Financial Reporting Bill

I move, That the Financial Reporting Bill be now read a second time. The overall objective of the bill is to make financial reporting in all primary legislation consistent with the accountability and transparency goals associated with general purpose financial reporting. It makes three major changes. First, it removes the requirements for small and medium companies to prepare general purpose financial reports. This change will reduce compliance costs for many companies with revenue between $2 million and $30 million per annum. The Commerce Committee has not recommended any major changes to those provisions. Second, it will empower the External Reporting Board, or XRB, to make accounting standards for registered charities. Registered charities are already required to file financial statements, but there is no consistency, due to the lack of standards. Having standards will benefit registered charities because it will remove uncertainty about what is expected. It will also increase the quality of reporting and make it easier for users to analyse the financial statements and to compare charities.

The Commerce Committee made one significant change relating to charities. It has changed the definition of “specified not-for-profit entity” by increasing the threshold from $40,000 annual operating expenditure to $125,000. The main impact will be to reduce the percentage of registered charities that must report on an accrual basis from 45 percent to 25 percent. It will mean that an extra 5,000 charities will benefit because they will be able to meet their reporting obligations by using the External Reporting Board’s proposed cash reporting standard. In total, about 18,500 of the 25,000 registered charities will be able to report on a cash basis. I agree with this change.

The third major reform implemented by the bill is to generally tidy up the financial reporting across the statute base. Many different approaches have been taken to financial reporting over the decades, and there are numerous inconsistencies. The Financial Reporting Bill amends more than 80 other Acts. Taken as a whole, these amendments to other Acts represent a significant improvement to financial reporting settings in ways that are fully consistent with the accountability and transparency goals of general purpose financial reporting. For example, there are many different financial reporting deadlines in legislation at present. The bill as introduced proposed these deadlines be standardised at 3 months after balance date for preparation, plus 20 working days for filing what is required. Several submitters stated that these deadlines would be impractical for some classes of reporting entities.

The committee made two main changes relating to deadlines. First, for reporting entities to have filing obligations, the intermediate deadline for preparation serves no purpose and has been removed. For example, the deadline for entities that will eventually become financial markets conduct reporting entities will be 4 months to file, without there being any mention of a preparation deadline. This will provide those entities with more flexibility to allocate time between preparation, audit, and filing. Again, I think that is a sensible change.

The other main deadline-related change is to require other classes of reporting entity to discharge all their reporting obligations within 5 months of balance date. This change will, for example, benefit large companies that are not issuers by providing 1 more month than was originally proposed by the bill. This is a 1-month reduction in the deadline compared with the current requirements for companies under the Financial Reporting Act 1993. All told, the position that the committee has reached on the deadline issue represents a good balance between the benefits of timely reporting and the need to provide a realistic amount of time for the work to be completed.

The last major change considered by the committee relates to the proposals to consolidate financial reporting obligations for all financial markets conduct reporting entities. These changes were not included in the Financial Reporting Bill, because the Financial Markets Conduct Bill has not yet been enacted. Instead they appear in Supplementary Order Paper 93, which was tabled on the same date that the Financial Reporting Bill was introduced, on 28 November 2012. The committee has not recommended any changes to the Supplementary Order Paper. The Commerce Committee has made a number of other amendments to improve the bill—for example, removing an audit requirement for a large company that is a subsidiary of another company that is required to have its consolidated statements audited.

To sum up, the bill makes changes that will both reduce compliance costs and strengthen accountability and transparency. There are some very important and useful improvements, although I note that there are no fundamental changes to the bill. I would like to conclude by thanking the members of the Commerce Committee for their work in considering the bill and the related Supplementary Order Paper, and by acknowledging the contributions of those who provided submissions on the bill. I commend this bill to the House.

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.

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 our country 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.

I am very pleased to stand and speak in support of the Financial Reporting Bill at its second reading. Thank you to the previous speaker, David Parker, for his comments regarding the select committee process, which I believe worked in a way that was very conducive to seeing some very important changes take place in this bill.

💬 Tim Macindoe: A very efficient chairman.

Thank you, “Mr Whip”.

One of the aspects that I want to touch on in terms of the select committee process was that we received a number of submissions—quite a considerable number—regarding the charities sector and the not-for-profit entities. Many of these entities—essentially charities—run on the smell of an oily rag, so to speak, and it is important, as the previous speaker so rightly said, that they are accountable to their donors. But at the same time we do not want to encumber them with such expensive accounting requirements so that probably too great a proportion of their receipts are spent on that administrative burden. So finding the balance was important.

