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A bold long term tax strategy is a key driver to solving New Zealand’s infrastructure woes. Murray Brewer analyses Budget 2024 to see if the Government delivered the fresh thinking needed to achieve future success instead short term cost savings.

Major public sector agencies have been instrumental in driving lasting benefit through strategic procurement and broader outcomes. Think hydro dams, railways and hospitals built by the previous generation. This approach has lifted the quality and resilience of public services, the capability of a range of suppliers and also set a precedent for addressing the burgeoning issue of infrastructure technical debt.

Our research into current internal audit (IA) environment throughout New Zealand’s public sector explores how leaders from a range of agencies are navigating the skills squeeze, budgetary bottlenecks, and their progress with IA innovation.

Grant Thornton New Zealand’s latest survey of over 200 business leaders and decision makers has revealed a significant uptick in optimism for the coming year despite many toughing it out in current economic conditions.

You know you can’t work forever – and you certainly aren’t immortal. But plenty of business owners are living as though they’re completely infallible.

It’s free, it’s easy, and it will immediately start saving you time. E-invoicing is a fantastic tool for any business. Plus, it could protect you from being scammed out of significant sums of money.

There’s new GST legislation in place for online marketplaces, which includes short-term accommodation platforms like Airbnb, ride-sharing platforms like Uber and delivery services like Uber Eats. These online platforms must now collect 15% GST and return it to Inland Revenue. This ‘app tax’ came into effect on 1 April 2024, and it’s already having an impact on the market.

The success of an acquisition largely hinges on the price paid relative to the value received. To ensure success, it’s crucial to gain a comprehensive view of not only the quality of earnings of a business but also the quality of the reporting itself. If you’re an investor performing due diligence, here are five key considerations about the quality of the target’s financial reporting.

The External Reporting Board (XRB) has released updated reporting thresholds for public benefit entities (PBEs): Tier Old criteria New criteria Tier 1* Total expenses greater than $30m Total expenses greater than $33m Tier 2 Total expenses less than $30m Total expenses less than $33m Tier 3 Total expenses less than $2m Total expenses less than $5m Tier 4 Total operating payments $140,000 No change *Note; an entity is also required to apply Tier 1 if it has “public accountability”. This decision is welcome as many PBE entities will see a reduction in reporting requirements and compliance costs. These thresholds have not been updated since 2012; in that time, various new pieces of legislation have been introduced and inflation has pushed many entities from Tier 3 to Tier 2 reporting without becoming any larger or more complex. Several new PBE standards have also been issued over the last decade, causing concerns that the costs of reporting exceeded the benefit to users under the previous size thresholds. Research by the XRB on the expenditure of PBE entities shows there is substantially less clustering around the $5 million threshold, compared to the $2 million threshold. In total there are 33 entities with total expenditure between $4.8 million and $5.2 million, while there are 115 entities with total expenditure between $2.8 million and $3.2 million. When does this change apply? The new thresholds are mandatory for periods beginning after 28 March 2024, which impacts 31 March 2025 balance dates onward. However, the change can be applied for periods that end after the standard takes effect (28 March), so those preparing reports for 31 March 2024 balance dates onward are also eligible. This news is timely for Incorporated Societies applying XRB PBE reporting standards for the first time under the Incorporated Societies Act 2022, as more Incorporated Societies will also now have lower reporting requirements. Determining your expenditure Total expenses for the purpose of determining a reporting threshold include all of an entity’s operating expenditure. This includes grants or donations made by an entity, but does not include capital expenditure (assets) or loan payments. How does it work in practice? If you now find yourself eligible to apply a lower reporting tier due to this change, it can be implemented immediately. However, you need to consider future expenditure as you may end up transitioning back quickly if this grows year on year. It’s also important to think about consolidation requirements if your entity sits within a group, so that a change in reporting tier at the entity level doesn’t interfere with group reporting. PBEs can apply requirements of a higher tier if they want to, so if you are happy to stay at the current reporting tier – that’s fine. For example, we have seen this with recently established PBEs that knew they would exceed the previous $2m expenditure threshold in future years, so they start by adopting Tier 2 rather than waiting until they hit the threshold. If your PBE previously applied Tier 1 requirements and you are transitioning to Tier 2 requirements due to your expenditure, the recognition and measurement accounting policies will remain the same, but there will be less disclosure requirements in the notes to the financial statements. Tier 2 and Tier 3 reporting requirements have some differences, mainly around presentation of revenue and expenses, and accounting for property, plant and equipment, investment property and publicly traded financial investments. Entities that previously applied Tier 2 requirements and are transitioning to Tier 3 can choose to either provide comparative data in accordance with Tier 2 requirements (i.e., leave it as it was) or restate them in line with Tier 3. If your entity is thinking about transitioning reporting tiers, start engaging in the process early so you can navigate this transition which can be deceptively complex at times.

