Illustrative Financial Statements Signpost Limited 2011

kpmg.co.nz

Signpost Limited is a best practice annual report example on how to prepare your financial statements in accordance with the framework for differential reporting for entities applying NZ GAAP (FRSs/SSAPs)

Our aim is that these model financial statements that apply New Zealand GAAP (FRSs/SSAPs) deals with all presentation issues in as realistic a situation as practicable. It reflects some of the reporting and disclosure issues that you face in reporting your own progress and operations to stakeholders.
Simon Lee KPMG National Technical Director Accounting Advisory Services

Content of publication
BACKGROUND INFORMATION Introducing Signpost Limited 2011 Do you qualify for differential reporting? Framework for differential reporting - Flowchart Differential reporting exemptions MODEL FOR DIFFERENTIAL REPORTING Signpost Limited Annual Report 2011 APPENDICES KPMG CONTACTS

The information contained in this model annual report is of a general nature and is not intended to address the specific circumstances of any particular individual or entity. This model generally provides for the minimum disclosure requirements, but in certain areas additional items are disclosed where their disclosure is necessary to explain the performance of the entity and relevant to the understanding of the readers. The publication should be used as a guide rather than a definitive statement and must be used in conjunction with the relevant legislation and financial reporting standards. The information contained in this publication should not be used or relied upon as a substitute for detailed advice or as a basis for formulating business decisions. The names of people and companies in this model annual report are fictitious. Any resemblance to any person or business is unintended and purely coincidental.

Introducing Signpost Limited 2011

About this publication
The purpose of this publication is to assist you in preparing financial statements in accordance with the Framework for Differential Reporting under NZ GAAP (FRSs/SSAPs). It illustrates one possible format for financial statements based on a fictitious company, Signpost Limited. In addition to being a useful tool for companies, we believe that this publication will be a valuable reference in the preparation of financial statements for many other organisations that fall outside the scope of the Financial Reporting Act (FRA). Our aim is that these model financial statements apply New Zealands reporting requirements in as realistic a situation as practicable to assist you in reporting your own position and operations to stakeholders.

History of financial reporting for small and medium-sized entities (SMEs)

Differential Reporting has been around since 1994 when it was introduced to reduce the burden of disclosures on smaller entities without public accountability. On 19 December 2002 the Accounting Standards Review Board (ASRB) announced that New Zealand entities would adopt international standards for financial periods beginning on or after 1 January 2007. Entities were allowed to early adopt, implementing New Zealand equivalents to International Financial Reporting standards (NZ IFRS) from as early as balance dates beginning on or after 1 January 2005. This led to a staggered adoption of NZ IFRS. In responding to this the FRSB, as an interim measure, issued a Framework for Differential Reporting Entities applying the NZ IFRS regime. Since these decisions were made there has been extensive debate regarding the financial reporting requirements for certain small entities. In response, the Government announced that it would commence a review of financial reporting requirements applicable to small and medium-sized companies. One possible outcome of this review is the removal of the legislative requirement for small and medium-sized companies and entities to prepare GAAP-compliant financial reports. In light of these developments the ASRB decided that certain companies could continue to apply the existing approved New Zealand Financial Reporting Standards (FRSs) and Statements of Standard Accounting Practice (SSAPs) and did not have to adopt NZ IFRS for reporting periods beginning on or after 1 January 2007, until further notice. During September 2007 the ASRB issued Release 9, Delay of the Mandatory Adoption of New Zealand equivalents to International Financial Reporting Standards for Certain Small Entities that establishes the criteria for deferral of adoption (refer Appendix 4). The key point is that certain legislative requirements may subject an entity to the requirements of the Financial Reporting Act 1993 (FRA) as a reporting entity. Unless the entity is an exempt company or a company that meets the criteria specified in ASRB Release 9, the entity is not exempt, and will be required to adopt NZ IFRS. For other types of entities that are not subject to the FRA, the Financial Reporting Standards Board (FRSB) has amended the New Zealand Preface to allow some of these entities to choose to delay adopting NZ IFRS. This means that certain entities such as partnerships, trusts, charities, clubs and societies that are required or choose to prepare general purpose financial reports will also be able to delay adoption of NZ IFRS. In July 2009, the International Accounting Standards Board (IASB) issued the IFRS for SMEs, which is a selfcontained standard designed to meet the needs and capabilities of small and medium-sized entities (SMEs). Compared with full IFRSs (and many national GAAPs), the IFRS for SMEs is less complex. New Zealand has not decided on the adoption of the IFRS for SMEs bat this point. On 30 September 2009, the Ministry of Economic Development (MED) and the ASRB issued proposals that will potentially change the statutory financial reporting requirements in New Zealand. These proposals cover all types of entities large and small, listed and unlisted, business enterprises, public sector entities, charities and other not-for-profit organisations and are set out two discussion documents: The MED Discussion Document, The Statutory Framework for Financial Reporting sets out proposals in relation to which entities should be required to prepare financial statements. The ASRB Discussion Document, The Proposed Application of Accounting and Assurance Standards Under the Proposed New Statutory Framework for Financial Reporting sets out the proposals for the accounting and audit requirements for an entity that is required to prepare financial statements. At the time of writing, a number of the significant proposals have yet to be concluded on.

Financial reporting requirements

The obligation for entities to prepare financial statements is generally set out under statutes, case law and documents such as constitutions, trust deeds and rules under which an entity was established. These sources also identify the specific requirements of those obligations. Most entities are required by law to prepare accounts. Having established that the entity has an obligation to prepare financial statements, the entity determines if it has an obligation to prepare general purpose financial statements that comply with GAAP. Appendix 4 has a discussion on general purpose and special purpose financial statements, and the appropriate accounting standards to consider in order to comply with GAAP.

Generally Accepted Accounting Practice (GAAP)

Generally Accepted Accounting Practice (GAAP) is the term used to describe the basis for preparing general purpose financial statements. The term includes both the broad concepts and principles to be used in preparing general purpose financial statements and the specific rules, practices and procedures to be used when reporting on particular transactions and events. The key aspect of GAAP is compliance with appropriate financial reporting standards. From a legal perspective GAAP means compliance with all financial reporting standards applicable to the entity. The standards constituting GAAP are either NZ IFRS or, if an entity can defer adoption of NZ IFRS, the Financial Reporting Standards (FRS) and Statement of Standard Accounting Practice (SSAP). For ease of reference we refer to these latter standards as FRSs/SSAPs. Where the existing FRSs/SSAPs do not address a specific issue, the Explanatory Forward to General Purpose Financial Reporting provides guidance with respect to other sources of authoritative support for all entities in the preparation of general purpose financial reports. Ultimately, it is a matter for professional judgement in the circumstances of the entity as to which sources of authoritative support should be considered, and how conflicts between sources of authoritative support should be resolved, in determining GAAP. In saying this, it is now generally expected that entities should consider NZ IFRS in the first instance when FRS/SSAPs do not provide guidance given that these standards are approved accounting standards in New Zealand.

Keeping up to date
The content of this publication reflects accounting practice at the time of writing, but accounting practice is continually evolving. It is therefore necessary for preparers of financial statements, to keep abreast of accounting developments and their impact on financial statements. This publication should be used in conjunction with the underlying legislation and financial reporting standards, particularly where a specific disclosure area is not covered or where there is uncertainty regarding interpretation. To keep up to date with financial reporting developments you can visit our website: www.kpmg.co.nz. Entities adopting NZ IFRS that qualify for differential reporting should refer to the Illustrative Financial Statements ClearCut Limited 2009, which has been prepared in accordance with the Framework for Differential Reporting for entities applying NZ IFRS. If you require guidance on preparing and presenting financial statements complying with full reporting requirements you should refer to KPMGs model annual report Diverse Group Limited, which includes an Appendix on Preparing for the Conversion to NZ IFRS. The on-line versions are regularly updated for the latest developments. If you require any assistance with financial reporting or transitioning to NZ IFRS, please call your KPMG contact or email KPMG's Accounting Advisory Services on dpp@kpmg.co.nz.

