Financial Reporting Bill — In CommitteeText is incorporated into the Bound VolumeFinancial Reporting Bill — In Committee[Sitting date: 19 November 2013. Volume:695;Page:14984. Text is incorporated into the Bound Volume.]Financial Reporting BillIn CommitteePart 1 Preliminary provisionsHon CLAYTON COSGROVE (Labour): Mr Chair it is a pleasure to give a speech in the Chamber when you such a venerable individual with such great experience are in the Chair. This is one of those rare moments in this Parliament colleagues where both sides agree on a pretty substantial bill—one that is designed on the one hand to create a high degree of transparency for business where it is needed and where it is in the public interest and on the other hand to not be so burdensome and onerous especially for those smaller enterprises depending on their agreement in terms of compliance costs. I refer to Part 1 of the bill the Financial Reporting Bill in terms of clause 3 “Purpose” where it talks about the various financial reporting standardsauditing standards and assurance standards. We agree with and will be supporting this bill. It is appropriate. The aims are trying to streamline reporting procedures cut compliance costs and bring together a whole series of principles that will aid business but also aid those who are attempting to get information from business.Could I touch just for a moment given the nature of the purpose clause on where it talks repeatedly about standards and where it talks about in this part transparency. We agree that this is a good bill—the Labour Party has contributed admirably to this bill—but we question a couple of things. We agree and we know the Government has acted in good faith in terms of its promotion of standards and transparency within this piece of legislation but I have got to say that it is in stark contrast to a number of other issues around a lack of transparency or standards that this Government has been involved in whether it be the financial deals around Rio Tinto where $30 million was given away to a multibillion-dollar multinational company allegedly to protect jobs—a botched negotiation where no security was asked for or guarantees sought to protect those jobs. We found out of course that the Minister in charge of those negotiations the Hon Bill English Minister of Finance did not have the intelligence to even ask for a guarantee around those jobs—low standards low transparency.In fact there was very little transparency around that deal as the Government firstly left it to the Meridian Energy board and then leapt over the top of the Meridian Energy board without actually telling the board that it was doing a side deal and gave away not only the kitchen sink but the kitchen as well and $30 million was thrown in for zero gain. So when it comes to issues of standards and transparency we are glad that these principles are right up front in this piece of legislation but I would hope that the Minister of Commerce might have a word with his colleagues in other portfolios to bring the same level of standards and transparency to other parts of this Government.If we look at other transactions like Solid Energy the Government was completely asleep at the wheel. There was no transparency around the fact that that company was driven into the ground by this Government because this Government will have no transparency no ministerial inquiry and no select committee inquiry. They were all blocked. The last port of call—thank goodness we live in hope—is the Auditor-General who is still looking at the need for an inquiry. But again there is no transparency and no standard of behaviour around that particular transaction.We look at the Chorus transaction. Again it was done behind closed doors botched completely—a very low standard there—and absolutely stuffed up to the point where the Government rather than—Maggie Barry: Your area of expertise botching and stuffing up. You’re an expert.Hon CLAYTON COSGROVE: That was for the uninitiated the “Venus fly-trap of the New Zealand Parliament” one Maggie Barry who every time she sort of—Maggie Barry: What are you?Hon CLAYTON COSGROVE: That interjection may well have been sponsored by Jim Beam and Johnnie Walker; I do not know. It is late at night.Maggie Barry: Are you a heavy drinker Clayton?Hon CLAYTON COSGROVE: She may be too close to the fertiliser the nitrogen or the compost—who knows? Gardening leave is appropriate. Actually gardening leave is appropriate as we talk about the lack of transparency around Solid Energy because we know that the chief executive officer has seen a lot of gardening leave for a long time on about $300k or $400k which is something I suggest that member on her salary of—what is an MP’s salary $150k-odd—has actually been on. She has actually been on gardening leave since she has been elected to this place.But anyway getting back to the bill because it is appropriate as the budgie chirps away in the background over there—that was a botched negotiation. We moved toChorus of course. There was no transparency or high accounting standards around that deal—none at all zero. There was no transparency around that deal to the point where the Government is in such a bind that even though it is the bastion of the private sector it will not actually look at enforcing the contract as you would in a private sector situation. Last time I checked where you negotiated better than the other bloke and you won the deal and the other bloke or the other person or the other party could not come up with the goods you enforced the contract. You did not wave the white flag of surrender and say you would bail them out or nationalise them or take an equity escape or interfere with the regulatory process in respect of the Commerce Commission. But oh no these guys do anything—these guys do anything.We would like some transparency. We would like some transparency even from old “Venus” at the back. We would like some transparency around those sorts of transactions as well. That is what we would like some transparency and standards on because the difficulty with this legislation even though it is good legislation is that this Parliament can be seen by those in the commercial sector to pontificate to them about the standards they should adhere to and the levels of transparency they should adhere to. But the Government does not practise what it preaches in other areas.Maggie Barry: Go on sit down. Spare us all idiot.Hon CLAYTON COSGROVE: I think you might have to get the Xanax for that member. She may need a wee bit of help. I say this—Maggie Barry: Bring out the Roundup—spread it on your hair.Hon CLAYTON COSGROVE: Keep going it is great. It shows that member for the inept member she is. Even this late at night people will be picking up on that. So this is a good piece of legislation. It actually deals with cutting down many of the compliance costs—Maggie Barry: Down to stump size like yourself.Hon CLAYTON COSGROVE: Sorry?Maggie Barry: Down to stump size like yourself.Hon CLAYTON COSGROVE: Well that is a brilliant interjection. That is an intellectual effort from somebody who has