The committee, on receiving many submissions, came to the place, in terms of the difference between a cash set of accounts and an accrual set of accounts, where we lifted the threshold that was stated in the original bill for a cash basis set of accounts from $40,000 up to $125,000. Essentially, a charity or a church, or whatever, that is able to employ a full-time worker or minister would generally have an income of around about $100,000-plus, perhaps a bit more, and may not have the administrative support, when they have that level of income, required to do an accrual set of accounts. The difference, essentially, between a cash set of accounts and an accrual set of accounts is that accrued revenue is revenue that is incurred or recognised before the cash is received, and accrued expenses are expenses that are recognised or incurred before cash is paid out.

So it is actually quite complex to create a set of accounts. It often needs a professional and often also an auditor to check on the work that has been done in that regard, as opposed to just a cash-in, cash-out system, which is far simpler. There are many software packages in the vicinity of $100 to $200 that handle cash book accounting very, very proficiently. We felt that once a charitable organisation was receiving an annual income of greater than $125,000, it was a reasonably sized entity that was probably incurring a reasonable amount of accrued expenses or revenue, whether that be from interest or perhaps an invoice for maintenance on a property it owns or whatever. We felt that members of organisations that have that vicinity of income probably do need to have a more thorough set of accounts. So we worked through that process. I think some submitters wanted that threshold to be higher, but we felt that that was a reasonable balance to find.

The intention of this bill, as I come to a close now, is to rationalise the financial reporting obligations by doing a number of things apart from what I have just mentioned. It aligns such obligations with the goal of financial reporting to provide information, obviously, to external users, to members of societies, to clubs and charitable organisations, and also to shareholders and the like, who need an entity’s financial statements but cannot demand them. It also serves to standardise the interface between the Financial Reporting Act and other Acts by setting out core definitions and provisions with broad application to reporting entities in a new Financial Reporting Act. More important, it makes the language of financial reporting consistent in all the pertinent Acts. So it is harmonising such terminology so that it becomes understandable and becomes a useful document for people.

I am very happy to stand in support of the Financial Reporting Bill. I thank the members of the Commerce Committee for their cooperation in getting this through in a timely way. I think this is going to be of benefit to organisations throughout our country. Thank you.

I rise to support this Financial Reporting Bill. The Labour Party recognises that this is good and important legislation that is being progressed by the Government, and we like to support good legislation. We support it because, in principle, we believe in reducing unnecessary compliance costs for businesses so that they can get on with the job that they have of growing the economy and creating jobs. It is sobering to remember that under this Government currently there are 2,500 fewer businesses per year being created. That is very disappointing. We have an environment that is not particularly supportive of small business in New Zealand, and our international rankings on competitiveness have dropped in a recent survey, from 15th to 24th in the world. That speaks volumes about the priorities of this Government, which sit at the big end of town. It is not terribly interested in looking after the little guy in business generally.

However, in this case there is an important exception, and it is great to see the National Government actually stepping up and making some things simpler for small business. Before we get much further in, it is important to remember the new Māori proverb: “Te ōhanga ripoata koretake rawa i ngā tau e 50”.

💬 Iain Lees-Galloway: What does that mean?

It is a proverb important in Māori Language Week. It is a contemporary proverb. My colleague Mr Lees-Galloway asks what that means. “Te ōhanga ripoata koretake rawa i ngā tau e 50” means “The worst economic record in 50 years”. It speaks to the performance of this Government, which has seen in real terms real wages, the median wage, drop, fewer jobs in the economy, and many New Zealanders struggling. Te ōhanga ripoata koretake rawa i ngā tau e 50. This Government can and must do better if it is to improve its record, and not be regarded as the worst Government in the last 50 years. Certainly so far it has the worst economic record of any Government in New Zealand in the last 50 years.

To return to some of the detail of this bill, its overall effect is that most small to medium sized enterprises will no longer be required to prepare generally accepted accounting principles—GAAP—compliant accounts. That is a good thing. Such accounts are important for large international firms that are to be compared internationally, but the requirements are burdensome, onerous, and, in many cases, completely unnecessary. There is a balance to be struck, as previous speakers have mentioned, between accountability, which is important and must be found at an appropriate level, and the ability of small firms, charities, and others to get on with the business that they are there to do, without spending a huge portion of their revenue on preparing accounts. We can imagine that in the case of charities that is completely counter-productive. It is also counter-productive in the case of small business.