The Signpost story

Signpost Limited (Signpost) is a reporting entity as defined in the FRA and qualifies under ASRB Release 9 to defer adoption of NZ IFRS. Signpost has decided to produce financial statements that have been prepared in accordance with NZ GAAP, applying FRSs and SSAPs. Signpost is a privately owned company registered under the Companies Act 1993 and operates as a sign post manufacturer based in Hamilton. In focusing on the preparation of these financial statements, we have recognised that primary stakeholders (e.g. shareholders and banks) like to receive clear and concise information. With this in mind we have assumed that Signpost is taking advantage of most of the differential reporting exemptions available to it. Additional disclosures may be included to provide useful information to the users of financial statements and to follow best practice established by that specific industry.

Abbreviations
The following abbreviations are used in these model financial statements: ASRB C93 FRA FRS GAAP IAS IASB IFRS MED NZ IAS NZ IFRS NZ IFRIC NZ SIC SSAP Accounting Standards Review Board Companies Act 1993 Financial Reporting Act 1993 Financial Reporting Standards Generally Accepted Accounting Practice International Accounting Standards International Accounting Standards Board International Financial Reporting Standards Ministry of Economic Development New Zealand equivalents to International Accounting Standards New Zealand equivalents to International Financial Reporting Standards New Zealand equivalents to International Financial Reporting Interpretations Committee New Zealand equivalents to Standing Interpretations Committee Statement of Standard Accounting Practice

Do you qualify for differential reporting?

The Financial Reporting Standards Board (FRSB) issued a Framework for Differential Reporting in 1994 (Framework). This has been amended over the years, most recently in 2005 when the size criteria were increased. The Framework allows a reporting entity to be exempted from specific requirements of FRSs/SSAPs. The basic principle of differential reporting is that compliance with FRSs/ SSAPs should be required only when the benefit exceeds the costs of compliance with the standards.

Do you meet the requirements?

An entity qualifies for differential reporting exemptions if it does not have public accountability and either all of its owners are members of its governing body at balance date (non-separation criterion) or the entity is not large (size criterion) as defined by the Framework.

What makes an entity publicly accountable?

An entity has public accountability if it was an issuer, as defined in the FRA at any time during the current or preceding reporting period. An entity is also publicly accountable if it has the coercive power to tax, rate or levy to obtain public funds. For example, a golf club that charges its members a fee does not have coercive power. It is the member's decision to become a member of the golf club and they would not have to pay the fee if they chose to leave the golf club. On the other hand, City Council rates and Government taxes are charged irrespective to usage and services offered by such entities and they are therefore publicly accountable. When an entity's parent or ultimate controlling entity has the coercive power to tax, rate or levy to obtain public funds, the entity is not permitted to use a lack of separation between the owners and the governing body as a basis for qualifying for differential reporting exemptions. Such entities may qualify for differential reporting exemptions only on the basis of size. This is because it may not be appropriate that entities such as local authority trading enterprises, crown entities, state-owned enterprises and government departments should be permitted to use the lack of separation criteria as the public have a beneficial interest in the entities and in many cases, the public indirectly provides funds to such entities through taxes, rates or levies. However, an entity does not have public accountability solely because it receives public funds from another entity that has the coercive power to tax, rate or levy to obtain public funds. For example, a museum that receives a government grant is not public accountable. A group is not considered to be publicly accountable solely by reason of a subsidiary or associate being publicly accountable. However, when the parent of the group is an issuer, the entire group is an issuer and is deemed to be publicly accountable.

How is it possible to identify that owners are also governors?

Where every owner is also a member of the governing body, the owners are assumed to have access to any information they require and the separation test is passed. Where the owner is not a natural person, e.g. the owner is a trust or company, and has appointed a representative to the governing body of the entity, that representative is considered to be the owner for the purposes of the Framework. For example, if the holding company appoints a director to the board of its subsidiary then there is no separation between the owner and the governing body. In the example of a wholly owned subsidiary, the directors appointed by the holding company are considered to be the owners of the subsidiary. The true owners of trusts are the beneficiaries. Therefore, in order for the non-separation criterion to be met, the beneficiaries should also be trustees. The settler of a trust will sometimes have the right to appoint the trustees; therefore the settler will also meet the definition of an owner and should be on the governing body. This means that in most cases the trust will not satisfy the 'non-separation' criterion. A trust will generally only qualify for differential reporting exemptions if it is not publicly accountable and is small. This non-separation test is applied at balance date.

How is the size criterion applied?

An entity is classified as 'small' if it does not exceed any two of the following three size thresholds:

Total revenue of $20 million; Total assets of $10 million; and 50 employees.

The size criterion must be met for two consecutive balance dates (or one if it is the entity's first balance date). Where the reporting entity is a group, the size criterion is applied to the group comprising the parent and all its subsidiaries. In trying to assess whether an entity meets the size criterion, the Framework provides guidance as to how the three size thresholds should be calculated:

Total revenue is the annualized gross income, which includes both revenue and gains, reported in the entity's statement of financial performance for the current period; Total assets include all assets, including intangible assets, recorded in the entity's balance sheet at the end of the current reporting period; Total employees comprise the number of full-time equivalent persons in the paid employment of the entity, calculated on an annual basis.

Disclosure
If an entity qualifies for differential reporting, it is required to disclose an accounting policy stating how it meets the Framework criteria and the differential reporting exemptions that it has adopted.

Framework for differential reporting - Flowchart

Differential reporting exemptions

The following is a listing of New Zealand financial reporting standards as well as the measurement, recognition and disclosure exemptions available within the Framework for Differential Reporting.

Full exemption
FRS-10 SSAP-23 FRS-31 FRS-41 Statement of Cash Flows Financial Reporting for Segments Disclosure of Information about Financial Instruments Disclosing the impact of adopting New Zealand Equivalents to International Financial reporting Standards (applicable to issuers only)

No exemption
FRS-1 FRS-2 FRS-5 SSAP-6 FRS-7 FRS-20 SSAP-25 FRS-26 FRS-27 FRS-32 FRS-33 FRS-34 FRS-35 FRS-36 FRS-37 FRS-38 FRS-39 FRS-40 Disclosure of Accounting Policies Presentation of Financial Reports (except requirements relating to statement of cash flows if applicable) Events after Balance Date Materiality in Financial Statements Extraordinary Items and Fundamental Errors Accounting for Shares Issued Under a Dividend Election Plan Accounting for Interest in Joint Ventures and Partnerships Accounting for Defeasance of Debt Right of Set-off Financial Reporting by Superannuation Schemes Disclosure of Information by Financial Institutions Life Insurance Business Financial Reporting of Insurance Activities Accounting for Acquisitions Resulting in Combinations of Entities or Operations Consolidating Investments in Subsidiaries Accounting for Investments in Associates Summary Financial Reports Transitional Arrangements for the Early Adoption of the New Zealand equivalent to IAS 19 Employee Benefits