been too close I think to a variety of garden substances—The CHAIRPERSON (H V Ross Robertson): Order!Hon CLAYTON COSGROVE: —over the years. It is all right I do not need protection from her. Good God help me if I did.The interesting thing I want to touch on is in respect of charities. The Commerce Committee spent quite a bit of time looking at the level of compliance that charitable organisations would have to go to. To be fair to both sides we looked at this with a great deal of seriousness because although we wanted a generic set of standards and standards to apply to financial information in accordance with generally accepted accounting practice and currently there are no requirements for the content of this financial information we were—and I know the Minister appreciates this—very careful to look that we were not burdening or requiring an onerous set of arrangements in respect of charities given the nature of the work they do. They are not businesses. They raise money for good causes. Members of Parliament on all sides are involved in many of those charities and we did not want money going in an onerous way from the public good if you like into a myriad of bureaucratic and administrative compliance costs.I think it does strike the right balance. I think we had very good feedback from the submitters in the charitable sector but it is an area that I think many of us on both sides were concerned about. Public money private money and charitable money of course are three different pots there and there is a requirement—a high requirement—on each of those areas in our community to have appropriate financial records and appropriatestandards. My hope is that these financial standards will embolden people to increase their donations to the charitable sector knowing of course that there is belt and braces—Hon Shane Jones: Donations?Hon CLAYTON COSGROVE: —donations indeed—and appropriate financial standards and transparency around the charitable sector as there generally is even prior to this bill. That gives people the confidence to give hopefully in a greater way and to support those entities in a greater way. I would be interested whether the Minister is prepared to make a couple of comments of reassurance perhaps around that charitable sector to get on the record what exactly we are striving for and to give some confidence to that sector.There is very little if any politics in this bill because it does have bipartisan support. I look forward to the Committee stage as we work our way through this legislation—the purpose clauses and the other clauses. I know my colleague Dr Clark will have some interesting comments to make in respect of the Inland Revenue Department and its role in this. I look forward to some of the very interesting comments of members opposite. I am sure they will make a wonderful contribution as they have in the pre-emptive stages of this piece of legislation rather than making the odd inane comment as a few vapours whizz through past the back row over that side. I am sure it is a long night tonight but I think we should give this bill due consideration and we should act in an appropriate way to support this legislation given that it amends around 80 Acts. I look forward to this debate continuing.Hon SHANE JONES (Labour): Tēnā koe. Because members on this side of the House are absolutely convinced of the merit of reducing compliance costs and our rhetoric unlike that of the other side of the House is not inversely related to reality it is a pleasure to stand and support the Financial Reporting Bill. Why should we support it? Because it is premised on the notion that there should be discretion.Those entities that have shareholders seeking to opt out of unnecessarily onerous compliance arrangements should be able to make that choice. However for those that are of a size where systemic damage might flow or where significant impacts would negatively fall on the country’s reputation or indeed on the reputation of our commercial sector there is a range of arrangements and compliance obligations that should be adhered to.I was wondering though whether we can use this bill in relation to as my colleague said earlier the defective Chorus deal. I think you can illuminate dry legal text by looking at a real case example. We have a case with this particular company where disclosure of an adequate nature probably was not made when the company entered into the defective deal conjured up by the Associate Minister of Finance Steven Joyce. It actually took Sue Chetwin and a host of activists in the information and communications technology sector to actually point out that a company known as Chorus failed to fully disclose that the equation it was using to cover the costs of the broadband infrastructure roll-out was deeply flawed.As a consequence the Minister who negotiated that flawed defective deal with Chorus—and it was worsened by the Prime Minister saying that it was technically insolvent or words to that effect. An outrageous statement. I wonder whether those members will themselves show any responsibility in terms of a financial reporting stance which they might reject given that 40 percent—a catastrophic failure—of the equity value of that entity has gone down the proverbial.So there is an example where those people who sit on the various risk and audit committees and lord it over the rest of New Zealand have failed actually to meet the existing set of regulations. So I shudder to think how on earth they are going to copewith this enhanced set of regulations because we have all learnt that when you have poor transparency and poor compliance with reporting provisions—as we saw with South Canterbury Finance and a host of other financial companies that soon became political calamities—people lose dough.So I think an area where the Financial Reporting Bill perhaps could have gone a bit further was its treatment of overseas-owned entities in New Zealand. I look forward to hearing the speech from my colleague fromŌtepoti—Dunedin—where I was yesterday spreading pixie dust on behalf of my great party with the chief executive officers of the various ports of New Zealand convincing them that—well that is another matter which is really electoral victory. I will just pass by that for the moment so I can return to the bill. But I look forward to my colleague talking about how this bill could perhaps enhance and improve the accountabilities that should be sheeted home to the banks currently owned by foreigners and a host of others—largely the insurance companies—but taihoa help is on the way in that regard. And the power companies as we speak disappear further down into the deep foreign pockets of the owners that are buying as we ensure the wheels of democracy grind on adequately tonight.I think that the public needs to realise that when we are dealing with this bill we are not talking only about requirements to account to the existing shareholders but we are also talking about the entities operating in our country and not necessarily owned by our countrymen and countrywomen. If there is an area where there is a glaring