There’s been a period of relative calm in the world of accounting standards in recent years, however they quietly continue to evolve and reflect the dynamic nature of business, and the need for transparency and accuracy in financial reporting. Recently, several important changes have been made to New Zealand equivalents to International Accounting Standards (NZ IAS) to make financial statements clearer, comparable and relevant. Key updates have been made to: 1. material accounting policies for year ends from 31 December 2023 onward 2. accounting for estimates for year ends from 31 December 2023 onward 3. the presentation of current and non-current liabilities for year ends from 31 December 2024 onward Understanding the implications and significance for your business Changes to NZ IAS 1: Disclosure of material accounting policies A shift from the significant to the material The amendment to NZ IAS 1 emphasises the disclosure of material accounting policies. It requires entities to make material accounting policies prominent and easily accessible within financial statements. Previously, businesses were only required to disclose their significant accounting policies. The move to releasing material accounting polices was made to reflect the fact that term and its application is described in detail in accounting standards, where the term significant is not. How will this benefit my organisation and its stakeholders? Transparent disclosure of accounting policies is crucial for stakeholders to comprehend how financial information is prepared and to assess the reliability of financial statements. By explicitly stating material accounting policies, companies provide clarity on significant judgments and assumptions applied in financial reporting, enhancing the overall transparency, trustworthiness and comparability of financial statements for different entities. Investors and other stakeholders can make more informed decisions when they have a clearer understanding of the underlying principles and methodologies used in financial reporting. It encourages companies to critically evaluate their accounting policies, ensuring they accurately reflect the economic substance of transactions and events. Businesses are encouraged to review the significant accounting polices previously disclosed to determine how they stack up against the new guidance to disclose material accounting policies. Changes to NZ IAS 8: Accounting for Estimates More consistency and reliability on the horizon The revision to NZ IAS 8 addresses the accounting for estimates, emphasising the need for consistency and reliability when estimating uncertain future outcomes. Over time, a change in accounting estimates has become confused with a change in accounting policy. The amendment replaces the definition for a change in accounting estimate with the definition for an accounting estimate as monetary amounts that are subject to measurement uncertainty. Enhance the usefulness of your financial statements … Estimates play a crucial role in financial reporting, particularly in areas such as fair value measurements, provisions, and impairment assessments. Ensuring the reliability and consistency of estimates turns your financial statements into a tool stakeholders can use to assess the potential impact of uncertainties on an entity's financial position and performance. … And mitigate risk The revised standard prompts companies to exercise greater diligence and transparency when making and disclosing estimates. By providing insight into significant judgments and uncertainties, you can mitigate the risk of misinterpretation and enhance stakeholder confidence in the reliability of your financial information. Additionally, it encourages robust internal controls and processes for estimating, monitoring, and disclosing uncertainties, all of which improves risk management practices. Changes to NZ IAS 1: Presentation of Current and Non-current Liabilities What is changing? The amendment to NZ IAS 1 focuses on the presentation of current and non-current liabilities, requiring a liability to be classified as current if, among others, the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. The amendments to NZ IAS 1 clarify that the right to defer settlement must have substance, and it also discusses the impact of covenants on this assessment. Why is this important? Clearly presenting your current and non-current liabilities makes your liquidity and solvency position easier to understand. By segregating liabilities based on their maturity, financial statements provide valuable insights into an entity's short-term obligations and its ability to meet them, which helps stakeholders assess liquidity risk and financial health. The amendments state that at the reporting date, instead of considering covenants that will need to be complied with in the future, when considering the classification of the debt as current or non-current, the entity should disclose information about these covenants in the notes to the financial statements. The standard setter introduced these so investors can understand the risk that such debt could become repayable early and therefore improving the information being provided on the long-term debt. What is the impact on my business? The revised standard prompts entities to reassess their classification of liabilities, ensuring compliance with the new presentation requirements. By clearly delineating between current and non-current liabilities, businesses enhance the clarity and relevance of financial statements, enabling stakeholders to make more informed assessments of an entity's financial position and performance. It underscores the importance of effective liquidity management and strategic planning to meet short-term obligations and sustain long-term growth. What’s next? After a period of relative calm, we are expecting to see a minimum of two new accounting standards over the coming year. The first, IFRS 18, will impact the representation and disclosures of primary financial statements. Key changes include: • new required subtotals included in the statement of profit or loss such as operating profit, profit before financing and income taxes, • disclosures around management-defined performance measures (MPMs), and • enhanced requirements for aggregation and disaggregation (i.e., grouping of information). It is important to note that IFRS 18 is subject to consultation before the standard is adopted in New Zealand. We are also anticipating a new standard outlining disclosure requirements for subsidiary, and potentially other entities, who do not have obligations to produce financial statements. When and how this standard might be applied in New Zealand will be subject to XRB consultation.