Partial exemption
FRS-3 Accounting for Property, Plant and Equipment The same rates of depreciation can be used for financial reporting as for income tax purposes, except when assets have been revalued. The entity is not required to capitalise borrowing costs and where this exemption is taken the entity must expense all borrowing costs as incurred. Specific exemptions in disclosure are denoted with an asterisk in the standard. FRS-4 Accounting for Inventories There is no requirements to sub-classify inventory into categories such as raw materials, work-in-progress and finished goods. Accounting for Income Tax The accounting policy adopted for income tax must be disclosed in all instances. This is one of the few standards that allows an entity qualifying for differential reporting a choice with regard to recognition and measurement. An entity may choose to adopt either the liability method or the taxes payable method. The selection of either method has no impact on which disclosure exemptions an entity chooses to elect. However, if an entity voluntarily makes disclosures from which it is exempt, they must be in accordance with SSAP-12. FRS-13 Accounting or Research and Development Activities All research and development costs can be recognised as an expense during the period in which they were incurred. FRS-14 Accounting or Construction Contracts Profit on all construction contracts may be recognised on a completed contract method or a percentage of completion method. If the percentage of completion is used, all the recognition and measurement requirements must be completed with, but there is still a choice regarding disclosure requirements of FRS-14. However, if an entity voluntarily makes disclosures from which it is exempt, they must be in accordance with FRS-14. FRS-15 Provisions, Contingent Liabilities and Contingent Assets Entities are not required to disclose additional provisions made in the period, amounts used during the period and the increase during the period in the discounted amount arising the passage of time and the effect of any change in the discount rate. SSAP-17 Accounting or Investment Properties and Properties Intended for Sale Entities are not required to account for investment properties and properties intended for sale according to SSAP-17, but have the option of using the principles embodies in SSAP-28 instead. However, this exemption is not available if investment property revaluations or development margins are recognised. Accounting for Leases and Hire Purchase Contracts Finance charges relating to finance leases do not have to be disclosed separately in the statement of financial performance Entities are not required to comply with all disclosure requirements except that they may disclose lease liabilities for finance leases and aggregate commitments for non-cancelable operating leases by classifying them into current and non-current amounts. Accounting for Goods and Services Tax There is a choice regarding the recognition of revenue and expense items inclusive or exclusive of GST, provided that the method is applied consistently to all revenue and expense items disclosed in the statement of accounting policies. FRS-21 Accounting for the Effect of Changes in Foreign Currency Exchange Rates The net exchange difference does not have to be separately disclosed in the statement of financial performance. In addition, transactions measured in a foreign currency do not have to be translated using the exchange rate that applied at the transaction date or a rate approximating that rate. If this exemption is applied, transactions settled in the accounting period must be translated at the settlement rate and transactions unsettled at balance date must be translated at the closing rate.
10

SSAP-12

SSAP-18

FRS-19

Partial exemption (continued)

SSAP-21 Accounting for the Effects of Changes in Foreign Currency Exchange Rates The net exchange difference included in the statement of financial performance does not have to be disclosed. Related Party Disclosures The identity of each related party, the nature of each relationship and the types of transactions involved are only required to be disclosed if there have been material transactions with related parties at any time during the reporting period. Interim Financial Statements Specific exemptions are denoted with an asterisk in the standard. In addition, differential reporting exemptions available under specific financial reporting standards may be applied. Reporting Share Ownership Arrangements including Employee Share Ownership Plans (ESOP) Qualifying entities with one or more ESOP are exempt from disclosing abbreviated statements of financial position and financial performance on each ESOP. Prospective Financial Statements Qualifying entities are not required to prepare a cash flow statement.

SSAP-22

FRS-24

FRS-30

FRS-42

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Signpost Limited
Annual Report for the year ended 31 March 2011

Report contents
Compilation Report Approval of Annual Report Company Directory Statement of Financial Performance Statement of Movement in Equity Balance Sheet Statement of Accounting Policies Notes to the Financial Statements

Page No.
15 17 18 19 20 21 23 28

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Annual Report for the year ended 31 March 2011

Compilation Report
Report to the Directors of Signpost Limited

Scope On the basis of information you provided we have compiled, in accordance with Service Engagement Standard No. 2: Compilation of Financial Information, the annual report of Signpost Limited for the year ended 31 March 2011. This has been prepared in accordance with New Zealand generally accepted accounting practice as described in the statement of accounting policies. Responsibilities You are solely responsible for the information contained in the annual report and have determined that New Zealand generally accepted accounting practice is appropriate to meet your needs and for the purpose that the financial statements were prepared. The annual report is prepared solely for your benefit. We do not accept responsibility to any other person for the contents of the annual report. Disclaimer of liability We have compiled the annual report of Signpost Limited for the year ended 31 March 2011 in accordance with the limited procedures agreed in our letter of engagement dated 1 May 2010. Our procedures use accounting expertise to undertake the compilation of the annual report from information you provided. The compilation is limited primarily to the collecting, classifying and summarising of financial information supplied by the client. Our procedures do not involve the verification or validation procedures. No audit or review has been performed and accordingly no assurance is expressed. We have not attempted to verify the accuracy or completeness of the information and therefore neither we nor any of our employees accept any responsibility for the accuracy of the information from which the annual report has been prepared. This annual report has been prepared at the request of and for the purpose of our client only and neither we nor any of our employees accept any responsibility on any ground whatsoever, including liability in negligence, to any other person.

KPMG
Wellington Dated: 15 June 2011

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Annual Report for the year ended 31 March 2011

Note
1

Reference
Companies Act 1993 Financial Reporting Act 1993 FRS 5 Events After Balance Date

Explanatory note
Section 211(1)(k) of the Companies Act 1993 as well as Section 10(1)(b) of the Financial Reporting Act 1993 requires the annual report to be signed and dated on behalf of the Board by two Directors unless there is only one Director. Section 13(1)(b) of the Financial Reporting Act 1993 contains the same requirement in respect of the Group financial statements. Although many companies place these signatures at the bottom of the Statement of Financial Position, this is not a requirement of the Financial Reporting Act. This approval may be made anywhere in the annual report. Signing and dating the financial statements implies that the financial statements have been authorised for issue to meet the requirements of FRS 5, Events After Balance Date, paragraph 6.1.

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Signpost Limited
Annual Report for the year ended 31 March 2011

Approval of Annual Report

The Directors are pleased to present the annual reports including the financial statements of Signpost Limited for the year ended 31 March 2011.

For and on behalf of the Board of Directors

AB Smith
AB Smith Director 15 June 2011

CD Brown
CD Brown Director 15 June 2011

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Annual Report for the year ended 31 March 2011

Company Directory2
As at 31 March 2011 Nature of Business Registered office
Sign post manufacturer

Cobham Drive Hamilton

Incorporation Number IRD Number Directors

99 0724 00

62-101-888

AB Smith CD Brown

Shareholders

AB Smith CD Brown AB Smith, CD Brown and EF Weston jointly as Trustees for ABC Family Trust Ordinary Shares

350,000 350,000 50,000 750,000

Accountant

KPMG KPMG Centre 85 Alexandra Street Hamilton First Banking Corporation

Bankers Solicitors

Grade A Associates

Note 2

This information is provided for illustrative purposes only. There is no legislative requirement to include a company directory.

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Annual Report for the year ended 31 March 2011

Statement of Financial Performance

For the year ended 31 March 2011

References FRS-2 5.2(a), FRA s8(1)(b) FRS-2 5.17

Note

2011 $

2010 $
1,798,204 464,600

Sales revenue Cost of goods sold Total gross surplus

1,827,643 426,549

1,401,094

1,333,604

Expenses Operating Administration Finance Non-cash items

3 4 5 6

579,361 142,708 109,134 199,380 1,030,583

600,893 145,900 102,762 188,012 1,037,567

Net business surplus Other income Sundry income Operating surplus before shareholders remuneration Shareholders remuneration Operating surplus before tax Tax expense Net surplus for the year
8 26

370,511

296,037

63,253

41,314

433,764
127,000 306,764 96,631

337,351
90,000 247,351 47,209 FRS-2 6.7, 6.13(a) FRS-2 6.12 FRS-2 6.3

210,133

200,142

These statements are to be read in conjunction with notes to the financial statement and are subject to the compilation report on page 15 of this report.