omission it lies in the space of whether or not those foreign-owned entities are paying their way. Are they paying their way or are they fleecing our system our taxpayers and indeed in some cases New Zealand employees? And are they running a double set of accounts—a set of economic accounts that sits on their bench table overseas?Dr DAVID CLARK (Labour—Dunedin North): Kia ora Mr Chairman. I rise to speak to this bill the Financial Reporting Bill. We in the Labour Party will be supporting this bill because the principles that it is based upon are ones that we can agree with. It is delightful to stand in this Committee and to be supporting a bill that is actually incredibly important and might be likened to the oil that greases the wheels of commerce. It is so important to have transparency and clear concise and easily understood reporting requirements so that information can flow to stakeholders and so that good decision-making ensues and our country prospers.The bill itself really has three key components. One is increased public accountability. An entity needs to be accountable to the public if it is effectively owned by taxpayers and ratepayers. That includes Government departments Crown entities and local authorities. I guess there is some irony which will not be lost on those following the debate at home in that this bill is designed to increase accountability across Government departments Crown entities and local authorities. Not long ago we passed legislation about privatising our energy assets. There is a referendum coming up. The postal ballot is starting tomorrow I think on this same topic.That particular debate involved not only selling down New Zealand’s best revenue-generating assets—taking them away from taxpayer ownership and putting them into the hands of a few—but also reducing transparency. In that legislation the Official Information Act used to apply in respect of State-owned enterprises. Members of the public could request information about them. There was a level of transparency there that was required. They were required to appear before select committees to be scrutinised so that the taxpayer interest was being looked after. Now even though they are to be majority State-owned—only just; 51 percent—a lower level of scrutiny is to apply. So here in this bill we have the flip side of that. We say again that scrutiny is important. So there will be no irony lost there I am sure in the Government’s other actions which we know were done for politically expedient reasons and were based onan ideology of selling off privatising the gains and socialising the losses. That is something we have seen so often from this National Government.Returning to the bill the scrutiny that is going to apply will apply to the bigger end of town where there is a public interest. For example an entity that takes deposits from the public or that holds assets in a fiduciary capacity for broad groups of outsiders—like banks insurers mutual funds and those kinds of things—will be required to report transparently. That is a good thing. Those who receive donations and bequests from the public will be required to have increased transparency.There is a test in the bill about economic significance. I guess that boils down to the idea that size matters. There are some large entities that ought to report because their failure could have a regional economic impact. That does apply I guess to the cases raised by my colleagues just before. The failure of those entities could have a regional impact that could be quite negative. We think there of Christchurch and the lack of progress that is being made. There are other examples of course. Down my way there is a proposal to gut the Invermay Agricultural Centre take the scientists out of Otago and well just destroy it—Clare Curran: Somehow transplant it.Dr DAVID CLARK: —and somehow transplant a highly functional scientific organisation somewhere else when the staff do not want to transfer and have said they will not transfer. That is another example of a failure in the regions. That is despite Steven Joyce’s rhetoric about needing to have strong institutions in the regions to support business growth.So there is some deep deep irony in passing a bill that talks about the importance of economic entities to regions and the importance and economic significance of transparency when there are deals being done that are anything but transparent in terms of the business case for Invermay. That is a very very good example of where it has not been made public where information has been withheld and where it seems that an ideological position is driving something rather than something that is genuinely in the public interest.The third criterion in the bill is around separation. That separation principle requires that owners or members of an entity are likely to need financial statements if they do not manage the entity. So all of these things make sense at a fundamental level. It reduces compliance costs where they are not required—where they are small entities and where shareholders agree that they do not need comprehensive accounts to the extent that they are actually just simply about compliance. Then there is a clear requirement that where it does matter—where entities are public large or managing public funds—there is a higher level of compliance required. That is a very sensible step.We know that good markets make excellent servants and poorly regulated markets make bad masters. That is the basic principle that I think sits behind this kind of legislation—good regulation and making sure things flow well. We think of the global financial crisis. If there had been greater transparency there some of the worst edges of that and perhaps the whole financial crisis might have been avoided certainly in respect of the hedge funds involved.Simplification of reporting processes is something that creates efficiencies and that is good when our businesses and our country spend so much time on compliance. The Government opposite talks often about being business-friendly. Certainly we see that when it comes to one or two of its mates and in respect of Skycity and we think of the casino deal where Skycity is laughing all the way to the bank. It has got all the extra pokie machines is building a casino off the back of problem gambling and will have profits for years to come all because the Government had cornered itself throughputting itself in a non-transparent deal and committing to getting something through before negotiating the deal to its end.We think of Chorus and what is coming up there. It has all the hallmarks of another deal by the Government for the big end of town. We think of Rio Tinto where money was handed over but was not—Hon Clayton Cosgrove: Thrown at them.Dr DAVID CLARK: Thrown at them—money was thrown at them but no jobs guarantee was asked for so restructuring began the next day. That is the kind of shoddy deal that this Government does with big business.But all the while small business is suffering in New Zealand. This Government has passed so much compliance regulation legislation that has