The objective is to provide information for external users who have need for an entity’s financial statements but are unable to demand them. This bill sets out the appropriate circumstances for that information to be available. It is about public accountability and transparency where the public do have a vested interest—for example, if an entity is effectively owned by taxpayers or ratepayers, where it has sought funding through debt or equity instruments that are offered to the public, where it takes deposits from the public or it holds assets in a fiduciary capacity, or where it receives donations and bequests. In those circumstances, of course, public accountability is important, and higher standards are required. Likewise, size matters, and there is in the bill a rule suggesting that larger entities must report, because it is more significant to a national or regional economy if they fail.

Finally, there is an element of accountability, in terms of separation, to owners or members of an entity if they are likely to need financial statements. If they do not manage the entity, this gives them the option of having those statements. In all those cases we can see it is important that there is a higher level of accountability and of transparency, and that it is well worth having these statements available. Markets, as we know, make excellent servants but very poor masters. We need efficient and effective markets, particularly where they are large and particularly where they have an impact in a broader national or regional community, particularly where the board members are removed from the management on a day-to-day level, and particularly where taxpayer interests are concerned.

So for all of those reasons we think the Financial Reporting Bill is a good piece of legislation overall. It does actually reduce the compliance on small business in some small way. It is better to have a few small tentative steps from this Government in that respect than none at all. We want to see small business prosper. We want those hard-working New Zealanders who will put their mortgages on the line, who borrow money, or who try to scrimp to get by to have a successful enterprise in which to create jobs and opportunities for New Zealanders. We want them to get ahead. We want there to be an appropriate level of scrutiny—not too burdensome, nor too light—and we think that this legislation moves New Zealand towards that end in some small way.

Supplementary Order Paper 93 for the Part 2 reading of this bill makes some amendments that are primarily due to proper process and to the interaction between the Financial Markets Conduct Bill and this bill, and therefore we think that, broadly, they seem to be in line with what should happen and, again, show good process on the part of the Government. That is in stark contrast, I must say, to some of the bills that were put forward under urgency last night, particularly the Copyright (Parallel Importing of Films) Amendment Bill where we discussed Mr Faafoi’s interest in The Smurfs and the Magic Flute and Mr Mallard’s interest in Notting Hill. It was an entertaining session, but arguably quite an unnecessary one and a sign of poor process on behalf of this Government. But Labour is happy to support a bill where there is good process, where it reduces the compliance on business and charities so they can get on with their jobs, and where there is an appropriate level of scrutiny. Therefore, Labour will be supporting this bill. Thank you.

Tēnā koe. Tēnā koutou e te Whare. E ngā mana, e ngā reo, e ngā mātāwaka, e rarau mai nei, tēnā koutou katoa.

[Thank you and greetings to you collectively, the House. To the authorities, languages, and ethnicities settled here, salutations to you all.]

I rise to speak on the second reading of the Financial Reporting Bill, which is quite a huge bill that generated a lot of interest. We heard a lot of submissions on the Commerce Committee. Although, unfortunately, I was not able to be present for all of those submissions, I have gone through them at length. The primary purpose of this bill was to simplify the financial reporting and remove the onerous requirements for small and medium businesses to comply with generally accepted accounting practice, or GAAP. The Green Party can support this bill as it is, although it probably does not make all of the changes that we would like to see.

Financial reports are important for a couple of reasons. It is important that investors, consumers, the general public, and shareholders are able to get information about what is going on with the financial health of an organisation. I, personally, in my work as a parliamentarian, find financial reports quite a useful source of information, particularly on State-owned enterprises. It has been a very interesting process for me to learn how to read financial statements, because it is not something that they give us training on when we are elected to Parliament. The Victoria University of Wellington has excellent short courses on accounting for anybody who would like to learn more about reading and interpreting financial statements.

It is really important—and PricewaterhouseCoopers made this point in its submission to the Commerce Committee—that the financial reports are important not only for those who are reading them and using them but also for the organisations themselves who are going through the process of complying with the financial reports. Having an acceptable standard that large entities are all complying with is extremely important for those reading and using the financial reports, and also for the organisations themselves. But, as has been noted by previous speakers, in New Zealand the requirement for small organisations—and we have quite a lot of small to medium enterprises here in New Zealand. The Green Party very much supports small business, and we would like to see more great, smart, green, entrepreneurial activity and more small business that is helping our society and our economy transition to a sustainable and fair footing.

