Genter Julie Anne: Financial Reporting Bill — Second ReadingText is incorporated into the Bound VolumeGenter Julie Anne: Financial Reporting Bill — Second Reading[Sitting date: 02 July 2013. Volume:691;Page:11510. Text is incorporated into the Bound Volume.]JULIE ANNE GENTER (Green):Tēnā koe. Tēnā koutou e te Whare. E ngā mana e ngā reo e ngā mātāwaka e rarau mai nei tēnā koutou katoa.[Thank you and greetings to you collectively the House. To the authorities languages and ethnicities settled here salutations to you all. ]I rise to speak on the second reading of the Financial Reporting Bill which is quite a huge bill that generated a lot of interest. We heard a lot of submissions on the Commerce Committee. Although unfortunately I was not able to be present for all of those submissions I have gone through them at length. The primary purpose of this bill was to simplify the financial reporting and remove the onerous requirements for small and medium businesses to comply with generally accepted accounting practice or GAAP. The Green Party can support this bill as it is although it probably does not make all of the changes that we would like to see.Financial reports are important for a couple of reasons. It is important that investors consumers the general public and shareholders are able to get information about what is going on with the financial health of an organisation. I personally in my work as a parliamentarian find financial reports quite a useful source of information particularlyon State-owned enterprises. It has been a very interesting process for me to learn how to read financial statements because it is not something that they give us training on when we are elected to Parliament. The Victoria University of Wellington has excellent short courses on accounting for anybody who would like to learn more about reading and interpreting financial statements.It is really important—and PricewaterhouseCoopers made this point in its submission to the Commerce Committee—that the financial reports are important not only for those who are reading them and using them but also for the organisations themselves who are going through the process of complying with the financial reports. Having an acceptable standard that large entities are all complying with is extremely important for those reading and using the financial reports and also for the organisations themselves. But as has been noted by previous speakers in New Zealand the requirement for small organisations—and we have quite a lot of small to medium enterprises here in New Zealand. The Green Party very much supports small business and we would like to see more great smart green entrepreneurial activity and more small business that is helping our society and our economy transition to a sustainable and fair footing.For those small to medium enterprises having to comply with the generally accepted accounting practice—or GAAP standard—was extremely onerous and required quite a bit of resource so the main proposal in this bill is to remove the requirement on small and medium companies to prepare annual financial statements in accordance with those GAAP standards.There was widespread support for this change. Four submitters disagreed with the provisions that define a large entity. One stated that fewer firms should be regarded as large while three stated the opposite. I think that the officials did quite a good job in identifying the balance for what should be considered large and what should be considered small to medium.A second proposal in the bill was to require registered charities to prepare financial statements in accordance with accounting standards issued by the External Reporting Board also known as the XRB. All submissions that commented on this issue agreed with the broad proposal but disagreed with some of the specific provisions. Several submitters considered that the dollar amount for eligibility for simple format cash accounting—which is annual operating payments of less than $40000—should be substantially increased. No submissions stated that the amount should be reduced.So we heard from a large number of submitters at the Commerce Committee and there was broad support for the bill but there were quite a lot of small points of disagreement that were raised by submitters. It was quite a wide variety of organisations that came and submitted to us. We heard from the big accounting firms of course like KPMG and PricewaterhouseCoopers. We also heard from quite a lot of small not-for-profits and charities that were going to be affected by the changes in this bill. We heard from community law centres and we heard from companies like Air New Zealand Meridian Energy and State-owned enterprises and they all had quite a lot of useful information to bring. I found it a very edifying process sitting on the committee listening to submissions and reading through the submissions.Another big issue that was raised by organisations was the proposal to change the time line on which financial reports need to be completed. There had been a recommendation I believe from the IMF—New Zealand previously had a deadline of 5 months and the proposal was to move it to 3 months for financial reports to be prepared and submitted. We heard pretty much all of the submissions suggest that the shift from 5 months to 3 months was going to impose quite large costs because it would suddenly mean that there was a shorter period in which everybody was competing for accountants and having to get their books in order. I think the compromise that was reached was thatthe deadline would be 4 months. So there is a requirement to have those financial reports done a little bit earlier but not quite the 3-month period.I suppose that was particularly important to organisations like for example retirement villages. Their shareholders and the people investing in those retirement villages do not actually use the financial statement as much as other means to determine whether or not the accounts are being handled properly and whether the organisations are in good financial health. So imposing this shorter time frame on them would impose big costs and at the same time it would not necessarily bring any benefit. I thought that was quite a reasonable compromise to go with it for 4 months.There was another change around the true and fair override provision which previously was something that happened in legislation and is now being incorporated in the accounting practice and accounting standards. Fair and true override allows the reporting entity to depart from the recognised rules and accounting standards if the management concludes that compliance with the standards would conflict with the objectives of financial reporting. In other words if there were some facts about the financial state of the organisation that were going to be less clear by the way that the financial reporting standards require them to be reported then the organisation does have the possibility to depart from those standards to give that information in a clear and true way.The current approach was seen to be working well by the submitters who commented on it that was the big four accounting firms the Institute of Chartered Accountants of New Zealand—and there was one other submitter who commented on this. They thought that it would be best if all jurisdictions used the same approach to measurement and recognition like those appearing in the standards by the External Reporting Board and that it would be clearer if the issue was covered in legislation rather than accounting standards. We heard from officials that there were issues with that and we have decided not to change the bill. So true and fair issues will be governed by accounting standards rather than prohibited by legislation.I am sure that New Zealand citizens at home watching Parliament TV this morning under urgency are absolutely riveted by the detail of the Financial Reporting Bill and if they have any other interest I am sure they can find out more online. I welcome their further participation. I look forward to the Committee stage of this bill. Thank you.