Christchurch. She specialises in accounting advice, including annual financial reporting and tax compliance, business set up and structure, succession planning, and reporting for charitable organisations. A proud West Coaster, Wendy enjoys running and has completed a number of half marathons. She also volunteers her considerable experience and skills to a number of local community organisations, including St Joseph’s School Board of Trustees, where she is Chairperson. She is also a past treasurer for Dress for Success, Christchurch.
HARD WORK PAYS OFF FOR TARANAKI MANAGER Staples Rodway Taranaki has promoted Kylie Cronin to Manager in recognition of her dedication and expertise. She has been with Staples Rodway since 2006 and returned in 2012 after spending some time in London. As part of the Business Advisory Services team, Kylie specialises in a variety of areas, from compliance to software systems, not-for-profit reporting, and business planning and growth. She is hard working and very dedicated to her clients, who range from small businesses to large multi-entity groups. Kylie also co-ordinates our SR Books service, providing Kylie Cronin contracted Bookkeepers to our clients as and when they require. Kylie is the treasurer of The Network Taranaki Incorporated, which works at growing the skills and relationships of Taranaki women in business. Never one to pass up on extra workloads, Kylie also runs two of her own businesses outside of her accounting career. She uses this experience to support her clients beyond accounting. Taranaki Director, Daimon Stewart says: “Staples Rodway Taranaki is one of the largest accounting firms in the region and continues to grow. It is great to recognise talent and grow our staff in the same way. Kylie is always one to take on a challenge and our clients appreciate her hard work.”
NEW CLIENT MANAGER JOINS STAPLES RODWAY HAWKES BAY
Michelle Valler
www.staplesrodway.co.nz
Staples Rodway Hawke’s Bay has recently appointed Michelle Valler as a Client Manager. Michelle is a Chartered Accountant who has been working in local accounting firms since 2005. She is passionate about helping clients succeed, and specialises in providing business advice to clients, helping them with Key Performance Indicator (KPI) setting and monitoring, business planning, improvement and goal setting, business structuring and cash flows. Michelle works with a variety of businesses and industries, from new to well established businesses.
NUMBERS Summer 2016 • 29
AUCKLAND Level 9, 45 Queen St PO Box 3899 Auckland 1140 Phone 64 9 309 0463 Fax 64 9 309 4544 enquiries@staplesrodway.com
WAIKATO 4th Floor, BNZ Building 354 Victoria Street PO Box 9159 Hamilton 3240 Phone 64 7 834 6800 Fax 64 7 838 2881 staples@srw.co.nz
TAURANGA Level 1, 247 Cameron Road PO Box 743 Tauranga 3140 Phone 64 7 578 2989 Fax 64 7 577 6030 info@staplestga.co.nz
HAWKES BAY Cnr. Hastings and Eastbourne Streets PO Box 46 Hastings 4156 Phone 64 6 878 7004 Fax 64 6 876 0078 info@stapleshb.co.nz
NEW PLYMOUTH 109-113 Powderham Street PO Box 146 New Plymouth 4340 Phone 64 6 757 3155 Fax 64 6 757 5081 newp@staplestaranaki.co.nz
STRATFORD 78 Miranda Street PO Box 82 Stratford 4352 Phone 64 6 765 6949 Fax 64 6 765 8342 stfd@staplestaranaki.co.nz
WELLINGTON Level 6, 95 Customhouse Quay PO Box 1208 Wellington 6140 Phone 64 4 472 7919 Fax 64 4 473 4720 info@stapleswellington.co.nz
CHRISTCHURCH
30 • NUMBERS Summer 2016
Level 2, Tavendale Centre 329 Durham Street North PO Box 8039 Christchurch 8440 Phone 64 3 343 0599 Fax 64 3 348 0186 info@srchch.co.nz
www.staplesrodway.co.nz
Published on Dec 5, 2016
Using Christmas to talk to your family about money | Start small, think BIG | Driving your business success with KPIs | Leading the culture...