When you take a sip from a 330ml bottle of Speight’s Gold Medal Ale, you probably don’t consider the 47c in excise tax that was included in the price. And why would you? It would only take the fun out of having a nice cold beer. Unfortunately, if you run an alcohol business in New Zealand, you don’t have the luxury of forgetting about excise taxes. These have risen rapidly in recent years because they are benchmarked to consumer inflation. The rise over the last three years in the consumer price index to as high as 7%, has meant more than $94 million in additional excise tax for the alcohol industry. On top of that, the industry has had to absorb rising ingredient and packaging costs, skills shortages, falling sales and higher interest rates. It’s tough going for our alcohol manufacturers and distributors, many of whom are small privately owned and family businesses. While this is an area of tax legislation that might only affect a small number of businesses, it has a sizeable impact. It’s a challenge to be accurate and compliant, particularly for the smaller craft producers that make up around 10% of our local market. These inaccuracies are an under-recognised issue - get it wrong, and it can be extremely costly. Overpaying could lead to significant unnecessary costs Producers must record alcohol volumes accurately, have correct sales records, and lodge that data by the deadlines set by the New Zealand Customs Service. Because brewing is an art and a science, the level of accuracy required can be tricky to achieve. It’s not uncommon to see brewers make tiny errors that lead to big consequences, and the last thing anyone wants is to be facing thousands of dollars a month in unnecessary tax. It’s also easier to make errors at a smaller craft operation, because it’s less industrialised when compared to the big players like Speight’s or Heineken. Take, for example, a fictitious beer manufacturer – let’s call it Bottle Brewery. One of its best-selling beers is a light lager that should have 4% alcohol by volume (ABV). Unfortunately, the team at Bottle Brewery isn’t equipped to be 100% accurate with its calculation and processes. As a result, its light lager has been leaving the brewery with an ABV of 4.08%. That might sound like nothing more than a rounding error, but it’s just enough to increase the excise tax on the beer. The corresponding increase gets applied across the stock keeping unit (SKU) based on sales per month, and the light lager is selling well, shifting 100,000 units in a month. Applying the additional excise tax adds an extra $2,800 per month for that alcohol SKU alone. Plus, the Bottle Brewery team is a bit slow at filing its returns. With that late fine, and the extra excise tax, the company is unnecessarily paying $3,600 a month. Hopefully Botte Brewery has been more accurate with its other beers or its taxes could be really adding up. Underpaying can be a nasty shock When you’re underpaying tax, you run the risk of an unpleasant shock when you need to backpay the outstanding amounts. Customs carries out regular inspections of New Zealand’s alcohol businesses, walking through production facilities to see how you’re recording your alcohol volumes, checking your systems, and inspecting your reports and declarations. Inspectors will look at everything, even checking to see whether you have alcohol sitting in unlicenced areas of your property – you may need to pay excise tax on it if that’s the case. At a time when niche brewers have been struggling to stay afloat, investing in getting this right is well worth the effort – because the costs of getting it wrong can be disastrous. If Bottle Brewery has been paying its excise tax assuming its light lager is 4%, but Customs discovers it is actually 4.08%, the business may be on the hook for several months of backdated taxes. This could be a considerable cashflow blow for a small brewery that’s already feeling the headwinds of tough economic conditions. It may even face penalties for mistakes or omissions, on top of any tax owed. If Customs decides to do a full audit, that will also take up extra time and resources they can’t afford. Customs is very responsive and helpful, and they do have options under the legislation to remit penalties and offer time to pay arrangements. However, they don’t always have the ability or appetite to offer lenient repayment options, and outstanding excise tax and penalties may need to be paid. The right systems and processes can save you time and money Most breweries use spreadsheets to track their sales and alcohol volumes. Academic research has found that an estimated 94% of spreadsheets contain errors, which shouldn’t fill anyone with confidence. Breweries need to develop and maintain a laser focus on improving the quality of their data, and developing models that help them improve accuracy and file returns on time. Typically this investment quickly pays for itself, often simply by avoiding late filing fees. Improving systems and processes often leads to other increased efficiencies throughout the business, including better stock storage practices and more precise forecasting. When it comes to excise tax reporting, a millilitre of prevention is worth a fermenter full of cure.