disadvantaged small business. We think of the child support payments that employers may now be required to enforce—handling private information about their employees which could lead to personal grievances in the worst possible situations; information that it was not previously thought to be appropriate for business owners to have to handle or to have responsibility for—and all the other compliance responsibilities. It has just been lumped upon them. There was no consultation. That went through in a rushed Budget process.Hon Clayton Cosgrove: No transparency.Dr DAVID CLARK: There was no transparency. Again we think of the paper boy tax. There are now compliance requirements that were not there before.This is a Government that keeps heaping compliance on small business but then it talks about tax simplification. The Minister of Revenue Todd McClay has talked about consulting on tax simplification. Well it has been done overseas. There are plenty of working examples. This Government is big on talk when it comes to things that would support small business but very very very poor on action. We simply just do not see it. This is a Government that is not a friend of small business and that is a shame.That perhaps goes some way towards explaining why 2500 fewer small businesses are being created every year under this Government. This is a Government that is failing—is failing—to create jobs is failing to create new businesses. It is no wonder that it has the worst economic record of any Government in New Zealand in the last 50 years. It has an appalling economic record. It has an appalling record on jobs. It is a Government that should hang its head in shame. I guess I am at least comforted that some helpful pieces of legislation some sensible pieces of legislation—no doubt pushed by officials—are sneaking their way through. This is one small step toward helping to make our economy a little bit more efficient and to take out some of the unnecessary compliance and that is why we are very pleased to support it on this side of the Chamber.Finally I would just say that we wish there could be more of this kind of thing—less of the deals done behind closed doors with big business and more of the cutting of compliance. That is what we in Labour would like to see. We are sick to death of the additional burden put on businesses. They say that something like 15 percent of the revenue for the smallest businesses in New Zealand—typically 15 percent—ANDREW WILLIAMS (NZ First): Thank you very much Mr Chairman for calling me and I hope you are feeling well this evening after your chocolate pudding at 7 o’clock. I chose the fresh fruit salad and I can say that 3½ hours later I feel absolutely excellent but I am sure that the heaviness will be dwelling upon you right now knowing how heavy that chocolate pudding was.Having said that we come to the Financial Reporting Bill—[Interruption] Because this is quite a dry piece of legislation and because it is heading towards 20 to 11 at night and some of us have been here since 9 o’clock this morning I guess that those ofus who have been here since 9 o’clock and who are still here at 20 to 11 at night do have the right to have a little bit of levity to try to ease the pain. But—Hon Clayton Cosgrove: It didn’t work for Maggie Barry.ANDREW WILLIAMS: No it did not work for Maggie Barry. No it did not. She had to leave—she had to leave. But anyway New Zealand First supports the Financial Reporting Bill. This is large bill that covers a lot of ground. It has had the scrutiny that it merits. But New Zealand First is satisfied that this bill represents useful improvement and will deliver actual benefits to New Zealanders.Financial reporting is at the heart of business accountability. Effective and thorough financial reporting is fundamental to public confidence in financial matters. Financial reporting must have integrity. This bill sets the ground rules for financial reporting and strengthening the reporting regime at this time makes sense. The bill reduces compliance costs while strengthening accountability and transparency.We also note that under this bill charities will be required to prepare financial performance statements in accordance with accepted accounting practices. We believe that it is only right that New Zealanders do receive adequate financial reports from the very many charities that New Zealanders are so willing to give to.Overall New Zealand First considers that the bill strikes a reasonable balance in terms of reporting requirements and does not impose excessive or burdensome reporting requirements. We see this bill as enhancing New Zealand’s economic performance which is a good thing. This is because a clear and effective set of financial reporting ground rules will establish the right context for organisations and enterprises to operate within.For these reasons New Zealand First supports this bill. It is creating credible financial reporting requirements for New Zealand. Thank you.The question was put that the amendments set out on Supplementary Order Paper 376 in the name of the Hon Craig Foss to Part 1 be agreed to.Amendments agreed to.Part 1 as amended agreed to.Part 2 External Reporting Board standards and provisions that apply to other enactmentsCLARE CURRAN (Labour—Dunedin South): In this part there are a number of points to be made and I am certainly keen for the Minister of Commerce should he feel moved to take a call to explain to the Committee the rationale behind the substantial Supplementary Order Paper that has appeared before us tonight in order to provide the Committee with some of the information that lies behind it. I think that presumably within this Supplementary Order Paper lies an important rationale and explanation as to why—particularly for the overseas companies—we have moved to the position that the Minister has taken.It is also important to say that this Financial Reporting Bill—which has taken some time to go through the committee—has been a really substantial piece of work and there has been a lot of work done by the Commerce Committee on this. I would like to acknowledge all the officials here tonight for the work that has been done and also the good solid work done by the committee generally.It is actually 20 years old this piece of legislation that is being replaced and it is an amendment to 80 pieces of legislation. So it is quite a substantial piece of work and it has taken quite some time to move through. It is part of a number of pieces of legislation that have come before the Commerce Committee on the reform of financial accountability and around the importance of transparency. I know that my colleagueshave talked quite a lot about both of those things tonight—transparency and accountability—and I will certainly be doing that myself. But I think it is absolutely an acknowledgment that moving these things forward in this modernised piece of legislation is really important and it should be acknowledged for all the work submissions and considerations that have gone into it.In talking about transparency and accountability though I think it is really