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Changes to financial reporting passed
The Tax Administration (Financial Statements) Order 2014 (the Order) was signed on 10th March 2014, bringing into effect major changes to the financial reporting requirements for small to medium businesses (SME’s).
Effective for income years commencing on or after 1 April 2014, financial statements prepared by SME’s (revenue less than $30 million) will no longer need to with comply with the Financial Reporting Act and will instead be governed by the minimum requirements for preparing financial statements set out in the Order.
Small companies (turnover and expenditure less than $30,000 during an income year) and non active companies will be exempt from the minimum requirements.
The financial reports required to be prepared under the Order will be a balance sheet and a profit and loss statement. The reports should be prepared using the principles of accrual accounting and the double entry method of recording financial transactions.
Tax values may be used in the reports where consistent with the above principles unless in the preparer’s opinion historical cost or market values provide a better basis of valuation. Comparative figures reflecting the prior years trading results must also be included. Interest and dividends received must be disclosed separately in the profit and loss report, grossed up for any resident withholding taxes, as must any amounts required to be included on any IR10 filed by the taxpayer.
Simplified notes to the accounts are permitted, provided such notes at least disclose a statement of accounting policies and any material change in policies used since the previous year, a reconciliation of any difference between accounting income and taxable income, an appropriately detailed schedule of fixed assets and an appropriately detailed explanation of any exceptional items.
From 1 April 2015, further disclosures regarding any associated person transactions (interest paid on loans, salaries, rents, royalties etc) will also be required in the notes, as will a reconciliation of shareholder loans and current accounts.
Note that if your entity is required to prepare certain reports under the provisions of another Act, for example charitable companies are governed by the Charities Act 2005, then the provisions of that Act take preference over the provisions in the Order.
Should you like any further information regarding the changes, please call us.