Grant Thornton’s latest report, "Pathways to Parity: 20 Years of Women in Business Insights ", marks two decades of dedicated research aimed at monitoring and measuring the representation of women in senior management roles within mid-market companies worldwide.

This publication is designed to give preparers of IFRS financial statements a high-level awareness of recent changes to International Financial Reporting Standards. It covers both new Standards and Interpretations that have been issued and amendments made to existing ones.

With hopes Covid is now somewhat in the rearview mirror, the pace of change in the transfer pricing space has not slowed down. The OECD continues to drive the base erosion profit shifting (BEPS) programme to minimise tax competition among jurisdictions and ensure multinationals pay their fair share. However, the effectiveness of the programme’s final stages depends on the willingness of countries to implement and enforce these rules consistently. It remains to be seen how tax authorities worldwide will adapt to these changes and if a new era of cooperation will indeed emerge in the global tax landscape. However, with economies around the world still in or coming out of recession, there are questions around whether the 142 countries that have signed up to the BEPS framework remain committed to such a unified approach, or if there will be a shift to a ‘every jurisdiction for themselves’ mentality. As some economists have indicated, there are signs certain economies are shifting away from a focus on globalisation to looking inward and more national economic protectionism. What does this mean for New Zealand-based multinationals? There seems to be a stand-off between countries waiting to see who will jump first. In the meantime, some have implemented the needed regulations, while others – like New Zealand - have also hedged their bets and have legislation waiting as a backup, as demonstrated by the introduction of the digital services tax laws brought in by the Labour Government. The current National-led Government is yet to confirm if this will remain, be repealed, changed or trumpeted, but it has increased resources for Inland Revenue to expand its audit capacity, minimise taxation losses and ensure greater integrity and fairness in our tax system. And it’s likely there will be heightened proactivity in this space so the Government can collect the extra revenue needed to deliver on its election policies. This means change for multinationals could be on the way, and transfer pricing rules may be an area in which Inland Revenue increases audit activity; this may also not be limited to the tax authority of New Zealand but others around the world. The key for potentially affected Kiwi businesses will be to: · review their New Zealand and global transfer pricing policies to ensure they remain fit for purpose · establish suitable governance to implement these policies appropriately · keep management up to date with changes in the transfer pricing space. Countries will be weighing up the benefits of a unified approach against the temptation of self-interest, while businesses grapple with economic uncertainties and transfer pricing rules which will continue to change. As New Zealand and other countries await international unification, internal pressures will continue to mount, setting the stage for a complex interplay between economic recovery, taxation, and the delicate dance of international relations.