For those small to medium enterprises, having to comply with the generally accepted accounting practice—or GAAP standard—was extremely onerous and required quite a bit of resource, so the main proposal in this bill is to remove the requirement on small and medium companies to prepare annual financial statements in accordance with those GAAP standards.

There was widespread support for this change. Four submitters disagreed with the provisions that define a large entity. One stated that fewer firms should be regarded as large, while three stated the opposite. I think that the officials did quite a good job in identifying the balance for what should be considered large and what should be considered small to medium.

A second proposal in the bill was to require registered charities to prepare financial statements in accordance with accounting standards issued by the External Reporting Board, also known as the XRB. All submissions that commented on this issue agreed with the broad proposal but disagreed with some of the specific provisions. Several submitters considered that the dollar amount for eligibility for simple format cash accounting—which is annual operating payments of less than $40,000—should be substantially increased. No submissions stated that the amount should be reduced.

So we heard from a large number of submitters at the Commerce Committee, and there was broad support for the bill, but there were quite a lot of small points of disagreement that were raised by submitters. It was quite a wide variety of organisations that came and submitted to us. We heard from the big accounting firms, of course, like KPMG and PricewaterhouseCoopers. We also heard from quite a lot of small not-for-profits and charities that were going to be affected by the changes in this bill. We heard from community law centres and we heard from companies like Air New Zealand, Meridian Energy, and State-owned enterprises, and they all had quite a lot of useful information to bring. I found it a very edifying process sitting on the committee, listening to submissions, and reading through the submissions.

Another big issue that was raised by organisations was the proposal to change the time line on which financial reports need to be completed. There had been a recommendation, I believe from the IMF—New Zealand previously had a deadline of 5 months, and the proposal was to move it to 3 months for financial reports to be prepared and submitted. We heard pretty much all of the submissions suggest that the shift from 5 months to 3 months was going to impose quite large costs, because it would suddenly mean that there was a shorter period in which everybody was competing for accountants and having to get their books in order. I think the compromise that was reached was that the deadline would be 4 months. So there is a requirement to have those financial reports done a little bit earlier but not quite the 3-month period.

I suppose that was particularly important to organisations like, for example, retirement villages. Their shareholders and the people investing in those retirement villages do not actually use the financial statement as much as other means to determine whether or not the accounts are being handled properly and whether the organisations are in good financial health. So imposing this shorter time frame on them would impose big costs, and, at the same time, it would not necessarily bring any benefit. I thought that was quite a reasonable compromise, to go with it for 4 months.

There was another change around the true and fair override provision, which previously was something that happened in legislation and is now being incorporated in the accounting practice and accounting standards. Fair and true override allows the reporting entity to depart from the recognised rules and accounting standards if the management concludes that compliance with the standards would conflict with the objectives of financial reporting. In other words, if there were some facts about the financial state of the organisation that were going to be less clear by the way that the financial reporting standards require them to be reported, then the organisation does have the possibility to depart from those standards to give that information in a clear and true way.

The current approach was seen to be working well by the submitters who commented on it, that was the big four accounting firms, the Institute of Chartered Accountants of New Zealand—and there was one other submitter who commented on this. They thought that it would be best if all jurisdictions used the same approach to measurement and recognition, like those appearing in the standards by the External Reporting Board, and that it would be clearer if the issue was covered in legislation rather than accounting standards. We heard from officials that there were issues with that, and we have decided not to change the bill. So true and fair issues will be governed by accounting standards rather than prohibited by legislation.

I am sure that New Zealand citizens at home watching Parliament TV this morning under urgency are absolutely riveted by the detail of the Financial Reporting Bill, and if they have any other interest, I am sure they can find out more online. I welcome their further participation. I look forward to the Committee stage of this bill. Thank you.