important that if we are being serious about these things—and I am sure the Minister in the chair would acknowledge that—we have to practise what we preach. We are seeing time and time again examples where there are questions being raised about the transparency of particular contractual arrangements and the transparency of practices that are emerging.Chorus has been mentioned a number of times tonight. I do want to touch on that obviously because there is a piece of legislation that underpinned the demerger of Telecom that then turned into a contract for Chorus which has been rolling out over the last couple of years. But since then we have had a decision by the Commerce Commission that the Government and Chorus did not like then we have had a review instigated by a Minister that has questions around its legality and is now under judicial review and subsequently we have another inquiry which was announced last week into the viability of Chorus.All of those things have taken place as a result of a lack of transparency and a potential lack of the disclosure of information that should have been made right from the very beginning whether it was through the demerger process the legislative process or the contractual process. All of those things have resulted in a situation that is costing the taxpayers more money through reviews and inquiries through more officials’ time through legal bills and through all kinds of procedures and impacting on the viability of a substantial infrastructure project.It all comes down to transparency and disclosure. It would seem to me that if we are going to be serious about the legislation that we are pushing through which is about requiring accountability by companies to their shareholders and accountability to the taxpayers then we have to practise what we preach.This particular instance which I know is embarrassing to the Government is going to be an increasing embarrassment to the Government—in fact it could be described as a running sore for the Government. This is going to go on and on and ultimately the shareholders are going to be demanding accountability from their company from Chorus and the taxpayers are demanding accountability from the Government around the disclosure—or the lack of disclosure—around that accountability.I think what that all boils down to is that there is a disconnect between what the Government says it is doing and some of the good work that is actually being done through legislative processes. On this occasion the Minister in the chair the Minister of Commerce has presented to the Committee this reasonably fine piece of legislation that has had a lot of cross-party work done on it and agreement on it but alongside that is a process that is running counter to it. I think the people listening to this at 10 to 11 at night if they are listening have got the right to ask how that can be why that is what is happening about it and where the accountability is on it.I do want to raise one other matter in this legislation at clause 45 “Meaning of specified not-for-profit entity”. It is essentially around the threshold for determining a specified non-profit entity which I think is one of the examples in this bill where there was very good work done and good listening and understanding of the impact of this legislation on the not-for-profit sector. It was important to ensure transparency and disclosure. But also it had to be acknowledged that for the 2000 to 3000 churches around New Zealand that had operating expenses that being initially in the bill meant that they would have to have a much greater requirement for operating for disclosureand for the compliance—and they rely hugely on voluntary treasurers and hugely on other voluntary people to meet the requirements of the bill as it stood originally—they would have had to end up employing professional people at great cost.So I would like to commend the committee for the advice that it took and for the conclusions that it came to around this where the compliance dropped so that it was not going to be such an onerous task for these organisations—these 2000 to 3000 churches around New Zealand. I think that that was a very responsible outcome. There are still compliance requirements and that is extremely important but I think that what it showed is that this bill this particular bill had the ability to be flexible and to recognise the importance of the not-for-profit sector in particular for the impact that it would have on churches.I would ask that the Minister take a call to explain Supplementary Order Paper 376 and the rationale behind it in terms of the overseas companies that carry on business in New Zealand and their requirement to file audited financial statements. It was proposed that there would be obligations removed if the New Zealand business had both total assets of no more than $60 million and total revenue of no more than $30 million. These amounts have been changed in this bill through this rather large Supplementary Order Paper to $20 million and $10 million respectively. I am curious and would like to know what the rationale is for that and I just wonder whether the Minister will take a call.The question was put that the amendments set out on Supplementary Order Paper 393 in the name of the Hon Craig Foss to the proposed amendments set on Supplementary Order Paper 376 in his name to clause 44 be agreed to.Amendments to the amendments agreed to.The question was put that the amendments as amended set out on Supplementary Order Paper 376 in the name of the Hon Craig Foss to Part 2 be agreed to.Amendments as amended agreed to.Part 2 as amended agreed to.Part 3 Miscellaneous provisionsThe CHAIRPERSON (H V Ross Robertson): Part 3 debate on clauses 49 to 60 includes schedules 1 and 2 stand part.Dr DAVID CLARK (Labour—Dunedin North): This part refers to the standards and provisions relating to auditor qualifications and access to information. I am sure members of the Committee would have looked at this part of the bill very closely and will be debating the finer points. I am interested to see whether anyone from the other side takes a call or whether the Minister of Commerce will get up.Hon Clayton Cosgrove: They haven’t so far.Dr DAVID CLARK: They have not so far. They have not so far. They are a bit quiet on regulations that are designed to reduce compliance. They do not quite know what to say. It is a new experience for them I suspect.Hon Clayton Cosgrove: Especially for John Banks.Dr DAVID CLARK: Especially—especially for John Banks. The interesting thing about this one is that when we specify the qualifications of the auditor as we see in clause 35 “Qualifications of auditor” they must be a chartered accountant and so on they must be a member of this organisation; the notice must be put in theGazette they must be eligible to act as an auditor in a country State or territory outside New Zealand and so on and so forth—all of these rules and regulations. They must be a fellow of this or that institution. It means nothing at the end of the day if no one listens to them.In this bill the Financial Reporting Bill