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Annual Report for the year ended 31 March 2011

Statement of Movements in Equity

For the year ended 31 March 2011
Note

References FRS-2 5.2(b), 7.2 FRS-2 5.17

2011 $

2010 $
200,142 13,884 214,026 (30,000) 184,026 923,129 FRS-2 7.3(a)(i) FRS-2 7.3(a)(ii), FRS-3 11.8(a) FRS-2 7.3(a) FRS-2 7.3(b)

Net surplus for the year Revaluation of assets Total recognised revenues and expenses Dividend declared Movements in equity for the year Equity at beginning of year Equity at end of year
10 10

210,133 176,102 386,235 (50,000) 336,235 1,107,155

1,443,390

1,107,155

FRS-2 7.2

These statements are to be read in conjunction with notes to the financial statement and are subject to the compilation report on page 15 of this report.

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Signpost Limited
Annual Report for the year ended 31 March 2011

Balance Sheet
As at 31 March 2011
Note

References FRS-2 5.2(c.), 8.1, FRA S8(1)(a) FRS-2 5.17

2011 $ 1,443,390

2010 $ 1,107,155
FRS-2 8.5(a)(v), FRS-9 8.17 FRS-2 8.5(a)(i)

Equity Current assets Cash and bank balances Accounts receivable Loan to director Inventories Shareholders current accounts Total current assets Non-current assets Property, plant and equipment Goodwill Investments Loan to director Total non-current assets

10

11 12 13 14 20

26,849 347,373 12,000 201,108 299,299

312,335 12,000 218,049 463,700

FRS-9 8.2(c) FRS-9 8.2(a) FRS-9 8.2(a)(ii) FRS-4 5.29(b)(i)

886,629
1,658,421 40,000 545,839 60,000 2,304,260

1,006,084
FRS-2 8.5(a)(ii) 1,492,518 60,000 478,819 72,000 2,103,337 FRS-9 8.2(f) FRS-9 8.2(b) FRS-9 8.2(a)(ii)

15 16 17 13

Total assets
Current liabilities Bank balances Accounts payable GST payable Dividends payable Current portion of finance lease liabilities Shareholders current accounts Tax payable Current portion of loans Provisions Total current liabilities Non-current liabilities Non-current portion of finance lease liabilities Non-current portion of loans Provisions Total non-current liabilities Total liabilities Net assets
19 21 22 10 19 20 8 21 22 11 18

3,190,889
125,061 38,355 50,000 40,450 76,760 11,058 281,496 14,417

3,109,421
FRS-2 8.5(a)(iii) 17,764 114,421 56,376 30,000 40,450 41,245 13,784 211,832 FRS-9 8.10(d) FRS-9 8.10(b)

637,597
39,285 1,027,365 43,252 1,109,902 1,747,499

525,872
FRS-2 8.5(a)(iv) 79,735 1,396,659 1,476,394 2,002,266

1,443,390

1,107,155

These statements are to be read in conjunction with the notes to the financial statements and subject to the compilation report on page 15 of this report. 21

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Annual Report for the year ended 31 March 2011

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Annual Report for the year ended 31 March 2011

Statement of accounting policies

References

For the year ended 31 March 2011

FRS-1 5.1, 5.5(c)

Basis of preparation
Signpost Limited is a company domiciled in New Zealand and registered under the Companies Act 1993. The Company is a reporting entity for the purposes of the Financial Reporting Act 1993 and its financial statements comply with that Act. The financial statements comprise statements of: financial performance; movements in equity; balance sheet; accounting policies; as well as the notes to these statements. The financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand. They comply with approved Financial Reporting Standards (FRSs) and Statements of Standard Accounting Practice (SSAPs) as appropriate for entities that qualify for and apply differential reporting concessions. The financial statements have been prepared on the basis of historical cost except that land and buildings are stated at valuation.

FRS-2 5.2(f), 5.17 FRS-1 5.5(a)

FRS-1 5.5(b)

Differential Reporting
In terms of the framework for differential reporting an entity is exempt from certain financial reporting standards if it satisfies the criteria laid down in the framework; such an entity is called a qualifying entity. The Company is an entity qualifying for differential reporting exemptions as it has no public accountability and is not large in terms of the criteria set out in the Differential Reporting Framework. All available differential reporting exemptions allowed under the framework for differential reporting have been adopted, except for: FRS 9 Information to be disclosed in the financial statements, where some additional disclosures have been made.

FRS-1 5.19(a),(b)(i)

Receivables
Receivables are stated at estimated realisable value after providing against debts where collection is doubtful. Bad debts are written off during the period in which they are identified.

Investment in shares
Non-current investments in unlisted shares are stated at the lower of cost and market value. Investments in listed shares are stated at market value. Dividend income is recognised in the statement of financial performance when received.

Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing condition and location. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity.

FRS-4 5.29(a)

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Annual Report for the year ended 31 March 2011

Note 1

Reference
FRS-3 11.6

Explanatory Note
When a class of property, plant and equipment is no longer revalued the fact that the class of items is no longer accounted for under modified historical cost and the basis upon which the class is now accounted for, must be disclosed.

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Annual Report for the year ended 31 March 2011

Statement of accounting policies

References

For the year ended 31 March 2011

Property, plant and equipment

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Where an item of property, plant or equipment is disposed of, the gain or loss recognised in the statement of financial performance is calculated as the difference between the sale price and the carrying amount of the asset. Land and buildings are stated at valuation as determined by an independent registered valuer. Land and buildings are revalued at least every five years, and more frequently if necessary to ensure carrying amounts are not materially different from fair value as at balance date. The basis of valuation of the land and buildings is highest and best use.

FRS-3 5.3, 5.22, 5.35

Depreciation
Depreciation is charged at the same rate as is allowed by the Income Tax Act 2004. The following rates have been used: Fixtures, fittings and equipment Office furniture Leased motor vehicles Leasehold improvements Plant and machinery Buildings Land is not depreciated. 9% - 24% diminishing value 18% - 40% diminishing value 15% straight line 6.6% - 18% straight line 11% - 18% diminishing value 3% straight line

FRS-3 11.1(b)(c) FRS-3 8.1 FRS-3 2.2(a)

Leases
Leases or hire purchase contracts where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired by way of finance lease are stated initially at an amount equal to the lower of fair value and present value of the future minimum lease payments, and are depreciated using the same rates for the applicable categories set out above. Minimum lease payments are apportioned between interest expense and reduction of the outstanding liability. The interest expense component of finance lease payments is recognised in the statement of financial performance using the effective interest rate method. Other leases are classified as operating leases. Payments made under operating leases are recognised in the statement of financial performance on a straight-line basis over the term of the lease. Lease incentives are recognised in the statement of financial performance over the lease term as an integral part of the lease expense.

SSAP-18 5.1,5.2

SSAP-18 5.4

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Annual Report for the year ended 31 March 2011

Note 1

Reference

Explanatory Note
Some differential reporting entities may choose to report income taxes on a comprehensive basis taking account of all timing differences. In these circumstances the following taxation policy should be included: "Income tax expense is recognised on the operating surplus before taxation adjusted for permanent differences between taxable and accounting income. Deferred tax is calculated using the comprehensive basis under the liability method.

SSAP-12 5.14

This method involves recognising the tax effect of all timing differences between accounting and taxable income as a deferred tax asset or liability in the statement of financial position. The future tax benefit or provision for deferred tax is stated at the income tax rates prevailing at balance date. Future tax benefits are not recognised unless realisation of the asset is virtually certain."

26

Signpost Limited
Annual Report for the year ended 31 March 2011

Statement of accounting policies

References

For the year ended 31 March 2011 Goodwill

Goodwill arising on the acquisition of a business represents the excess of the purchase consideration over the fair value of the identifiable net assets acquired. Goodwill is amortised to the statement of financial performance on a straight line basis over the period during which benefits are expected to be derived - a period of 5 years.