Tēnā koe, Mr Assistant Speaker, in this Māori Language Week. I also speak in support of this Financial Reporting Bill. It is a very good bill. It was introduced by the Minister of Commerce Craig Foss. What it really does is it improves the way that we report on financial entities across this country, whether they be large or small, by making all-purpose general financial reporting consistent—consistent with the objectives of our financial reporting system. It has got to have the confidence and trust of investors, and the confidence and trust of creditors, but also the trust and confidence of those who read financial statements and who must make decisions based on those financial statements. It is another example of this Government demonstrating its ability to support not just small and medium sized enterprises but also large businesses, and supporting them to go about their duties and obligations, not constraining them with red tape and bureaucracy—as we found under the Labour Government, the 9 long years of the Labour Government—but allowing them to prosper, and not bogging them down with red tape and bureaucracy.

By cutting down on expensive and unnecessary reporting obligations, it builds a competitive economy. It allows employers to hire more people. It also means that financial reporting is done in an appropriate, constructive, and transparent manner. We know that more than half a million companies are registered in New Zealand, and all of them, regardless of their size, are required to prepare financial statements. We know that small to medium sized enterprises are the engine room of the New Zealand economy. They provide many jobs and opportunities across our country, and it is important that they feel confident in a system that supports them.

What does this bill do? Well, it clarifies what is expected of charities, improves the quality of financial reporting, and allows for easier comparisons between charities. The Commerce Committee received and considered 44 submissions, and we heard 16 submissions. I am glad the previous Green speaker, Julie Anne Genter, also enjoyed, and received well, the submissions that were made, because we did at least hear from practitioners on the front line who are dealing with their constituencies, who are dealing with their customers—their consumers—and who are dealing with people out in our communities.

The committee responded to that by increasing from $40,000 to $125,000 the threshold at which not-for-profit entities must prepare financial statements on an accrual basis rather than a cash basis. That was a reflection of, and in response to, some strong submissions from various charities, as well as from accounting firms and others that deemed the $40,000 threshold level to be insufficient. What it does is it reduces the burden on small charities, which may not have the capacity to prepare such accounts. They are often one-person or two-person operations and they do not have the capacity, the abilities, or the resources to prepare such accounts.

We also extended the deadline by which large companies that are not issuers must prepare financial statements, from 3 months to 5 months of the balance date—again, in response to submissions we heard—in order for those companies to have sufficient time and sufficient resources to apply to their accounts from the balance date.

The committee did its job. The Minister has done his job. This Government is doing its job to promote our small to medium sized enterprises in this country, which supports our economy and supports our families in our communities, and that is why I support this bill.

Kia ora, Mr Assistant Speaker. Thank you very much for letting me take this call on the Financial Reporting Bill. Is it not interesting, hearing from the previous speaker, Peseta Sam Lotu-Iiga? The Government is obviously under some illusion that this is all new to New Zealand commerce, all new to New Zealand companies, and all new to this economy, and that National has suddenly come up with these bright, brilliant ideas. These are the sorts of ideas that have been talked about for many, many years, by many parties in this House and many administrations in this House: how to reduce compliance costs, how to make the economy more efficient, and how to reduce the burden on, particularly, small to medium sized enterprises, which do find it very, very painful trying to meet the bureaucratic hoops that they have to jump through on a daily basis. In this respect, New Zealand First has always said that we want to reduce the cost to business, we want to make this economy more efficient, we want to help New Zealand business grow the economy, and we want the economy itself to be far more competitive.

In that respect, New Zealand First supports this bill because, although it is very much an administrative bill and it tidies up something like 80 other Acts, and it tidies up the Financial Reporting Act 1993 to improve those compliance and reporting standards, it also is common sense. New Zealand First has said in this House time and time again that if the Government puts up common-sense, good policy, we will support it; if it does not, we will oppose it. In this case, there is common-sense, good policy throughout, and we welcome it, particularly, as I said, for smaller companies. They will not have the same level of complexity of reporting as larger companies have. Many of our small to medium sized enterprises in New Zealand are run by small family operators—husbands and wives, small management teams—and really they do struggle, at times, to meet all the red tape. In this respect, this bill will help. It will help them get on and actually do what they need to do: actually sell their goods, sell their services, and do business. That in turn will help employ more New Zealanders, which in turn will help grow the economy, which in turn will result in more revenue coming to the Government in the way of an increasing economy, with more money going around, rather than those businesses spending so much time filling out forms and filling out bureaucratic nonsense, half the time, just so that bean counters and bureaucrats sitting back in their offices can justify what they are doing.