it is expected that businesses will comply but the Government’s own record on this stuff would send a very different message. We think of some of the examples of that. We think of the recent Earthquake Commission report that found huge failures—huge failures. The Auditor-General found disastrous processes there. I will not rehearse all of the terrible things that were found in that process but the Government dismissed it immediately. So we see a Government that says that it is above any kind of auditing any kind of review of its work and that arrogantly carries on as before.We think of the Law Society advice on the Government Communications Security Bureau (GCSB) bill—damning of the process. Why would you pass such an important piece of legislation under urgency? Why would you not have a process in place to review decisions? All of these things are basic fundamental democratic processes that were obviated or not complied with by the Government. The Government arrogantly said that it would not agree with them that it does not listen to them and that they are talking a load of nonsense. This is the behaviour of a Government whose members say there has to be a standard for businesses there has got to be a standard for citizens but it is not for them. They are on their own level. They are out of touch they are arrogant and New Zealanders are getting sick of it.The other example that springs to mind is the Crown Retail Deposit Guarantee Scheme. We think back to that one. This Government may have lost New Zealand taxpayers $500 million.Andrew Little: What?Dr DAVID CLARK: It could be up to $500 million Mr Little that was lost in the Crown Retail Deposit Guarantee Scheme as a result of a failure—an absolute and abysmal failure—to monitor that process. The Minister of Finance did not ask to have regular updates. He basically signed a blank cheque. The scheme itself was a sensible scheme. It was put in with the right intentions in the nick of time to stop a run on the banks and that was a very very sensible thing to do. But thereafter when the National Government took over it did not monitor the scheme and the liability grew. One of the deposit takers had its balance sheet increased tenfold—risky loans left right and centre—but the Crown was guaranteeing it. It is no wonder that people were piling money into it but that was at the expense of the New Zealand taxpayer.Then we had South Canterbury Finance. Everyone remembers that one. Its loan book blossomed. It bloomed with all this dodgy debt and again there was a failure of monitoring. The Minister of Finance had his head firmly in the sand. He did not ask for reports Treasury did not ask for reports it could have got from the Reserve Bank to tell it how much that scheme was costing the New Zealand taxpayer over time and they failed to put measures in place to stop those dodgy loan books growing. But that is a Government that has failed to monitor.If we remember back what happened next was that the Auditor-General—again the Auditor-General the same one who wrote the Earthquake Commission report said there was a failure of process. What did this National Government do? Just as with the Earthquake Commission report it said: “It doesn’t matter. We don’t care. We’re just going to carry on. We won’t read it.” That is John Key’s favourite line. When he gets the police report on John Banks’ conduct he will not read the report.This is the kind of arrogance. Everyone else must comply. Everyone else must be audited the auditing must be accurate and precise and it must be done to these standards and those standards. But when it comes to the Government’s own conduct it is dismissive—completely dismissive—of the Auditor-General. In the case of the Crown Retail Deposit Guarantee Scheme there are a whole lot of anomalies there and$500 million of taxpayer money was probably lost unnecessarily by this Government but it would not hold an independent inquiry into that. It would not go further.The question was put that the amendments set out on Supplementary Order Paper 376 in the name of the Hon Craig Foss to Part 3 be agreed to.Amendments agreed to.Part 3 as amended agreed to.Part 4 Amendments to other ActsHon CLAYTON COSGROVE (Labour): I want to put a couple of questions that were raised with the Minister of Commerce in the first speech on Part 1 of the Financial Reporting Bill. I note that he has not taken a call in the hour that we have been debating this bill. I think there has been a bit of barracking from the other side but no actual substantive speech about the legislation. The first question is in respect of the amendments in respect of charities the amendments to the Charities Act 2005. I said previously that the Commerce Committee members from both sides of the House to be fair laboured long and hard as we went through these provisions to ensure that there were appropriate standards and levels of transparency. Although we are all in favour of transparency and accountability and appropriate accounting standards for charities we all acknowledge I think that many charities are made up vastly of volunteers and many charities are of varying sizes and have varying capabilities in terms of administrative and accounting control functions. As I say although we were keen to ensure that there were appropriate standards and levels of transparency we were also keen to ensure that we were not overburdening charitable organisations with bureaucracy and with compliance costs because many of our charities such as the Cancer Society the Salvation Army and others do pride themselves on the donations that are provided by the public the vast majority of which go directly to the stakeholders that require it—whether it be medical research whether it be assisting those less fortunate—and are not sucked up into onerous administrative requirements.I do note though in new section 42B in clause 77 that there are some very substantial penalties for those who fail to comply. It states: “A charitable entity and every officer of the charitable entity commits an offence and is liable on conviction to a fine not exceeding $50000 if—(a) the financial statements of the charitable entity referred to … fail to comply”—with relevant standards in summary—“and the charitable entity or officer (as the case may be) knows at the time that the financial statements accompany the annual return when it is sent or delivered under section 41 that the financial statements fail to so comply.” No one would disagree with that in terms of somebody knowingly committing an offence and knowingly contravening not only the legislation but their obligations. But what I would like to hear from the Minister of Commerce is the view he has from the submissions which presumably he has read as we did on the Commerce Committee as to whether he still believes that those penalties substantial as they are are pitched at the right level and are appropriate.Further to that and just as important are the transitional provisions in clause 78(1) and (2)—there have to be appropriate levels of transitional provisions. More so I think for the charitable