Taxation
The income tax expense recognised in the statement of financial performance is the estimated income tax payable in the current year, adjusted for any differences between the estimated and actual income tax payable in prior years.
SSAP-12 5.14(a)

Foreign currencies
Foreign currency transactions are translated to New Zealand Dollars (NZD) at the exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance date are translated to NZD at the foreign exchange rate ruling at the date. Foreign exchange differences arising on their translation are recognised in the statement of financial performance.
FRS-21 7.1(a) FRS-21 5.3(a) FRS-21 5.4(a)

Goods and services tax

All amounts are shown exclusive of Goods and Services Tax (GST), except for receivables and payables which are shown inclusive of GST.

FRS-19 2.2

Onerous contracts
Where the benefits expected to be derived from a contract are lower than the unavoidable costs of meeting the Company's obligation under the contract, a provision is recognised. The provision is stated at the present value of the future net cash outflows expected to be incurred in respect of the contract.

FRS-15 10.4

Dividends
Provisions for dividends are recognised in the period that they are authorised and approved.
FRS-5 5.5 FRS-1 5.5(d),5.11 5.12,5.14

Changes in accounting policy

The accounting policies adopted are consistent with those of the previous year.

27

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

2011
Note

References

2010 $

Operating revenue Sales revenue Traffic signage Sales revenue Commercial signage Total sales revenue Sundry income
7

1,343,024 484,619 1,827,643 63,253 1,890,896

1,416,687 381,517 1,798,204 41,314 1,839,518

FRS-9 6.7 FRS-9 6.7 FRS-9 6.7 FRS-9 6.6

Gross surplus Traffic signage Sales revenue Cost of goods sold Opening stock Purchases Less Closing stock Gross surplus - Traffic signage Commercial signage Sales revenue Cost of goods sold Opening stock Purchases Less Closing stock Gross surplus Commercial signage Total gross surplus 52,695 122,654 175,349 65,126 110,223 374,396 1,401,094 38,763 112,589 151,352 52,695 98,657 282,860 1,333,604 484,619 381,517 165,354 286,954 452,308 135,982 316,326 1,026,698 155,599 375,698 531,297 165,354 365,943 1,050,744 1,343,024 1,416,687

28

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

2011 $ 3 Operating expenses Accident compensation Accommodation Advertising Consultancy Consumables Contract services Electricity Low value assets Motor vehicle expenses Motor vehicle lease Repairs and maintenance Salaries and wages Travel 4,709 6,089 2,423 29,115 53,618 124,235 2,382 1,626 5,310 16,975 9,234 314,106 9,539 579,361 4 Administration expenses Accounting Audit fees Bank charges Body corporate fees Conference Directors fees Entertainment - deductible Entertainment - non-deductible Fringe Benefit Tax General expenses GST on fringe benefits Insurance Legal - deductible Printing and stationery Postage and freight Rent Staff training Telecommunications 4,843 2,500 945 4,713 115 60,000 940 1,057 1,499 1,318 265 21,766 187 2,074 2,747 17,911 2,451 17,377 142,708 6,738 2,500 1,172 6,284 1,466 50,000 788 887 1,558 1,375 340 25,630 3,340 542 2,009 17,559 4,984 18,728 145,900 7,578 5,434 3,486 11,408 65,309 127,445 2,273 531 4,305 16,974 11,286 327,656 17,208 600,893 2010 $

References

29

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

2011 $ 5 Finance expenses Interest secured bank loan Interest finance lease Interest other 91,469 6,997 10,668 109,134 6 Non-cash items Depreciation property, plant and equipment Impairment - property plant and equipment Loss on disposal of fixed assets Depreciation recovered Amortisation of goodwill 81,426 9,828 11,508 102,762 2010 $

References

SSAP-18.4.37(e)

Note 15 15

16

175,877 3,200 303 20,000 199,380

174,512 (6,500) 20,000 188,012

Sundry income Realised gain on foreign exchange Gain on disposal of fixed assets Miscellaneous income Dividends received Interest received 10,000 272 4,977 48,004 63,253 6,500 10,000 116 5,039 19,659 41,314

Tax Operating surplus before tax Imputation credits received Adjustments for permanent differences Impairment of goodwill Capital gain on disposal of fixed assets Entertainment - non-deductible Losses brought forward Taxable income Income tax Imputation credits claimed Tax expense Resident withholding tax paid Provisional tax paid Income tax payable 306,764 2,451 309,215 20,000 1,057 330,272 99,082 (2,451) 96,631 (20,573) (65,000) 11,058 247,351 1,660 249,011 20,000 (10,000) 887 (97,000) 162,898 48,869 (1,660) 47,209 (8,425) (25,000) 13,784

30

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

2011 $ 9 Imputation credits Balance at beginning of year Terminal tax paid Provisional tax paid Resident withholding tax paid Imputation credits attached to dividends received Tax refunded Imputation credits attached to dividends paid Balance at end of year 61,942 13,784 65,000 20,573 2,451 101,808 (1,277) (15,000) 147,473 15,983 19,874 25,000 8,425 1,660 54,959 (9,000) 61,942 2010 $

References

The closing balance represents imputation credits available to be attached to any future dividend distributions from the Companys reserves, subject to certain shareholder continuity provisions. This account is not reflected in the Companys financial statements. 10 Equity Paid in capital Retained earnings Asset revaluation reserve 750,000 503,404 189,986 1,443,390 750,000 343,271 13,884 1,107,155

The Company has 750,000 fully paid shares on issue (2010: 750,000). All shares have equal voting rights and upon winding up rank equally with regard to the Companys residual assets. Movement in retained earnings Balance at beginning of year Net surplus for the year Dividends declared Balance at end of year Asset revaluation reserve Property, plant & equipment Shares in listed company

343,271 210,133 (50,000) 503,404

173,129 200,142 (30,000) 343,271

150,000 39,986 189,986

13,884 13,884

31

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

2011 $ 11 Cash and cash bank balances First Banking Corporation Ready Money Account First Banking Corporation Cheque Account 26,849 26,849 (17,764) (17,764) 2010 $

References

The bank overdraft is unsecured. Interest in incurred at 9.45% per annum up to $30,000 and at 18.76% thereafter. 12 Accounts receivable Trade receivables Prepayments 336,490 10,883 347,373 13 Loan to director AB Smith Current portion Non-current portion 72,000 12,000 60,000 72,000 84,000 12,000 72,000 84,000 299,520 12,815 312,335

FRS-9 8.2(a)(ii)

The loan to Director, AB Smith, bears interest of 8 per cent per annum and is repayable in monthly installments of $1,000. The loan is secured by a first mortgage registered over AB Smiths residence. 14 Inventories Stock on hand Work in progress 175,982 25,126 201,108 Certain inventory items are subject to retention of title clauses. 195,354 22,695 218,049

FRS-9 8.6

FRS-4 5.29(d) FRS-9 8.8

32

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

15 2011 Land (at revaluation) Buildings (at revaluation) Plant and machinery Plant and machinery (not in use) Plant and machinery (WIP) Leasehold improvements Motor vehicles (leased) Fixtures, fittings and equipment Office furniture Total as at 31 March 2011 Property, plant and equipment Cost $ 340,000 410,000 1,034,000 21,500 69,058 40,153 151,850 77,304 40,000 2,183,865 Depn Charge $ 9,891 118,610 3,225 6,023 22,778 9,470 5,880 175,877 Impairment losses $ 3,200 3,200 Acc Dep & Impairment $ 378,750 6,425 18,069 68,333 27,587 26,280 525,444 Carrying value $ 340,000 410,000 655,250 15,075 69,058 22,084 83,517 49,717 13,720 1,658,421

References

FRS-3 11.3(a)(c.)(d)

FRS-9 8.2(d) FRS-9 8.2(e) FRS-3 11.3(a) FRS-3 11.3(b)(i) FRS-3 11.3(b)(ii) FRS-3 11.3(a) SSAP-18 5.15(a) FRS-3 11.3(a) FRS-3 11.3(a)

2010 Land (at revaluation) Buildings (at revaluation) Plant and machinery Plant and machinery (not in use) Plant and machinery (WIP) Leasehold improvements Motor vehicles (leased) Fixtures, fittings and equipment Office furniture Total as at 31 March 2010

