Auckland Regional Amenities Funding Amendment Bill

So thank you, Mr Chair. I would like to talk about the preamble of this legislation. This legislation, actually, is quite straightforward legislation. It provides a technical fix to, I would say, a technical error that exists in legislation. It’s not entirely an error, but there is a difference in two pieces of legislation about how the Auckland regional amenities should be complying when it comes to their financial reporting.

So as we know, the Auckland Regional Amenities Funding Act 2008 requires them to provide financial statements, and the standard that is prescribed in that legislation is called the New Zealand International Financial Reporting Standards. But, now, these amenities are also charitable entities, so they comply with the Charities Act 2005 as well, and if we look at the standard which is required according to the Charities Act 2005, it’s different—that is the generally accepted accounting practice standard.

So the difference here is that the standard which is required according to the Auckland Regional Amenities Funding Act 2008 is not applicable for not-for-profit entities, and all these Auckland region amenities are not-for-profit entities. The standard which is prescribed in the Charities Act 2005 is more applicable to them, and so it makes sense that they are providing their financial statements and they are preparing their financial statements according to the standard which is in the Charities Act 2005.

Now, because of the change which was made a while ago—that was the 2014, 2015 time—what happened was that the standard now that is required according to these two pieces of legislation is different, and these entities have to prepare two financial statements according to these two standards, which makes no sense because it’s not like they’re trying to hide any information or provide any misinformation, or information that they don’t want to provide is hidden. So there is no misuse of a system, misuse of any resource. This is purely technical—purely technical. So this bill is about fixing it, changing the requirement in the Auckland Regional Amenities Funding Act to the requirement which is in the Charities Act 2005.

So this will give them a big relief, because at the moment it’s just duplicating their work. We don’t want them to do that. We want them to deliver the services they deliver to various communities. There are nine Auckland regional amenities, and these Auckland regional amenities are Auckland Observatory and Planetarium Trust Board, Auckland Philharmonia Trust, Auckland Rescue Helicopter Trust, Auckland Theatre Company Ltd, Coastguard Northern Region Incorporated, New Zealand Opera Limited, Surf Life Saving Northern Region, the Auckland Festival Trust, and WaterSafe Auckland Incorporated. I’m sure that members, especially members that are based in Auckland, will know these entities. They do a great job in the community.

I’m based in Mt Roskill, and I would say that according to the previous boundary of the electorate, the Stardome Observatory was part of that electorate, and they do a lot of work with spreading awareness about the knowledge of space and the universe. They run several programmes not only for children but grown-ups can also go and enjoy that kind of observatory and planetarium atmosphere they provide there, raising awareness about space and the universe and how it works.

So these amenities, as I said, they’d like to hold on to their charitable status, and for them, it’s really important that they’re complying with the Charities Act 2005. So it will be really useful if we make this change to the Auckland Regional Amenities Funding Act, through this amendment legislation, to allow them to prepare just one set of financial statements.

So overall, it’s great legislation, I would say, and there is a lot of support from all, of course, amenities. They wanted it. When I was talking to director David Houldsworth, I had a discussion and straight away I agreed to sponsor this bill because I could see that this is a simple fix, a technical fix, which is not going to do any harm to anybody and actually is going to bring some benefits to all these amenities.

So this legislation actually is something that will help all these amenities. I know that they did write to all Auckland-based members of Parliament, and I don’t know if all MPs responded to their letter, but I was really grateful to pick it up as a bill here. I’m really grateful to sponsor this bill, and I really look forward to seeing support, especially from Auckland-based MPs, for this legislation. Thank you, Mr Chairman.

Tēnā koe, Mr Chair, and thank you for the opportunity to take a call at the committee stage of the Auckland Regional Amenities Funding Amendment Bill. Can I just also begin by acknowledging the member in the chair, Dr Parmjeet Parmar, for the work that she has done on this bill and to bring this bill to Parliament alongside, of course, officials; the Governance and Administration Committee; submitters; and the specified amenities who, at the end of the day, are at the heart of this bill. As the member mentioned, this is a small and technical bill, but it is one that will make life a little bit fairer and a little bit easier for the specified amenities.