In this respect, I will highlight one particular aspect, which is the amendments to the Retirement Villages Act. We are not on the Commerce Committee, but it was brought to my attention that the original legislation that the Government had brought before the committee was going to provide a huge burden on the retirement villages throughout New Zealand in terms of their reporting. The time frames that were being laid down were just going to be simply impossible, reducing it to 3-monthly reporting. Also, I note in new section 35B(2) that originally it was going to be: “The operator of a retirement village must lodge a copy of the financial statements of the operator and each village, within 20 working days after the financial statements are required to be signed”. Those 20 working days now, under the bill, have changed to “5 months after the balance date of the operator,”. So is not that interesting, Mr Lotu-Iiga? He says what a wonderful job this Government is doing, but this Government put up original legislation that was going to put such an incredible burden on retirement villages to report within 20 days of their financial statements. Now they see that a 5-month period is more suitable, so that they can actually do the reporting correctly, and not try to, under an absolutely pressure-cooker situation, try to get information into the system.

This bill also brings into line the obligations of charities and other such entities. That is a good thing because, as we have heard from other speakers today, increasingly there is the growing need for more and more charities in this country because often the Government itself is not delivering. Often the Government itself is handing over the needs of our communities, the needs of New Zealanders, to the charities, asking them to perform the functions that previously central government used to provide, and now more and more New Zealanders are having to go to charities for their assistance. However, it is, as a result, important that those same charities be required to report in a responsible manner, to the same level of reporting as is the case with many other small business enterprises, and that is a good thing.

I will not go any further, but I will say that this 169-page bill does tie things together; it does bring a lot of things together. It refers to a huge number of previous Acts that will also be brought into line with this Financial Reporting Bill. It does help the New Zealand economy be more efficient. It does help with the overall cost of compliance of doing business in this country. Therefore, it can only be a good thing, and New Zealand First supports the bill.

Sat sri akaal, and mōrena, Mr Assistant Speaker. It is my pleasure to stand in this second reading of the Financial Reporting Bill. First of all, I would like to congratulate the Hon Craig Foss on bringing up this bill, which is consistent with the policy of this Government to reduce red-tapism. National is focused on boosting growth and creating jobs. Only a strong economy can provide financial security for families, real opportunities for young people, safer communities, and the high-quality education and health services that all New Zealanders need.

I would like to congratulate Jonathan Young, the chair of the Commerce Committee, on his leadership, and other members who have really worked hard on this bill. I would also like to thank the officials for their work during the deliberations on this bill.

I would like to speak to this bill from the perspective of the ethnic community. I would like to touch on two things from the perspective of small to medium sized enterprises and charities. I owned a small business, and I know it is difficult to meet those obligations under the statute, because a lot of paperwork is required and a lot of time goes to accountants to prepare the financial reporting. As a volunteer, I served in a charity for 8 years, and I know it is very difficult for charities to prepare and get volunteers to do the work for their financial reporting.

The Financial Reporting Bill replaces the Financial Reporting Act 1993 by reforming the Act. This National Government seeks to rationalise financial reporting obligations across the statute book in three ways. First of all, the bill ensures that all reporting obligations are consistent with the goals of financial reporting so that the external user can use simplified data in a meaningful manner. Secondly, definitions and provisions are standardised between the Financial Reporting Act and other legislation. Thirdly, the new bill makes the language of the financial reporting in different Acts broadly consistent. The reform is needed in legislation to ensure that out-of-date rules and regulations are replaced with the current requirements.

New Zealand has got more than half a million companies registered that are under the size of 20 employees. For small and medium sized companies, financial reporting can be an expensive and unnecessary exercise. The Financial Reporting Bill has requirements that allow small businesses and medium-sized companies to direct their resources to where their need is greatest—that is, growing their businesses. From the charities’ point of view, the bill proposed that there should be a $40,000 threshold for charities’ financial reporting, but when the select committee heard the submissions, it was deliberated that $125,000 should be the minimum requirement for a charity to report back its financial statements. So with these changes, I think the bill will be very well received by the different submitters, and I hope this will go a long way. I commend this bill to the House.

Tēnā koe. Ko Titirangi te maunga. Ko te Whau te awa. Ko Hoani Waititi te marae. Ngāti Pākehā te iwi. Te Roopu Reipa te mahi. I would like to honour Māori Language Week. I would like to acknowledge members who have spoken and to reaffirm that Labour supports this Financial Reporting Bill. This bill has benefited from the work of the Commerce Committee, and I recognise the chair and the members of the select committee who are here in the Chamber today.