Cost $ 310,000 329,700 934,500 40,153 151,850 61,539 40,000 1,867,742

Depn Charge $ 9,891 119,149 6,023 22,778 8,271 8,400 174,512

Impairment losses $ -

Acc Dep & Impairment $ 19,782 259,324 12,046 45,555 18,177 20,400 375,284

Carrying value $ 310,000 309,918 675,176 28,107 106,295 43,422 19,600 1,492,518
FRS-3 11.3(a) SSAP-18 5.15(a) FRS-3 11.3(a) FRS-3 11.3(a) FRS-9 8.2(d) FRS-9 8.2(e) FRS-3 11.3(a)

Due to damage to a new item of plant and machinery, which is now not currently in use, an impairment loss of $3,200 has been recognised in the statement of financial performance to write down the carrying value of the asset. 2011 $ Amount by which land and buildings have been revalued above historical cost: Land Buildings 30,000 120,000 2010 $
FRS-3 11.4(a)

FRS-3 11.4(c)(d)(e)
33

Land and buildings were valued on 31 March 2011 by Mr Cloud, a valuer registered with the New Zealand Institute of Valuers, at $750,000. The valuations placed on land and buildings were based on highest and best use.

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

2011 $ 16 Goodwill Goodwill at cost Accumulated amortisation at beginning of year Balance at beginning of year Amortisation expense - current year Balance at end of year 100,000 (40,000) 60,000 (20,000) 40,000 100,000 (20,000) 80,000 (20,000) 60,000 2010 $

References

17

Other investments
Shares in listed company (at valuation) Slee Group Limited Gibbs Holdings New Zealand Limited Shares in unlisted companies (at cost) Rowe (NZ) Management Limited Limbo Transport Company Limited
Quantity 10,000 8,800

FRS-9 8.2(b)(v)

124,360 60,019 184,379 251,220 110,240 361,460 545,839

79,156 38,203 117,359 251,220 110,240 361,460 478,819

195,500 120,128

18

Accounts payable Trade creditors Other payables 96,021 29,040 125,061 86,451 27,970 114,421 FRS-9 8.10(a)

Included in trade creditors is an amount of $5,174 ($US4,139) (2010: $6,406 ($US4,804)) which is unhedged. 19 Finance lease liabilities ABC Finance Motor vehicles Total minimum lease payments Less future lease finance charges Net finance lease liability Classified as follows: Current portion Non-current portion 40,450 39,285 79,735 40,450 79,735 120,185 90,898 (11,163) 79,735 145,424 (25,239) 120,185

FRS-21 7.1(e)(i)

SSAP-18 4.36

The motor vehicles obtained through the finance lease serves as security over this liability.

FRS-9 8.13

34

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

2011 $ 20 Shareholders current accounts A B Smith Balance at beginning of year Funds introduced Directors salary remuneration Directors fees Less outgoings Drawings Cash distributions Donations Interest payable on current account Balance at end of year C D Brown Balance at beginning of year Funds introduced Directors salary remuneration Directors fees Less outgoings Drawings Balance at end of year ABC Family Trust Balance at beginning of year Funds introduced Less outgoings Cash distribution Balance at end of year Total shareholders' current accounts Classified as follows: Current assets Current liabilities (299,299) 76,760 (222,539) (463,700) 41,245 (422,455) 29,415 29,415 2,933 (222,539) 11,650 11,650 23,599 (422,455) 23,599 8,749 32,348 35,249 35,249 20,348 20,348 73,827 24,175 24,175 17,646 17,646 26,529 20,000 30,000 94,175 6,821 10,000 25,000 41,821 20,033 5,173 3,982 20,216 49,404 (299,299) 121,366 68,704 550 20,932 211,552 (463,700) (463,700) 76,805 107,000 30,000 (249,895) (357,148) 80,000 25,000 (252,148) 2010 $

References

35

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

2011 $ 21 Loans Loan from director CD Brown Current portion Non-current portion 324,000 174,000 150,000 324,000 350,000 100,000 250,000 350,000 2010 $

References

FRS-9 8.10(b)(iii)

The loan from Director, CD Brown, has an interest rate charge of 3% per annum and is repayable by 31 August 2013. Secured bank loan Current portion Non-current portion 107,496 877,365 984,861 111,832 1,146,659 1,258,491
FRS-9 8.10(e)

The secured bank loan is secured by a floating charge over the assets of the Company and interest is incurred at 7.45% per annum. The maturity date of the loan is 30 November 2018.
FRS-9 8.13

Total current portion Total non-current portion

281,496 1,027,365 1,308,861

211,832 1,396,659 1,608,491

22

Provisions Balance at the beginning of the year Balance at the end of the year Current Non-current 57,669 14,417 43,252 57,669 When the Company commenced trading on 1 February 2006, it entered into a 7-year noncancellable operating lease over premises in Factory Street. As a result of extensive growth, the business has relocated to new premises during the year. The premises in Factory Street have been sublet, but due to market conditions the rental income achieved is much lower than the rental expense being incurred. The net obligation under the lease agreements has been provided for. The liability will be incurred over the next 4 years. FRS-15 11.2(a) FRS-15 11.1 FRS-15 11.1

36

Signpost Limited
Annual Report for the year ended 31 March 2011

Notes to the financial statements

2011 $ 23 Operating lease commitments Lease commitments under non-cancellable operating leases are as follows: Current portion Non-current portion 2010 $

References

SSAP-18 5.17

4,760 29,988 34,748

4,500 33,615 38,115

24

Capital commitments The Company has committed to and contracted for $288,000 (2010:$100,000) of future capital expenditure which has not been accounted for in the financial statements.

FRS-9 8.16

25

Contingencies Litigation is in process against the Company by a competitor disputing the validity of a sales contract with a customer. The competitor is seeking damages of $50,000. The Directors are of the opinion that the Company can successfully defend the claim.

FRS-15 11.3

26

Related parties The Company made a loan to one of the Directors, AB Smith, and received a loan from the other Director, CD Brown. The details of these loans are disclosed in notes 13 and 21. Remuneration of $127,000 (2010: $90,000) has been paid to the shareholders as employees of the Company. Directors fees total $60,000 (2010: $50,000) Transactions with shareholders through the shareholders current accounts are disclosed in note 20. The Company leases property from a trust of which CD Browns children are beneficiaries. The operating lease was entered into on a commercial basis.

SSAP-22 5.1(a),(b)

27

Subsequent events Subsequent to balance date, on 25 May 2011, the Directors declared an additional dividend of $37,500. In accordance with FRS-5 Events After Balance Date, the dividend has not been recognised in the financial statements. Subsequent to balance date market movements have resulted in a $3,000 drop in the market value of shares held in the listed company. As the decrease in value is a non-adjustable event, the decrease in value has not been recognised in this year's financial statements.

