Parker David: Financial Reporting Bill — First Reading 
Text is incorporated into the Bound Volume 
Parker David: Financial Reporting Bill — First Reading 
[Sitting date: 28 November 2012. Volume:686;Page:6900. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 Can I thank the Minister of Commerce for his contribution. The Labour Party will be supporting the Financial Reporting Bill which is good legislation. This sort of housekeeping or administrative legislation generally goes through with cross-party support and it ought not to be seen as being insignificant legislation because it is not contentious. It is actually very important legislation despite not being contentious. 
I want to mention a couple of aspects. Can I congratulate the Government on proper process in respect of Supplementary Order Paper 93 which has lain on the Table for so long. Really once this goes out and is advertised submitters will have an appropriate period to become properly aware of these complex issues and to submit upon them in a way that is appropriate. I want to make those congratulations to the Government because I am also at times critical when that does not happen. This is an occasion when it is being done properly and the Government ought to be congratulated on it because through this we get good legislation and we actually make our country run better than is otherwise the case. 
I am also pleased with these changes that are being made to make less prescriptive the accounting requirements for smaller companies. I think that for too long in New Zealand we have driven compliance costs—and we often hear accountants opining on the radio that the biggest problem in economic performance is compliance costs when the difficulty of complying with their standards has actually been one of the biggest drivers of costs for small businesses which have to comply with accounting standards that are more technical and complex than is necessary having regard to the nature of their business the size of their business and the ownership structure of their business. So I am pleased that we are removing the necessity to meet all of the accounting standards that apply to larger corporates in respect of smaller entities. In place of those we are going to have practical guidelines produced as to what are necessary accounts for taxation purposes. None the less you know there needs to be proper accounting so that we can properly assess whether people are paying their tax. But those requirements do not need to be as expensive and complex as the financial reporting standards would be in respect of larger entities. I think that that is a very important change and it is one that I wholeheartedly support—in fact I have personally called for that for a while. 
In respect of the obligation to have financial reporting for issuers whether they are issuers of debt or equity instruments I think we have to take care around this that we do not over-regulate this space also. I have said this previously and we will be looking at this legislation to make sure that we are going in the right direction in respect of this. For example if you are an issuer or have been an issuer for how long does this obligation last? Should it last for ever? I do not think it should last for ever. 
Michael Woodhouse 
: Well for as long as the securities have been issued. 
Hon DAVID PARKER 
: What was that? 
Michael Woodhouse 
: For as long as the securities are issued. 
Hon DAVID PARKER 
: Well the securities last for ever. If it is an equity security— 
Michael Woodhouse 
: No they could buy them back. 
Hon DAVID PARKER 
: No if the equity security is issued and it is for ever out there I do not think this company should necessarily have to have legislatively a higher audit and accounting framework than the shareholders might themselves want. So I do not see why after a period of years it cannot revert to being just an ordinary company that faces lower compliance costs. So no I do not agree that that should carry on for ever. Issuer audits are expensive meeting accounting standards as technical as they have become is expensive and I do not think that in all cases where you have an issuer raising money from the public they should have to go through those compliance hoops for ever. So that is something that I want to look at in the Commerce Committee or have the Labour members on the select committee look at. 
I also want to check on the quorum rules that are going to apply for opting out of some of these arrangements. If a charity requires a certain percentage of votes in order to avoid the more complex requirements is that a quorum of those who attend a properly called meeting or is it a percentage of all the members of the charity? If it is the latter it will be an impossible quorum requirement to meet. We have got these problems in respect of the management of Maori land at the moment and we ought not to be extending those impossible-to-meet quorum requirements to other areas. I think that that is another area that the select committee should be checking. 
Noting those matters that we need to check on as to detail I think this is good legislation. I think it is timely to remove some of the complexity that we have through having different accounting rules apply to different entities not because they are different in principle but because the legislation under which they operate was passed in different years. I think it is necessary to tidy that up. As I have already said I think it is also desirable that we remove compliance costs for entities that do not have to take the more complex route. I also think it is timely to review the processes that are going to apply to other entities that are not covered by this legislation but are covered by the Supplementary Order Paper that the Minister referred to. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
Hon DAVID PARKER 
: I was commenting earlier on the care that we need to take that we do not over-regulate entities that have raised capital from the public. I want to just develop that a little bit in the little time I have left. There is a public interest in companies being able to raise capital at the lowest possible cost so that small businesses New Zealand - owned businesses can expand and become bigger businesses New Zealand - owned raising money from the New Zealand public. We want to maximise the pool of people whom they can raise money from so that they have the ability to expand to their potential and do so in a way that makes them less reliant on overseas sources of capital rather than New Zealand - owned savings. 
I am a person who thinks that as a consequence it should be possible for a medium-sized New Zealand company to raise capital from the public through a public offering. If the cost of that becomes too high because of regulatory hurdles that we put around the process itself through securities laws increased directors duties or increased burdens upon auditors who face additional risks in the prospectus that is one source of cost that makes it more difficult for those entities to raise money. But another source of cost is if after the date of raising capital and issuing ordinary shares to the public we have ongoing extra compliance costs for those entities. That too represents a cost barrier that gets in the way in the development of the New Zealand economy particularly in respect of these new businesses that we need to grow into larger entities. 
I have a concern that we are now saying in this legislation if I have this correct that once a company is a public issuer it must for ever have the more expensive route of compliance in terms of compliance with international reporting standards and ongoing issuer audit requirements. I am not convinced that that is necessary. I think we should look at this at the select committee. Obviously for a period of years after you have been a public issuer there ought to be an audit to hold people to account for their promises in their prospectus and just to make sure that they are having taken money from the public accountable to the public. But if after a period of years the members of the company decide by an appropriate margin that they no longer want to have that more expensive compliance route why would we in this Parliament stop them going back to a cheaper route? 
Michael Woodhouse 
: We already do that. 
Hon DAVID PARKER 
: What was that? 
Michael Woodhouse 
: Can’t the Companies Act already enable them to do that? 
Hon DAVID PARKER 
: No I do not think it does. This is a good point. This is something that needs to be checked at the select committee because we ought not to be loading unnecessary compliance costs. 
As I said there are good aspects of this bill that reduce compliance costs on smaller businesses by having an easier alternative accounting route. That is to be applauded but I want to have a look at this issue there. 
The overall reason that we have decent financial reporting standards in New Zealand is that we need to keep transparent our processes we need to maintain our tax base and we need to have confidence in capital markets. All of these are important reasons why it is appropriate that we have guidance through legislation as to the conduct of commercial affairs so that we maintain a healthy and prosperous corporate and non-corporate sector which is obviously important. All business entities need to be appropriately conducting their affairs in a way that makes the economy strong.