The world of cryptocurrency saw more controversy this year with NFT markets collapsing, Sam Bankman-Fried being found guilty of a range of charges that could land him in prison for over 115 years, and Binance - the world’s largest exchange - agreeing to one of the biggest settlements in US history after violating anti-money laws and sanctions violations, by allowing terrorist groups to trade on its platform. And so cryptocurrency’s renaissance begins … Despite all the negativity, most cryptocurrency markets are up year on year in terms of price appreciation. This could be for a variety of reasons - speculation, artificial unregulated markets, or the maturity of the cryptocurrency industry increasing the confidence in the underlying asset. One element fuelling the fire of cryptocurrency markets is institutions looking to create financial products that allow traditional investors to get a piece of the virtual currency pie. Some of these include cryptocurrency spot exchange-traded funds (ETFs) or even the ability to gain crypto exposure in KiwiSaver. A cryptocurrency spot ETF is a type of investment fund designed to directly track the price of digital currencies like Bitcoin for example. It is a regulated and stock exchange-traded product, which means it is subject to oversight by regulatory authorities. In the U.S. this is the Securities and Exchange Commission (SEC), and would be the Financial Markets authority (FMA) if such a product was ever to launch on the NZX. Spot ETFs are typically structured to hold actual cryptocurrency, and investors buy and sell shares of the ETF which should mimic the spot prices of the cryptocurrency. Other opportunities already exist for New Zealand investors with the highest-performing KiwiSaver in terms of short-term (last 12 months) returns through Kouras’s Carbon Neutral Cryptocurrency Fund, with a one-year return of 66.52%. This fund invests in institutional investments that have direct bitcoin exposure. Allowing KiwiSaver investors to put up to 10% of their portfolio into this. It is definitely for those with a more aggressive growth strategy with the fund's Statement of Investment Policy and Objectives (SIPO) outlining the fund “is only appropriate for investors that have a very long investment horizon and who are willing and able to withstand significant volatility. The Fund is expected to deliver a 50% loss every 1-2 years.” While these developments demonstrate how the industry is maturing, this evolution contradicts the founding principle of cryptocurrency: decentralisation. Bitcoin and other digital currencies were never intended to become investment assets sold on a stock exchange, unlike these newer products which rely on centralised institutions controlling and holding large amounts of cryptocurrency. It’s time to start regulating the renaissance All of this points to a growing imperative for regulatory intervention. A hybrid strategy is being explored by The Reserve Bank of New Zealand (RBNZ) to impose regulations on products that inherently have a lack of regulatory oversight. It has proposed a regulatory approach for the opportunities and challenges of new forms of private money like crypto assets. Having experienced the challenges of a deregulated market during our work liquidating failed exchanges like Cryptopia and our views about stablecoins (a type of cryptocurrency), Grant Thornton New Zealand submitted an alternative approach in a submission to RBNZ. Our perspectives recognise the potential significance to private money that stablecoins could have in the current financial landscape. Having seen the wild west of cryptocurrency, we remain advocates of the potential benefits of Distributed Ledger Technology (DLT) to revolutionise the financial industry. To advance products based on this technology, there is a need for robust regulation and risk management to protect New Zealand's monetary sovereignty, and to maintain trust in the global monetary system. Given the global nature of cryptocurrency, we believe that a coordinated, international approach is necessary to effectively address these risks. On 30 June 2023, RBNZ published the outcome of its public consultation. The submissions reinforced RBNZ’s view that there are significant risks and opportunities with treating virtual assets as money. They have now decided against proposing a regulatory response at this point in time. Another reason outlined for taking a cautious approach lies in regulatory developments globally. There is likely to be real advantages to aligning crypto asset regulation throughout the world. As various overseas regimes are implemented, best practice for regulating crypto assets may become clearer. This was reflected in our submission which stated the limited adoption of these new forms of private money including cryptocurrency means it is too early to develop a robust and futureproof approach to capture all potential risks associated with a new form of private money. The UK is signalling they intend to regulate crypto activities in 2024 through formal legislation. Australia is currently running a consultation process for making crypto exchanges and digital asset platforms subject to its existing financial services laws; this will require platform operators to obtain an Australian Financial Services Licence. These developments mean the RBNZ may be forced to change tactics and follow global changes. In the meantime, we will have to see what 2024 brings in the world of cryptocurrency.