FRS-5 5.5,5.6,5.7(b)

FRS-5 5.3, 6.5(a)(b)

37

Appendices
Appendix 1: Statutory information Appendix 2: Differential reporting accounting policies Appendix 3: Supplementary schedules Appendix 4: Financial reporting requirements Appendix 5: ASRB Release 9 Appendix 6: Implementing NZ IFRSs

Page No

39 40 41 42 43 46

38

Appendix 1 Statutory information1

For the year ended 31 March 2011

References

Entries recorded in the Interests Register

Directors' salary remuneration Authorised salary remuneration to Directors for the 2011 financial year was as follows: AB Smith $107,000; CD Brown $20,000. Directors' indemnity and insurance The Company has insured its directors against liabilities to other parties (except to the Company or a related party of the Company) that may arise from their positions as directors. The insurance does not cover liabilities arising from criminal actions. Transactions The Company rents a property from a trust of which CD Browns children are beneficiaries. The rental for 2011 was $17,911 and increases two percent per annum. Loans to and from Directors The Company made a loan to AB Smith, which is secured by a mortgage over her residential property. The loan is repayable by 28 February 2016. The Company also received loans from CD Brown repayable by 31 August 2013. Directors' Fees The directors' fees remuneration for the 2011 financial year was as follows: AB Smith $30,000; CD Brown $30,000. Executive Employees' Remuneration One employee received remuneration in $100,000 to $109,000 bracket during the current year. Donations The Company donated $3,982 to various charitable organisations during the year. Auditors' Remuneration The following amounts were payable to the auditors of the Company KPMG during the year:-$2,500 Audit Fees $3,972 Other services

C93 S 211(1)(e)

C93 S211(1)(f),(i)

C93 S211(1)(g)

C93 S211(1)(h)

C93 S211(1)(j)

Note 1 In preparing the annual report of Signpost Limited it has been assumed that a unanimous shareholder resolution was passed in accordance with section 211(3) of the Companies Act 1993. This allows an entity to gain an exemption from paragraphs (a) and (e) to (j) of section 211(1) of this Act. The above is an example of the disclosure requirements required by section 211, assuming the section 211(3) resolution has not been passed.

39

Appendix 2 Differential reporting accounting policies

FRS-1 requires entities qualifying for differential reporting to disclose an accounting policy that states the following: the criteria that establishes the entity as a qualifying entity for differential reporting; either: the entity has taken advantage of all differential reporting exemptions; financial reporting standards where the entity base not take advantage of differential reporting exemptions; or financial reporting standards where differential reporting exemptions have been applied. In complying with the requirements of FRS-1, we also recommend that the entity briefly explains what differential reporting is. The following are alternatives to note (A) of the accounting policies adopted by Signpost Limited regarding the criteria for qualifying for differential reporting exemptions under the Framework for Differential Reporting. Accounting policies - Differential Reporting
Alternative 1

The Company is a qualifying entity by virtue of the fact that it has no public accountability and is small as defined by the Framework for Differential Reporting. All available differential reporting exemptions allowed under the Framework for Differential Reporting have been adopted except for (state the FRS or SSAP for which the differential reporting exemption has not been taken).
Alternative 2

The Company is a qualifying entity by virtue of the fact that is has no public accountability and is small as defined by the Framework for Differential Reporting. Differential reporting exemptions have been applied in relation to: FRS-4 Accounting for Inventories FRS-10 Statement of Cash Flows SSAP-12 Accounting for Income Tax SSAP-22 Related Party Transactions

40

Appendix 3 Supplementary schedules

The following supplementary schedules can accompany a set of financial statements and may represent useful financial information for stakeholders and other user of the financial statements.

Statement of Sources and Application of Cash Statement of Property, Plant & Equipment
However, they are not specifically required by any of the financial reporting standards and are not necessarily attached as an integral part of a usual set of financial statements. The content and format of these supplementary schedules can vary between reporting entities and therefore sample statements have not been included in this publication.

41

Appendix 4 Financial reporting requirements

General purpose financial statements are financial statements provided to meet the information needs of external users who are unable to require, or contract for, the preparation of special reports to meet their specific information needs. It is generally accepted that general purpose financial statements are prepared and presented in accordance with GAAP. Special purpose financial statements are tailored to meet the specific information needs of a particular person, group of people or organisation. Such users can specify the accounting policies to be applied, the format of the financial statements and other material to be included in a special purpose financial report. If an entity has no obligation to present general purpose financial statements in accordance with GAAP, and all the members of the entity are in agreement, it may be appropriate to prepare special purpose financial statements. There is no requirement for special purpose financial statements to comply with GAAP. Rather, any special purpose financial statements should specify the accounting policies applied in preparing the financial statements. All companies must prepare financial statements that meet the requirements of the Financial Reporting Act 1993. Unless they qualify as an exempt company, companies are required to prepare financial statements in accordance with GAAP, as defined by the Act (FRA, section 3). FRA, Section 12 requires an exempt company to prepare financial statements that are in the form prescribed by the Governor-General by Order of Council. Other entities may not be governed by legislation that specifies that the financial statements must be prepared in accordance with GAAP. In this situation, the entities should consider whether there are any relevant requirements in their founding documents e.g. the constitution. If the constitution is silent, the entities will need to decide whether to prepare GAAP compliant financial statements. The requirement to prepare general purpose financial reports and adherence to GAAP is a question to be answered on a case by case basis. The reporting entities that have to comply with GAAP need to consider the standards that are generally developed by the New Zealand Institute of Chartered Accountants and approved by the ASRB. These standards are either: the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) ; or if an entity can defer adoption of NZ IFRS, the Financial Reporting Standards (FRS) and Statement of Standard Accounting Practice (SSAP) that were developed pre-2003. The flowchart below describes the possible financial reporting requirements.

42

Appendix 5 ASRB Release 9

ISSUED SEPTEMBER 2007

Delay of the Mandatory Adoption of New Zealand Equivalents to International Financial Reporting Standards for Certain Small Entities
Issued by the Accounting Standards Review Board

INTRODUCTION
1 In December 2002, the Accounting Standards Review Board (the Board) announced that it had decided that New Zealand entities would be required to apply International Financial Reporting Standards (IFRSs), issued by the International Accounting Standards Board (IASB), for periods commencing on or after 1 January 2007. Early adoption is permitted for periods commencing on or after 1 January 2005. Many countries around the world, including Australia and the European Union, have also adopted IFRSs or are in the process of doing so. Since that announcement, the Board has reviewed and approved the New Zealand equivalents to IFRSs (NZ IFRSs), developed by the Financial Reporting Standards Board (FRSB) of the New Zealand Institute of Chartered Accountants, in accordance with procedures outlined in ASRB Release 8 The Role of the Accounting Standards Review Board and the Nature of Approved Financial Reporting Standards. To date in New Zealand, NZ IFRSs have largely been adopted by large issuers, subsidiaries of overseas companies complying with IFRSs and the public sector. Generally, small entities have yet to begin the process of adopting NZ IFRSs. In the meantime, the applicability of IFRSs to small entities has been the subject of significant debate: internationally, with the IASBs publication of an Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities; in Australia, with revisions to the financial reporting regime for small proprietary companies; and in New Zealand, with the extensive consultation meetings recently conducted by the FRSB on financial reporting by small and medium-sized entities. In addition, in September 2007, the Minister of Commerce advised the ASRB and FRSB that a government review of the financial reporting requirements applying to small and medium-sized companies under the Financial Reporting Act 1993 will commence in mid-2010. As a consequence, the Board has decided that the mandatory adoption of NZ IFRSs should be delayed for certain small entities that meet specified criteria. The purpose of the Release is to announce the Boards decision and to further explain the reasons for that decision.

REVIEW OF THE REPORTING REQUIREMENTS FOR SMALL AND MEDIUM-SIZED COMPANIES

6 The Financial Reporting Act 1993 (the Act) requires companies, other than exempt companies, to prepare financial statements that comply with generally accepted accounting practice (GAAP). To comply with GAAP, as defined by the Act, those financial statements must comply with applicable financial reporting standards. As noted in paragraph 4 above, the Minister of Commerce has advised the ASRB and FRSB that a review of the financial reporting requirements applying to small and medium-sized companies under the Act will be commencing in mid-2010. One issue that this review may well consider is whether New Zealand should adopt a similar financial reporting regime as currently exists in Australia for small and medium-sized companies. Under the Australian Corporations Act 2001, small proprietary companies are not required to prepare financial statements, unless directed to do so.1 Recently, the size thresholds to qualify as a small proprietary company were substantially increased.2

7 8

43

One possible outcome of the review could be that many small and medium-sized companies would no longer have a legislative requirement to prepare GAAP-compliant financial statements. This possibility calls into question whether these companies should be required to adopt NZ IFRSs now. Of particular concern are those companies that currently prepare GAAP-compliant financial statements solely because of the legislative requirement to do so. If that requirement were to be removed in a few years time, the costs of changing from existing financial reporting standards to NZ IFRSs now are likely to outweigh the benefits. Therefore, the Board decided that the mandatory adoption of NZ IFRSs should be delayed for certain small companies that meet specified criteria.

