Clark David: Financial Reporting Bill — First Reading 
Text is incorporated into the Bound Volume 
Clark David: Financial Reporting Bill — First Reading 
[Sitting date: 28 November 2012. Volume:686;Page:6912. Text is incorporated into the Bound Volume.] 
Dr DAVID CLARK (Labour—Dunedin North) 
: 
 I am glad that that member Todd McClay—“Mr Benny Hill” my colleague referred to him as—has taken his seat. It was an embarrassing speech and an unfortunate contribution. He tried to convince us there at the end that this Government had a good record on business issues. He read out a list of supposed achievements. He neglected to mention that this Government has the worst economic record of any Government in the last 50 years. 
Hon Lianne Dalziel 
: How long? 
Dr DAVID CLARK 
: The worst economic record of any Government in the last 50 years—shocking. A thousand people a week are leaving this country for Australia. There is a 50 percent increase in the number of unemployed a 3 percent drop in the median wage and the biggest gap between rich and poor that this country has ever seen. That is a shameful shameful contribution. 
Worse than that the big ideas have been things around taxes on paper boys and cleaners and these things have actually increased compliance on business and increased the grey tax market. We know that the regulatory impact statement—for example for National’s paper boy tax policy—said that it had not even consulted businesses. It was expecting businesses to keep records on part-time cleaners in a way they never had before. It increased compliance costs in a miserly move to get a few extra dollars because it is not making ends meet. The tax take has dropped under this Government because the economy has stalled. The economy has been growing at a rate slower than the growth of population in this country. This Government has an embarrassing embarrassing record on economic issues and on development of this country. 
I want to come back to the bill the Financial Reporting Bill although I could not but respond to those terrible allegations made by the member opposite who made baseless allegations that were irrelevant to the bill but needed to be addressed. 
Hon John Banks 
: What does this member know about small business? 
Dr DAVID CLARK 
: The Minister for Small Business asks what I know about small business. I had the privilege of growing up in a family where my father and mother were both involved in businesses Mr Banks. I have also acted as a contractor on occasions. But that member there—that member there—knows a lot about brown bags and brown envelopes with money in them that he has taken and the police say was not a legal action and I do not think that that is appropriate for a Minister for Small Business. I do not think that is in any way appropriate. But I come back to the bill. They keep drawing me away. This is the bill developed by the “Minister of Novopay”. We have got to ask ourselves whether it has been virtually tested or whether it has been trialled in parallel to other legislation because as one wag commented earlier today the virtual testing of Novopay has led to only virtual pay at the end. It is inadequate legislation. 
This bill here we would hope will produce better outcomes because this is actually useful legislation. This is useful legislation and we must compliment the Government when on the odd occasion it brings useful legislation to this House. This legislation will not set the world on fire but it will address some important issues. The general policy statement for this bill tells us that the objective that the Government is trying to address here is to provide information to external users who have a need for an entity’s financial statements but are unable to demand them. We cannot fault that—we cannot fault that as an objective of a financial reporting system. 
The three factors when financial reporting is in the public interest include public accountability. That is about transparency at its most basic where the public have a vested interest. The examples that are cited in the legislation are those where an entity is effectively owned by taxpayers or ratepayers where it has sought funding through debt or equity instruments offered to the public where it takes deposits from the public or holds assets in a fiduciary capacity or where it receives donations and bequests. Mr Banks might take a call shortly to tell us a little more about that particular issue of transparency. We will be interested to hear what he has to say on that matter as I am sure the courts will in December. So transparency is the first issue where financial reporting is in the public interest. The second issue is where it has economic significance and this could be understood as size matters because when large entities fail it does have an impact on local and regional economies. We can understand why it is important that there are objective financial statements put out in cases where there is a wider public interest. And the final reason given on principle is about separation and it is where owners of a business ought to be able to have decent financial statements that relate to their business where they are not managing the entity itself. These principles are all sound principles and the aim of this bill is to give them effect. 
The three major outcomes we are told this bill achieves are that it reduces compliance costs where they are unnecessary costs—these are my words not the bill’s words you understand Mr Deputy Speaker—and I want to support that. We need to ensure that compliance costs are dropped where they are not necessary not like in the paper boy tax. One of the things that is being added here is that shareholders will make the call with small companies about whether those reporting standards are needing to be met in a verifiable way or not according to their own need. So that is reducing unnecessary compliance. 
In some ways this bill will also increase some compliance costs. We are told that the second thing this bill achieves is to make sure that the law is strengthened where the current reporting core requirements do not adequately meet users’ needs. We have not heard much from the Government about increasing compliance costs—although that is one thing this bill will achieve in some circumstances—but actually in some circumstances that is a good thing where that compliance is producing an outcome that is of value to the wider public where it is in the interests of transparency for the public who have a vested interest or where it is in the case of an entity that has economic significance in a region or in a location or where it is about providing accountability to owners that they do not otherwise have. Can you imagine if we had had proper good regulation around the companies that failed in the global financial crisis? If we actually had had transparent and clear reporting that was in the interests of those stakeholders who had their money invested in such companies we might never have got to the position as a world that we got to as a result of the global financial crisis. 
The general point here is of course that markets make good servants. Good efficient markets make good servants. They use capital efficiently and allocate it well in the interests of the wider public and in the interests of economic development and the social good that is derived from that and poorly regulated servants make bad masters—poorly regulated markets make bad masters. When we do not have effective and efficient regulation we get either unnecessary costs or markets that are left without the kind of transparency that ensures that the public good is met alongside them. 
The third thing we are told this bill achieves is that it will make “several other changes where the current financial reporting settings are inconsistent with the three indicators of financial reporting.” That is the third major outcome of this bill. I think that is probably more of a sundry item than a major achievement of the bill. Those things though are all worthwhile. The regulatory impact statement tells us that this bill has not yet been widely consulted upon and that is consistent with what the Government has done so far and often to the detriment of legislation introduced to this House. However my colleague Mr Parker pointed out earlier that there is an intention to have a full and proper select committee process which will bring appropriate scrutiny. That will improve the bill and I congratulate the Government on making sure that there is a full and transparent process from here on in around the bill to make these important changes that will make our regulation as efficient and appropriate as possible. 
I will just finish with a brief indication of some of the changes that will be included for a company. They will not be prepared to require small and medium sized enterprise statements in accordance with the financial reporting standards issued by the External Reporting Board. There will be no requirement to prepare parent accounts if group accounts are prepared. An audit will be legally required to follow auditing standards issued by the External Reporting Board. These are all changes that are made that will affect individual companies and there is a series of them. There is a table that I have seen prepared which has a large number of changes that are made in this bill that will affect companies directly that will affect limited partnerships that will affect reporting entities industrial and provident societies building societies and credit unions. It will be interesting to see what these entities have to say about the new reporting requirements—whether the building societies and credit unions feel they are being overly regulated or whether this is appropriate as it stands. 
I congratulate the Minister of Commerce on introducing this important legislation. I hope it is more successful than the Novopay debacle that he is overseeing because we need good regulation in this country.