As you may remember the reporting requirements for QBCC licenses were reduced back in 2014. However, from January 2019 they have again been tightened up. QBCC’s aim is understandably to prevent potential insolvencies and corporate collapses given the effects of these are felt far and wide.
So, mandatory annual reporting is back.
One of the additional changes made is the self-certifying category 2 turnover threshold has been increased from $600,000 to $800,000 from 1 April 2019. As a result, a handful of businesses will drop back a category with lesser annual reporting requirements.
Here’s a few things you need to consider with regards to your annual reporting:
1. What do I need to report and by when?
Your first report must be provided by 31 December 2019. Your next annual reporting date will be allocated once the first report is completed.
If you first report after 30 June 2019, you will need to report based on your 30 June 2019 financial figures.
Self-certification categories 1 or 2 (turnover $0 to $800,000)
If you are in one of these categories you aren’t required to engage an accountant, but you need to provide your Revenue and Net Tangible Assets in the online portal.
Categories 1 to 3 (turnover $800,001 to $30,000,000)
If you are in one of these categories you aren’t required to engage an accountant, but you must provide a report about your financial position including:
a profit and loss statement;
an aged debtors and creditors report; and
a statement of cash flows.
Most software packages can easily provide you a balance sheet, profit & loss statement and debtors/creditors reports as at 30 June. However not all can run a statement of cash flows, so you may need to manually prepare it or ask us for help. QBCC will accept a statement of cash flows using either the Direct or Indirect Method in accordance with Accounting Standards.
2. Is your construction contract work in progress (WIP) correctly recorded?
WIP is the assets or liabilities accumulated from your construction contracts based on what you are entitled to invoice under the contract, less what you have invoiced at a point in time.
WIP is calculated for each project and the overall position will determine if your WIP is an asset or liability on the balance sheet and in your Net Tangible Assets (NTA) calculation.
In simple terms, your WIP will be an asset if you have under-billed your client, and a liability if you have over-billed your client.
To determine the WIP for each project at a point in time, you must calculate the estimated costs to complete and compare that to the contract sum plus any approved variations. Knowing whether you will make a profit or loss will also assist you to manage the performance of the project before completion.
Your WIP can have a material impact on your reported financial position, particularly your NTA. Therefore, your calculations need to be accurate and your estimates and assumptions appropriate.
3. Have you correctly recorded assets and liabilities as current and non-current correctly?
Your ‘Current Ratio’ shows the amount of current assets of a business in relation to its current liabilities and it helps determine its financial viability.
Current ratio = Current assets / Current liabilities
Therefore, your assets and liabilities need to be correctly allocated as current or non-current. As you see in the formula above the allocation of these will affect your Current Ratio.
The minimum current ratio for a licensee is 1:1, and you must meet this minimum current ratio level at all times.
Related entity loans are another area where care is required. Related-entity loans that are assets need to be confirmed as collectible, and can affect the calculations for either Current Ratio or NTA. Related-entity loans that are liabilities cannot be excluded from the NTA or Current Ratio calculations.
4. How are you structured?
The reporting for sole-trader or trading company licensees is reasonably straightforward to manage. The use of trust structures make matters a little more complicated.
If you are using a trust structure (with a company as trustee) here are some things to keep in mind:
QBCC requires financial statements for both the trust and the trustee company;
You will need to rely upon a Deed of Covenant and Assurance to meet your NTA requirement, in addition to the assets and liabilities of the trustee company (e.g. $2 share capital) but not the trust;
The Current Ratio and Maximum Revenue will be based on both the trust and trustee company.
5. Get your reporting right the first time
You should be maintaining your accounting system on a regular basis e.g. each quarter. This includes reviewing the performance of your projects. If you don’t review this regularly you may not meet your financial obligations at reporting date and lose the ability to change it. QBCC takes a dim view where it receives ‘altered’ financial statements again for the same reporting date.
Managing your obligations in advance and keeping your accounting system up to date can avoid needing to resubmit financial reports with changes.
If you would like a complimentary no-obligation session with our Director, Mark Woodward to talk through how the above impacts your business, give our office a call today on 07 3862 2003. We can also:
Review your structure to ensure everything meets QBCC requirements;
Review your financials before you submit your first annual report to QBCC;
Provide some tips and suggestions based on your current business and financial situation to improve your business, increase wealth, or reduce tax.