The bill seeks, as my colleague David Parker said earlier, the right balance between the reduction of unnecessary compliance costs and the maintenance of proper standards of accountability and transparency for companies, for charitable organisations, and for other forms of entities such as friendly societies. The select committee and the Government have wrestled with where that boundary line should be, and in these brief remarks I would like to draw upon several of the boundary issues. But before I do that, let me say that Labour’s support for this bill reflects our determination to reduce unnecessary compliance costs wherever available. Compliance costs—red tape—are a bit like a hedge. You need regulation to maintain boundaries, but if you do not take the clippers to it occasionally, it tends to get a little overgrown. As David Parker said earlier, this bill is a worthy tidy-up bill. It is a bit of housekeeping, if you like. It is where Parliament gets the hedge clippers out and tidies up some of those boundary fences around our company law, and that is an appropriate thing.

I would note, though—if members will forgive me, in a fairly technical bill, a slightly political comment—that there is a bit of spin from the other side sometimes that Labour somehow likes compliance costs. I think our support for this bill really puts that ghost to rest. It is about as true as the spin that Labour somehow likes fiscal deficits. Of course, members of the public know very well that in the last 15 years, certainly since I have been in Parliament, Labour has never ever, ever when in Government run a fiscal deficit, and we do not plan to. National, since I have been in Parliament, has never ever, ever run a fiscal surplus. It does plan to, but, as we have said in earlier debates, there is so much smoke and mirrors in Budget 2013 that it is very difficult to discern whether that will actually occur. The third piece of spin that I would just draw attention to on the way through is that somehow Labour is anti-growth. As I have said before in this House, if one examines a 30-year history of economic growth data and matches it against the periods when Labour and National have led the Government, the conclusion is irrefutable that growth rates, on average, in a 30-year cycle have been higher when Labour has been in Government. We have taken the concept of growth strategy very, very seriously. We have been prepared to get the efforts of the State squarely in behind that. It does not always follow, to be fair, that business confidence reflects higher economic growth under Labour, but none the less I make the point.

May I just quickly pick up the point that several previous speakers have made about small and medium enterprises and endorse what members opposite have said. Small and medium enterprises are absolutely crucial to New Zealand. They are about 80 percent, by number, of our businesses, and they employ about half of the total employed workforce. But, as David Clark said earlier, there are currently 2,500 fewer new businesses being created per annum, and that is something that I think both sides of the House would wish to see turned round. Our business failure rate is that four out of five new businesses go belly-up in the first 2 years. That is a matter that is not new; it has been across different Governments. But it stands in huge contrast to some of the rapidly developing countries of South-east Asia, where the small business survival rate is the other way round; it is an 80 percent survival rate. I think the House and the Government need to think carefully about how we can reverse that trend.

Let me go to the key issue here, which is the boundary between transparency and reduction of unnecessary compliance. The requirement under the bill to prepare general-purpose financial statements will apply to large companies and large overseas companies that carry on business here. They are defined as having assets including $60 million worth of turnover; having revenue exceeding $30 million; having more than 10 shareholders—through a 95 percent vote they can opt out; and having fewer than 10 shareholders, if shareholders who hold at least 5 percent of the voting shares require the company to comply. A number of different audit and financial statement requirements follow from those definitions, but those are really at the heart of this. What the bill is trying to do—and Labour supports, with some need for ongoing vigilance, this attempt at a boundary—is say that if a company has a large number of disparate owners or shareholders, then it absolutely needs to provide a full set of financial reports, provided it is not effectively de minimis in scale.

If a company is either very small or it is very closely held, then it may not be necessary to provide the full set of audited financial accounts. That is the core principle in the bill. That is a principle we agree with. But let me just lay down a slight caution that if it were to transpire that the new flexibility was abused because, for example, companies that were effectively large and relatively widely held found a back-door way of redefining themselves as being narrowly held for the purposes of avoiding legitimate accountability, that is something that I think a future Labour Government should and would want to take seriously and could cause re-amendment of the law in this area.

