Woodhouse Michael: Financial Reporting Bill — First Reading 
Text is incorporated into the Bound Volume 
Woodhouse Michael: Financial Reporting Bill — First Reading 
[Sitting date: 28 November 2012. Volume:686;Page:6902. Text is incorporated into the Bound Volume.] 
MICHAEL WOODHOUSE (National) 
: 
 I am very pleased to take this call in support of the Financial Reporting Bill—somewhat unusually ahead of my colleague Jonathan Young who is the chairman of the Commerce Committee where this bill will be referred if it is successful. That is really a function of the fact that when we saw that this could come up before dinner as it did and then saw the order of speeches the committee itself had other business. So as chief whip of course one seeks the interest of colleagues for speaking on this bill. I must say there was a clambering towards the door metaphorically to speak on this bill so it fell to me to take this call. 
Kris Faafoi 
: And you got left out. 
MICHAEL WOODHOUSE 
: Although it has to be said—what was that? 
Kris Faafoi 
: You got left out. 
MICHAEL WOODHOUSE 
: I did. Yes. As a certain blogger says “the stature and personality of a parking meter …”. Clearly he has never met me so that is all right. 
Hon Clayton Cosgrove 
: Simon Bridges—ask him about clamping. 
MICHAEL WOODHOUSE 
: About? 
Hon Simon Bridges 
: This is hoo-ha. 
MICHAEL WOODHOUSE 
: It is. Back to this important piece of legislation. In fact it is OK that it fell to me as one of only two members of the National Party caucus who are actually chartered accountants. In fact we may be the only two in the House now. We have lost a few since the 49th Parliament. It is one of those things—I remember being told that one does not need to know Latin to be a gentleman; one just has to have forgotten it. Indeed it is a bit like that for chartered accounting. One does not need to know all the financial reporting standards; one just needs to have forgotten them. 
Hon Clayton Cosgrove 
: That’s the John Banks principle. 
MICHAEL WOODHOUSE 
: No cabbage boats in financial reporting standards I assure the House. Actually 1993 was my last year at the University of Otago studying accounting. That was the year that the Financial Reporting Act that this bill replaces was actually passed. It was a big year for law because that was when the Income Tax Act was also replaced with the 1993 Act. So I was in the unusual situation of having learnt all of this stuff under one set of legislation and then having to reword it. But truth be told actually I was not a very good accountant. I loved the client contact and the management and cost accounting stuff but was not very good on the financial reporting stuff probably because I did not really have the patience and that attention to detail that went—at least in those days—with the preparation of financial reports. Of course in those days clients would come in particularly the small business clients literally with shoeboxes of bank statements and cheque books. 
Hon Clayton Cosgrove 
: I was one. 
MICHAEL WOODHOUSE 
: That is right. In they came and away we would go beavering away coding. Now they come in hopefully most of them with USB sticks. Stick it in turn the handle and out comes a set of financial reports. But that 1993 Act was I think the first time that we introduced the idea of an exempt company something that was different and that could therefore report differentially from generally accepted accounting practice (GAAP). That whole differential reporting framework came in at that time except many of the companies that qualified for differential reporting did not actually use them. 
There were a couple of reasons for this. One was that although the GAAP standards were adjusted the income tax obligations were not. Therefore it was necessary nevertheless to produce a full set of accounts just for tax purposes. That was often a bit of a nuisance to small businesses that actually did not care too much about GAAP or what the accounting or accrual income was. They were interested in how much money they had in the bank and how much tax they had to pay. That is really what small businesses do—they work on cash flow. They want to make sure that cash flow is positive. It probably was not as effective as it could have been. I think things have moved on now particularly with the tax requirements. I also note from the regulatory impact statement and the Minister of Commerce’s speech that there is actually a body of work that needs to go on to make tax compliance simpler for small businesses. The effect of this bill is certainly going to be greater when that work is done. 
I want to touch on Mr Parker’s quite extraordinary comments in his first reading speech about issuers. I think I heard him say that companies that issue debt or equity to well strangers on an arm’s-length basis rather than closely-held companies should possibly have a time limit against which they are required to report the full set of reports in accordance with GAAP and International Financial Reporting Standards. I find that fascinating and quite extraordinary in a sense. Here we have this Government having spent 3 years improving financial markets reporting and authorities and particularly with the issuing of prospectuses and this notion that somehow after the passage of time it would be OK to let the leash out a bit in terms of financial reporting standards. 
There are a couple of problems with that. Firstly companies like Blue Chip or Lombard Finance and Investments would fall into the category of an organisation issuing a security—in their case debt although it was never very easy to work out whether it was debt or equity—and somehow over time then having a lower financial reporting standard than they did at the start of the issuing of the security. I find that quite extraordinary. But it also does not account for the mobility of security and the fact that people can trade debt and equity. Therefore the recipients of the issue of debt or equity could be new to the organisation. In order to assess the value of that security they are going to need to rely not on the initial prospectus but on the financial reports that are required to be produced from time to time. I think Mr Parker did mention the issue of a closely held company. I think the Companies Act actually does allow for that at the moment but that is something the select committee could look at. I hope it does not get chased down a rabbit hole with this because actually this is not the purpose of the bill. 
The financial reporting regime is OK for those larger organisations those issuers. The benefit in that case clearly exceeds the costs of producing the financial reports and I would expect that the people who buy into these securities would have little time or truck with the relaxing of the financial reporting standards. That is not what this bill is about. However that is enough from this lapsed chartered accountant. I shall leave it to my much more informed colleagues on the Commerce Committee to comment.