Too few New Zealand businesses are making good use of advisory boards. Used effectively and with the right people involved, an advisory board can solve problems, fill knowledge gaps and help to maximise growth and profits. In a complex and volatile business environment, advisory boards can help steer your business through choppy waters. Executive teams are increasingly faced with problems that fall outside their day-to-day areas of expertise, and advisory boards provide independent advice about how to navigate tricky times. What makes an advisory board unique? Many large businesses have a full constitutional board, which has decision-making power for the company. The members of a traditional constitutional board have fiduciary responsibilities, and their role tends to focus on compliance, risk management, and monitoring business performance. If they work on problem solving or growth strategies, it’s typically from a top-level strategic perspective. Risk minimisation is a priority. In contrast, an advisory board has no decision-making power and the members don’t have the same duties as the full board members. Its focus tends to be on maximising profits and growth, solving problems, and acting as a sounding board – sometimes down to quite detailed levels of execution. Advisory board members often identify market opportunities and provide network links that can support the company’s expansion. The priority is capitalising on opportunities and how to iron out problems. An advisory board provides suggestions, observations and ideas to those making the day-to-day decisions about the company. Those decision-makers can then decide whether or not to act on that advice. The advisory board is both an alternative to the traditional constitutional board and a complement, so you can have one without the other or both. We know advisory boards can be effective Research about advisory boards demonstrates their effectiveness: A survey of businesses leaders found 95.7% believed their advisory board added “real value” to their business, according to The Alternative Board. Advisory boards help businesses avoid costly mistakes; broaden knowledge and skills; and provide a sounding board; among other benefits, according to research by the Business Development Bank of Canada. A Columbia University study revealed advisory boards help organisations “remain innovative and at the forefront of their industry”, and found although board members’ experiences of past failures didn’t prevent all failures, it did minimise the probability of failure. Another US study found an inter-professional advisory board can broaden perspectives within an organisation and lead to new insights. Does your company need an advisory board? An advisory board certainly isn’t a requirement for every business. First, the company needs to have reached a certain size. Beyond that, your business could benefit from an advisory board if: your it is growing or looking to grow you want to raise funds you’re aiming to build strategic partnerships the business is facing a major change of direction, with new products or expansion into new markets the owners of the business are in the process of succession planning the business is, or soon will be, for sale. An advisory board will raise the level of strategic conversation, and it can be the difference between business as usual and an extremely valuable, highly saleable organisation. Building an advisory board You don’t need to launch an advisory board in a single push. It can begin with a single advisor – perhaps your lawyer or accountant. Alternatively it might be someone who knows the market you’re considering moving into for instance, or a person who understands the specific staffing challenges you’re facing. From there, you can build an alternative advisory board. It might include a key person from within the business, possibly the managing director, chief executive or owner. Ideally you want an independent chair with two or three external advisors. Members of your advisory board should be carefully selected to ensure they have the right skills. Identify areas where your company lacks knowledge – for example, it might be insights into a particular country, marketing campaigns, or recruitment. As the company grows, the informal advisory board can move to a more formal set-up. This means having a board charter, rules for the board members and a code of conduct. It’s vital members clearly understand their own role, and everyone else’s roles on the board and within the business. Ultimately, depending on the size and complexity of the business, you may need to establish a constitutional board in time, to ensure the company meets its regulatory and compliance requirements. Even then, having an advisory board means you can continue to have those valuable conversations about how to grow the business and solve thorny issues. Advisory boards are an investment in your company Maintaining an advisory board isn’t free, but it’s a genuine investment in the business. With independent advice, the leadership team can gain a different perspective on an issue. For example, one of our clients owned a company that had been highly successful and grown rapidly, before hitting head winds. It was clear some difficult decisions had to be made but downsizing can feel like you are failing. The process was nerve-wracking for the owners. It was with the support of the advisory board the client was able to make a long-term plan, put the downsizing into perspective, and make the tough choices. Now the business is well set up to survive the tough times and will be ready to grow again when the market picks up. Usually, though, it’s not during a quantum shift that an advisory board proves its worth. It’s an accumulation of small changes. One client is currently leveraging their advisory board to help develop their management team’s effectiveness; to clarify their purpose and vision; and to identify strengths within the business. An advisory board is the ideal forum to explore opportunities, problem solve, and seek counsel. It’s a way for a business to invest in its future and improve accountability of the management team.. It can bring in knowledge, experience and capability where and when it’s needed. In a time of high volatility, an advisory board has never been more valuable. This is an ideal time to establish an effective advisory board to help you navigate your business through these uncertain times and into a successful future.