sector. We had submissions from I recall churches and others. Many of the churches have individual entities. They are not one conglomeration; they are individual incorporated societies or entities around parishes or whatever. For many of those organisations there will be a substantial transition to move to these standards—even though from memory there was substantial support for them—to further professionalise the financial standards and transparency of charities. It will not be as a business if you like with one entity transitioning across. It will be many entities andsub-entities within those charitable organisations. So I would be grateful if the Minister would look to take a call and in this Committee stage just for the record in the future give us some assurances around those two issues.Hon CRAIG FOSS (Minister of Commerce): Just a quick call on a couple of issues that have arisen. The member Clare Curran asked a question before about the size of Supplementary Order Paper 376. The Supplementary Order Paper is basically the revision-tracked version of the Financial Reporting Bill. There are one or two kind of Supplementary Order Paper - type amendments in there and one of them is the point the member raised around the thresholds for large—or not—companies that are overseas-owned and operating here in New Zealand. So the size of the Supplementary Order Paper is no reflection of changes. In fact there are not too many changes as per the good work that the Commerce Committee did. I do acknowledge the fine work and the cooperation and acknowledgments from speakers about how we have got to this point and the very good ownership of the bill.Just one point on charities which the member just asked about before—yes I am very aware of those issues and the select committee also did good work. I think in fact that the committee itself raised the threshold from $40k to $125k for charities reporting anyway. Actually the professional organisations such as the New Zealand Institute of Chartered Accounts and the Certified Practising Accountants are themselves undergoing quite a bit of educative work out in the voluntary sector for public good and social good to ensure and to just try to alleviate some of the concerns that the member did raise.Another point that was raised just in general conversation in regard to charities—in fact now there is the availability for organisations to have quite sophisticated and structured accounting packages online. Even though some of the members who have traditionally done some bookkeeping may not be all that comfortable working online with some of those cloud-type accounting packages actually the ability for an organisation to produce quite robust fair and transparent accounts is now much more apparent than it was. But I do acknowledge the concerns. I have heard those and I think the Commerce Committee also did a good example of those. We have to contrast that though with exactly what we have now because some not-for-profit organisations actually do have some quite substantial assets and it is only fair for those members who raise funds or who donate or give to them or who work for them that we do actually improve the current situation which is more like do-it-yourself bookkeeping. There is no checking really of some of the robustness or the integrity of the accounts as well-intentioned as many of them may be. As the previous member noted the committee spent a lot of time on this and it came to pretty good conclusions as is now reflected in the bill.The question was put that the amendments set out on Supplementary Order Papers 376 and 393 in the name of the Hon Craig Foss to Part 4 be agreed to.Amendments agreed to.Part 4 as amended agreed to.The question was put that the amendments set out on Supplementary Order Paper 376 in the name of the Hon Craig Foss to schedule 1 be agreed to.Amendments agreed to.Schedule 1 as amended agreed to.The question was put that the amendments set out on Supplementary Order Paper 376 in the name of the Hon Craig Foss to schedule 2 be agreed to.Amendments agreed to.Schedule 2 as amended agreed to.The question was put that the amendment set out on Supplementary Order Paper 376 in the name of the Hon Craig Foss to insert new schedule 3 be agreed to.Amendment agreed to.Clauses 1 and 2Dr DAVID CLARK (Labour—Dunedin North): It is with delight that I rise to speak to the title and commencement clauses of the Financial Reporting Bill. This bill as I noted in my earlier contributions is something that we on this side of the Chamber can agree with. Although we think it may have slipped through unnoticed by the Government that here is a bill that actually does reduce compliance on small entities that do not need it certainly the Government’s record suggests that it is interested in doing otherwise and I raise the matter of the child support payments that come on to small businesses now the compliance requirements around the paper boy tax and so on and so forth. I note the red tape that this Government has built—it has tried to do an iPad tax and it has tried to do a car-park tax. There is a constant flow of additional requirements on small businesses. But this one—Hon Clayton Cosgrove: They came a gutser.Dr DAVID CLARK: They came a gutser—they certainly did come a gutser. The word “gutser” is a technical tax term which my colleague is using. There is an opportunity in this bill for the compliance to be reduced where it is not required. So that is why we heartily support this bill. It was well debated in the Commerce Committee and we have covered the charities matters there. The “Financial Reporting Bill” is probably a good title for this bill I would suggest. That is what it is about. We might even want to add in there “(Transparency and Appropriateness)” as descriptors because the transparency arrangements here are ones that we can agree with. If there is no wider public interest and if shareholders are comfortable with the arrangements unnecessary reporting requirements should be abandoned and that is one idea that we on this side of the Chamber are quite comfortable with.However we need to be really clear that where there are public funds at play there should be transparency. That is why of course when it came to the Supplementary Order Paper 376 changes and the energy companies were being sold off—being flogged off—for less than the $5 billion to $7 billion that Bill English said that he might get when he sold New Zealand taxpayers’ best revenue-generating assets we protested at the loss of public scrutiny of those entities. So we have a principled stance. We are glad to see that that is reflected in this bill. It does not seem to be normally the Government’s practice where it does these shady deals with the casino deal being the most obvious one—John Key meeting with the Skycity chief executive saying one thing to him whilst there was supposed to be a transparent process running. We know that this Government has a bad track record of doing deals behind closed doors and the business community is sick of it. Those in the wider business community whom I meet with are saying