Parker David: Financial Reporting Bill — Second ReadingText is incorporated into the Bound VolumeParker David: Financial Reporting Bill — Second Reading[Sitting date: 02 July 2013. Volume:691;Page:11506. Text is incorporated into the Bound Volume.]Hon DAVID PARKER (Labour):The Labour Party supports this bill the Financial Reporting Bill. Can I thank the Minister of Commerce for his comments. This is housekeeping legislation that is none the less important housekeeping legislation that regulates the way in which our commercial sector has to prepare its accounts and the standards that it has to apply.In respect of financial reporting we are trying to get the balance right between standardisation and proper principles being applied in respect of accounts that are prepared for entities that have lots of people who rely upon them and the accounts that are prepared by smaller organisations where it is really a small group of people with no public outsiders who need to have access to the information in a reliable and comparable form.This bill tries to do that by making some differentiation between larger companies and smaller companies. Larger companies and large overseas companies that carry on business in New Zealand have a slightly different regime. “Large” is defined as companies that have assets exceeding $60 million or revenue exceeding $30 million and that is assessed over the two preceding accounting periods. I am not sure whether that is $30 million in total over those 2 years from memory or whether it is $30 million per annum average. In any event you can see in respect of companies that have got $60 million of assets or revenue exceeding $30 million that they are large companies and for them the compliance costs of being required to comply with each and every one of the increasingly complex requirements of the general accounting principles and the specific requirements that come through from the accounting rules bodies that are run by the New Zealand Institute of Chartered Accountants and the like which are increasingly international rules. You can see that it is no great cost for them relative to the size of their business to go to the nth degree and prepare accounts that are very detailed.In respect of companies that are not quite that big but might have 10 or more shareholders if they have a vote amongst their shareholders and the shareholders by 95 percent majority want to opt out of compliance they can. I support that measure as well. That is very sensible. I agree that it ought not to require unanimity because one shareholder who was a troublemaker or who had fallen out with the other shareholders could effectively impose quite a large financial burden on the rest of the company despite the fact that 95 percent of the shareholders were happy to opt out of strict compliance with the most precise form of financial reporting.In respect of companies with fewer than 10 shareholders the rules are slightly different again as I understand it. If shareholders who hold 5 percent of the company’s shares require the company to comply then it must comply but unless they do it does not have to. So the onus is different there. In respect of the 10-shareholder company the default position is that it has to comply unless there is a resolution with 95 percent support that says that it does not have to. In respect of the smaller company with fewer than 10 shareholders the default position is that it does not have to comply but if 5 percent of the shareholders say that they want the company to comply then it has to. I think that that is an improvement on the status quo and I think that will reduce compliance costs and accounting bills.I was not on the Commerce Committee which heard this submission but I would imagine that the New Zealand Institute of Chartered Accountants was supportive of the changes. Can I thank the institute for that because it has tensions within its own organisation. Some of its members profit from the more complex requirements of greater specificity of compliance with accounting rules and for them to put their self-interest aside and say that on occasions they think that companies should be released from these more onerous obligations shows that they have an interest in the performance of the New Zealand economy and keeping compliance costs at a reasonable minimum.In respect of audit requirements the same opt-in and opt-out rules apply. Again this is a very good change. Large companies other than those that are required to register their financial statements—if you are a public issuer of securities to the public for example you have to file your financial statements with a regulator every year. Effectively you cannot opt out of audit requirements. I am not sure whether that arises from this legislation or the securities legislation but if you are a public issuer you have to have audited accounts.Hon Craig Foss: FMC.Hon DAVID PARKER: What is that? FMC. It is from the Financial Markets Conduct Bill. Large companies that are not public issuers can opt out if they have a 95 percent majority vote from their shareholders. So again the default is that they have to have an audit but if the shareholders pass a positive vote with 95 percent support then they do not have to go through that audit cost and they save that cost. In respect of those audits they have got to be carried out in accordance with auditing and assurance standards but the registrar in respect of overseas companies can recognise overseas standards.Charities will be required to prepare financial performance statements in accordance with generally accepted accounting practices. Currently there are no requirements in respect of charities. Given that a lot of these charities take money from the public it is appropriate that we have some level of transparency as to what is happening with the money that they say is to be used for a charitable purpose and that we want to ensure is.The PricewaterhouseCoopers view was that removal of the preparation requirements for detailed accounts for small and medium sized companies and the relatively high large entity threshold means that most companies in numeric terms will no longer be required under the legislation to prepare generally accepted accounting practice financial statements. That is an interesting point to note and an important point to note.I know that in the past politicians often got it in the neck from people who were running businesses who said that it was the taxman who drove a lot of compliance cost. Actually in some cases it has not been the taxman who has been driving compliance cost; it has been increasingly complex financial reporting requirements which have been required at a high level by Government legislation but at low level have been made more complex every year by way of changes to the accounting rules that actually have not been considered by Parliament but have been imposed by the bodies that are responsible for financial reporting rules—namely the accounting body that is responsible for those rules.I do not have time to go through the finer technical details of this bill which runs to 169 pages. I thank the Commerce Committee and the chair of that committee for the work that they did to bring this back to the House with the support of all parties. The changes that were made at select committee have the Minister’s agreement and we have got a better bill as a consequence. Again it shows the importance of the select committee processes. I think that is a wonderful thing that we have got in New Zealand that the likes of PricewaterhouseCoopers or other people who are interested can come to a select committee and say: “Look we agree with this in general but could you tweak this? It is not quite right as it is.” We do that at select committee and then as a consequence we get more practical legislation. I think that is probably one of the reasons why although New Zealand has got a small bureaucracy by international standards and we have only one House of Parliament we still manage to run ourcountry in a way that is pretty efficient because of the quality of our legislation overall. So the Labour Party is supporting this Financial Reporting Bill and recommends it to the House.