I would like to compliment the Commerce Committee very briefly on two amendments that it made. The first was to increase the threshold for registered charities to not have to prepare full financial statements. That threshold has been increased, appropriately, on the basis of latent CPI movement from $45,000 to $125,000 per annum turnover. It also looked at the provisions of the Financial Reporting Act 1993 that restores an exemption that was omitted that would exempt inactive companies from the requirement to prepare financial statements. That is good, common-sense stuff. The select committee also—and I think Carol Beaumont would particularly agree with this, given her work in the area—assisted friendly societies to take a common-sense approach to their financial reporting obligations where they are small or closely held.

With those remarks, may I compliment the select committee. Often we have pretty vigorous debates in this House, and the public does not always see Parliament working harmoniously in a bipartisan fashion on the sort of nuts and bolts legislation that affects us all. I think that the public of New Zealand would be pleased to see Parliament working consensually on matters of detail of this kind. It does, as other speakers have said, reflect well on our parliamentary system.

It is a pleasure to take a short call on the Financial Reporting Bill. It is a very good bill. It is a bill that is in line with the Government’s Business Growth Agenda. It is a big part of our aim to reduce red tape and compliance costs for small and medium sized businesses, especially as they make up 70 percent of the New Zealand economy.

I would just like to address the comments made by Andrew—Williams, was it?

💬 Peseta Sam Lotu-Iiga: David Cunliffe.

Oh, David Cunliffe. It was also Andrew Williams too, actually. The select committee process is actually a very good process that does work. If there are changes that need to be made to bills and tweaks that need to be made, it is the select committee process where this happens.

There were two very good changes made through the select committee process, as Mr Cunliffe and Mr Williams mentioned. The first was to increase the threshold at which a not-for-profit entity must prepare financial statements on an accrual rather than a cash basis from $40,000 to $125,000. That is actually a big move, and that will help reduce compliance costs.

The second was to extend the deadline by which large companies that are not issuers must prepare financial statements from within 3 months after the balance date to 5 months. This too is a very, very good change. I am very happy to commend this bill to the House.

Tēnā koe, Mr Speaker. Ngā mihi o Te Wiki o Te Reo Māori. Labour supports the Financial Reporting Bill because our primary focus in all things right now is to get New Zealanders back to work and to grow jobs in this country. That is why, in the way that this bill seeks to do, we are seeking in all possible ways to reduce structural costs for businesses, such as seeking to reduce the price of electricity for businesses as well as households, and to try to boost innovative companies through things like research and development tax credits. It is only by doing those sorts of things that we will really see job growth in New Zealand.

I am not talking about the kind of job growth that sees everybody working at Burger King, McDonald’s, or Pak ’N Save, I am talking about the kind of job growth that gives people decent salaries so that families have enough to take home so that they can make ends meet, so that they can afford their house in Auckland, and so that they can raise their families in a stable and financially secure situation. That is the kind of thing that Labour is focused on.

We believe that in a small way this bill contributes to that. It will do two things. One, it does reduce unnecessary compliance costs for businesses, so that they can get on with the job of growing their business and creating those jobs that New Zealand so desperately needs. The other thing it does is that it improves transparency and gives the public greater confidence in the conduct of those entities.

What I particularly like about this bill is the flexibility that is contained within it. Large companies and large overseas companies that carry out business in New Zealand will have quite stringent reporting expectations on them, although those larger companies, where there are 10 or more shareholders, with a 95 percent majority vote, can opt out of the compliance if their shareholders are comfortable with that. Indeed, in respect of smaller companies, if their shareholders want their companies to adhere to greater levels of compliance, so that there is greater transparency, then that is possible in this bill, as well.

A lot has been made of the select committee process. I know that the Hon David Parker talked about the excellent process we have whereby companies, organisations, accounting firms, and the people who have knowledge about the issues of business financial reporting were able to come and suggest changes to the bill, and it has come back to the House in a better form than when it went to the select committee. That is part of creating a robust, transparent, and secure business environment in New Zealand, knowing that we have a sound legislative process that is designed to make for good lawmaking, and that is important for growing businesses as well.

An important aspect of this is also that charities will be required to prepare financial information in accordance with generally accepted accounting practices. A lot of charitable organisations rely on public money as well as money raised from our communities. It is important that they are able to transparently advise the public of how those moneys are being spent.

All in all, although this is pretty minor in comparison to the significant economic shift that the Labour Party proposes and that the Labour Party will institute once it is next in Government, in its own small way this bill helps towards the Labour Party’s vision for New Zealand, where people are working in high-paid, high-skilled, and meaningful jobs. For that reason we will support the bill.

Bill read a second time.