that they just want transparent arrangements so that they know that when they are bidding for something it is really being taken seriously.That means that in this case where there is a sensible offering being put forward—and I thank the officials for their hard work. They will have put many many hours into this Financial Reporting Bill and put many more hours in over the years in background and supporting papers and consultation. I thank the officials for their work. It is a good bill and that is why we on this side of the Chamber are very pleased to support it.We wish that the Government would apply these transparency principles to its wider practice and that it would not put those ideas I guess of transparency and responsibility to one side when the Auditor-General makes a criticism in say the Earthquake Commission report or of the Crown Retail Deposit Guarantee Scheme. We wish that the Government would adopt these principles for its own practice not just for the wider business community. We know that there are examples. We think of the power sector and the $4.3 billion worth of price gouging that was estimated to have occurred between 2001 and 2007 by the world’s leading modeller of energy markets at the time Professor Wolak because of effectively cartel-like behaviour where market power could be used to extract excess profits from the market at the expense of mums and dads at home.Of course that risk is going to be increased with the asset sell-offs where the interests are not aligned with the taxpayer. The silver lining back then was that much of that excess profit went back into the taxpayer purse. We now know that so much of that is going offshore. Treasury said that those State-owned enterprise sell-downs will take the Government books backwards by about $100 million a year—$100 million a year.So I urge people at home to vote “No” in the referendum when they have their chance to say no to the asset sales that this Government has put in place. Say no to the lack of transparency that goes with the deals that it is doing around those energy assets and around deals more generally and say no to this Government at the next election.Hon CLAYTON COSGROVE (Labour): I disagree with my colleague Dr David Clark in one respect and it is simply this. The title of this legislation is slightly incomplete in that it could well be the “Walk the Talk Bill” or the “Practise What You Preach Bill” because if we look at financial reporting in this piece of legislation the Financial Reporting Bill—which we support—we see that this Government has the great habit of preaching to everybody about standards transparency and accountability until it comes to itself.One of the best examples of that—and I do partly blame Treasury for this; it stood by and allowed it to happen—is the fact that the Government in its budgetary documents booked the proceeds from the sale of State-owned assets that it had not sold and it estimated that they would be $5 billion to $7 billion. We know that Bill English ain’t even going to get close or he might get close to $5 billion at best. The Government booked the proceeds from the sale of assets before they had been sold but did not book the loss of dividends from those sales once the assets went out the door. So the Government booked it coming in but did not book it coming out. So these guys are great—even though we support the legislation—at preaching to everybody else about standards and accountability whether it be to a beneficiary or to a flash guy on the high street. It is very very good at preaching about accountability and transparency and standards and even accounting standards until it comes to itself.I have been in business. A number of people in this Chamber have been in business. Can you tell me of anybody in their right mind who would book the proceeds from a sale that has not happened—the Government did not know how much it was going to get; “best guess” was the quote from the Minister of Finance Bill English—but fail to book the loss of dividends that would flow from said sale? That is dishonest—Paul Goldsmith: Well you get interest from it.Hon CLAYTON COSGROVE: —and “Goldfinger” at the back knows it. That is dishonest—utterly unaccountable utterly un-transparent and totally dishonest. So I say that maybe this bill should be called the “Financial Reporting (Walk the Talk) Bill” the “Practise What You Preach Bill” or “Do Unto Others” to quote the biblical phrase.Those members ought to actually look at themselves as they pass this piece of legislation. It is right that we have appropriate and high-quality standards in our financial businesses—and generally businesses do actually; they do—and in ourcharitable sector and for those transacting business. But as the Government passes this legislation tonight or tomorrow morning I wonder whether those businesses are looking at how a Government cooks its own books in respect of the mixed-ownership model—$5 billion to $7 billion? No it was $7 billion from the get-go. Then it went to being from $5 billion to $7 billion. Now we think that it will be about $4.8 billion or $4.9 billion.It is $1 billion down on Meridian Energy $100 million down on Mighty River Power and those members get up and they celebrate because they got $100 million extra—$365 million for Air New Zealand—which equates to 36 hours of operating expenditure for the Government. They say: “We got $100 million. We’re heroes.” Yeah! So it has gone from a $1.1 billion stuff-up to a $1 billion stuff-up. “Grab a seat grab a share we are all happy.” and they take the dough and run. But they did not account for it appropriately and they did not live up to their own accounting standards which they preach in this legislation. So I say to the Minister of Commerce that he might want to reflect on that and his own colleagues might want to reflect on that in the passage of this legislation. I am sure that there might be—David Bennett: Yeah who sabotaged the sale?Hon CLAYTON COSGROVE: —one or two people even in Hamilton or the outer-terrestrial areas that that member comes from and there might be a few businesses in his patch that actually look at this and say: “Well if we’re expected to adhere to these standards why doesn’t the Government? Why doesn’t the Government adhere to these standards if we are expected to?”. What business in that member’s electorate would book the proceeds from a sale that had not happened but not book the dividends? I ask the member. Does he know of a business? Oh the old “Billiard Ball”—yes the old can rattled. But there is silence. The silence is deafening. There is no such business. They would be in jail I say to that member as he crawls behind his desk.Clause 1 agreed to.The question was put that the amendments set out on Supplementary Order Paper 376 in the name of the Hon Craig Foss to clause 2 be agreed to.Amendments agreed to.Clause 2 as amended agreed to.The Committee divided the bill into the Financial Reporting Bill and the Financial Reporting (Amendments to Other Enactments) Bill pursuant to Supplementary Order Paper 392.Bill reported with amendment.Report adopted.