10

ASRB DECISION
11 The Board has decided that companies, which satisfy all of the following criteria, are permitted to continue to apply the existing approved New Zealand Financial Reporting Standards (FRSs) and, therefore, are not required to apply NZ IFRSs for periods beginning on or after 1 January 2007, until further notice: (a) The company is not an issuer, as defined by the Act, in either the current or preceding accounting period; (b) The company is not required by section 19 of the Act to file its financial statements with the Registrar of Companies3; and (c) The company is not large, as defined by section 19A4 of the Act. 12 Companies that are required to prepare financial statements in accordance with GAAP and that meet the above criteria will continue to have a choice between two sets of standards, the existing FRSs or NZ IFRSs.

ANNOUNCEMENT OF APPLICATION DATE OF NZ IFRSs

13 When the government review is completed, it will be established which, if any, of the companies affected by the above decision will continue to have a legislative requirement to prepare financial statements that comply with GAAP. At that time, the Board intends to determine the date upon which any such companies will be required to adopt NZ IFRSs. Furthermore, the Board intends that there will be a minimum of one year between the date of the announcement of that decision and the earliest mandatory date of transition to NZ IFRSs. However, the Boards intentions set out in paragraph 13 are subject to the government review being completed within a reasonable period of time. The existing Financial Reporting Standards are not being maintained and, therefore, there may become a point when continuing to apply those standards is no longer appropriate.

14

EFFECT ON OTHER TYPES OF ENTITIES

15 The Board is responsible for reviewing and, if it thinks fit, approving financial reporting standards submitted to it for application to the financial statements of entities subject to the Act. These entities include issuers, companies, local authorities, crown entities, state sector bodies and any other entity that is required by another enactment to comply with the Act as if it were a reporting entity. For entities subject to the Act, the delay of the mandatory adoption of NZ IFRSs applies only to companies that meet the criteria in paragraph 11. Hence, all entities subject to the Act, other than exempt companies and companies that meet the criteria in paragraph 11, will be required to adopt NZ IFRSs for periods beginning on or after 1 January 2007. In addition to entities subject to the Act, there also are many other types of entities that are not subject to the Act. Examples include sole traders, partnerships, trusts, charities, clubs, societies and associations. Some of these other types of entities may be required to (e.g. by requirements established in their founding documents or in contractual arrangements with third parties), or choose to, prepare general purpose financial statements in accordance with GAAP. Although the Board has no statutory mandate over these entities, the Board is conscious that its decisions affect these entities, through its role in approving financial reporting standards. The Board is aware also that the Ministry of Economic Development (MED) is considering the financial reporting regime for charities. It is not yet known what the outcome of this work will be, nor when any legislative change in the financial reporting requirements for charities would come into effect. However, one possible outcome of this work is that, as with companies, some small charities that currently prepare GAAP-compliant financial statements may no longer need to do so in a few years time. If that were to occur, it calls into question the benefits of adopting NZ IFRSs now. Therefore, the Board supports the proposals of the FRSB to extend the delay of the mandatory adoption of NZ IFRSs to other small entities, as explained below.

16

17

44

18

The New Zealand Preface, issued by the FRSB, explains the meaning of GAAP for entities that are not subject to the Act and that prepare general purpose financial statements. The Board understands that, as a consequence of the Boards decision to delay the mandatory adoption of NZ IFRSs for some companies, the FRSB has decided that the mandatory adoption of NZ IFRSs also will be delayed for some other entities that are not subject to the Act and that prepare general purpose financial statements. Specifically, the FRSB has decided that this delay will apply to entities that are not publicly accountable and are not large, as defined in the Framework for Differential Reporting. The Board understands that the New Zealand Preface will be amended to reflect the decisions of the Board and the FRSB.

Warwick E. Hunt Chairman Accounting Standards Review Board September 2007

Notes
1) 2) Such a company may be directed to prepare financial statements by shareholders with at least five percent of the votes (under section 293 of the Corporations Act 2001) or by the Australian Securities and Investments Commission (under section 294). A proprietary company is a small proprietary company for a financial year if it satisfies at least two of the following thresholds: the consolidated gross operating revenue for the financial year of the company and the entities it controls (if any) is less than A$25 million; the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is less than A$12.5 million; the company and the entities it controls (if any) have fewer than 50 employees at the end of the financial year. In general, section 19 of the Act requires a company to file its financial statements if it is: an overseas company or a subsidiary of an overseas company; or large and 25% of its voting power is held by overseas shareholders (entities or individuals). A company is defined as large if it meets any two of the following three size thresholds: as at balance date, the total assets (including intangible assets) of the company and its subsidiaries (if any) exceeds $10 million; the total turnover of the company and its subsidiaries (if any) exceeds $20 million; as at balance date, the company and its subsidiaries (if any) have 50 or more full-time equivalent employees.

3)

4)

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Appendix 6 Implementing NZ IFRS's

Implementing NZ IFRSs Preparation and planning makes it easy!
When you first report under NZ IFRSs, your financial report must comply with it fully (or as applicable under the Differential Reporting Framework). Generally this will include: Two statements of comprehensive income covering the current and comparative periods Two statements of cash flows (if required) covering the current and comparative periods Three statements of financial position covering: The end of the current period The end of the comparative period The start of the comparative period Entities are advised to conduct a detailed review to understand the impact that the adoption of NZ IFRSs may have on their financial statements, reportable results, and on the current financial systems and processes used.

Non financial impacts that entities must consider on implementing NZ IFRSs

In general entities have to comply with new standards, and increased disclosures under the NZ IFRS regime, additional related party disclosures are required under NZ IAS 24, and new standards such as Revenue (NZ IAS 18), Intangible Assets (NZ IAS 38), Impairment of Assets (NZ IAS 36), and Financial Instruments (NZ IAS 32 and NZ IAS 39) to name a few, need to be adhered to. Besides impacts on financial statements, entities must also consider non-financial impacts to their business operations, for example: Impact on systems Disclosure of cost of sales, and expenses by either function or nature of expenses is now required, entities may have to change the manner in which various expenses are classified and captured by financial systems so that appropriate disclosures can be made in accordance with NZ IFRSs. In addition most New Zealand entities are well acquainted with foreign currency and hedging products, such as forward contracts, interest and currency swaps. Entities may need to use new tools or update their current financial system capability in order to track, account for, and recognise fair value changes for these products. Managerial bonuses and other remunerative options Entities need to consider the impact of implementing NZ IFRSs to performance based bonus schemes, as profits presented under NZ IFRSs may be significantly different from those calculated under current FRSs/SSAPs. Moreover liabilities for share-based options provided to employees needs recognition under NZ IFRS 2, this represents a significant change as previously these were accounted for on a cash basis. Impact on bank covenants The implementation of NZ IFRSs may increase or decrease the value of assets and liabilities presented in the balance sheet, entities need to consider if this impacts any existing bank covenants.

KPMG implementation tools and NZ IFRS specialists

KPMGs methodology and tools are based around a four-phased conversion process that covers raising awareness of NZ IFRS within your organisation, assessing the likely impacts of NZ IFRS, and designing and implementing the accounting systems, processes and communication changes needed to achieve successful conversion. Our specialist Accounting Advisory Services team in New Zealand provides: A framework and technology for working through a conversion to NZ IFRS thats already been proven. The benefit of access to the decisions made by others in your position in New Zealand and around the world. Access, right here in New Zealand, to specialist NZ IFRS project management skills, NZ IFRS technical expertise, and NZ IFRS training skills.

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