Now, the member has gone into a fair bit of detail in terms of who those nine specified amenities are. So I won’t traverse that ground, but suffice it to say that two in particular—and can I also just acknowledge their work because, you know, it’s work that they do across the Auckland region. As a member of Parliament based in Auckland, I see that work across various sectors: the arts, safety, and education as well. So just two, particularly: the Auckland Observatory and Planetarium Trust, or Stardome, as it’s colloquially known, and the member has pointed out, has actually moved into the Maungakiekie electorate that I’m based in now and very familiar with the good work they do. The other one that’s been mentioned in the House a few times before, the one that I want to draw a little bit of attention to, is WaterSafe Auckland, which was previously known as Drowning Prevention Auckland. One of the programmes that they offer is called the New to NZ programme—incredibly important to some of the groups that I specifically work with. Auckland is one of the most culturally diverse cities in the world, I understand now, and there are specific challenges for our migrant and refugee communities in Auckland, many who come from countries that are landlocked and therefore haven’t been privy to water safety education programmes. This specified amenity, WaterSafe Auckland, does a huge amount of work to address that. In the past five years, 93 preventable drownings, they have stated, and 27 percent of these were in the Asian/other category—the second highest preventable drowning group in Auckland. So just a just a quick nod to them.

Now, this bill fixes an anomaly in the financial reporting requirements that apply to those nine specified amenities that we have discussed already. Now, all those amenities are also registered charities and therein lies the issue that this bill seeks to address. So this bill would replace the requirement—so as the member pointed out, and I won’t go into huge amount of detail here either, but basically what has happened since 2015 is that these amenities have had to, strictly speaking, provide two sets of accounting reports, as I understand it, to adhere to two different standards. One is actually a subset of the other, but anyway. One is a standard for for-profit entities, the other one for not-for-profit entities, which is, of course, more applicable to these registered charities.

So anyway, what I wanted to discuss in my call as well is I know that we’re specifically talking about the preamble here, and that is the bit that lays out the two different standards that are required. Now, what it comes to is that in 2015, the Charities Act 2005 was amended to require that certain charitable entities—specifically those whose total operating payments are $125,000 or more—prepare financial statements in accordance with what’s known as GAAP, the generally accepted accounting practice. Now, the main problem, I guess, is that then that piece of legislation and the requirements stated there conflict with the reporting standard that they were previously using.

What I would like to ask the member in the chair, Dr Parmjeet Parmar, in the 30 seconds that I have left is whether there’s been any consideration as to whether the changes in this bill contradict any other piece of legislation, has there been consideration to make sure that we’re not going to be coming back here five years, six years down the track to correct something else, to correct another anomaly? So I’d really appreciate it if she could go into a little bit of detail to set our minds at rest, I guess, and to make sure that all anomalies have been fixed. Thank you, Mr Chair.

Thank you, Mr Chair. I rise to speak briefly on this bill. In particular, I want to thank Dr Parmjeet Parmar for sponsoring the bill. It’s a very good bill, and, of course, we had unanimous support at the Governance and Administration Committee. Also, I would like to thank all the submitters for their contribution—we had 15 submissions, and they made a great contribution to this particular bill—and, of course, all committee members for their contribution.

Now, most importantly, of course, as the previous two speakers, Dr Parmjeet Parmar and Priyanca Radhakrishnan, have mentioned, this bill is trying to correct an anomaly. Now, it’s very clear that these amenities need to have two sets of financial reports, which, of course, we believe is unnecessary.

In terms of the submissions, I would like to mention particularly the amenities board, which was established under the principal Act. The amenities board itself has been a promoter of this particular bill. I look at his submission. It’s a very substantive submission, with all the details of process and the reasons why we need this particular bill. Before the bill was submitted, they did a lot of consultation with the stakeholders and also with Government agencies. Therefore, this bill, as it came to the House and the committee, is actually a very good bill; although, later on we made some changes, amendments. We’ll come to these amendments later on when we come to the different parts. The amenities board actually engaged with a number of stakeholders—and then, in terms of reporting requirements of a funding board, and also this process for drafting this particular bill, the Parliamentary Counsel Office made good suggestions—and consulted with the Ministry of Business, Innovation and Employment and other agencies. So the bill itself, in that sense, has been quite comprehensive. Also, there are various—what we call—pre-legislative procedures. Now, they did go through the normal pre-legislative procedures and consulted with all the amenities.

These amenities themselves, we are quite familiar with. We are from Auckland, so we are quite familiar with these amenities. For example—people mentioned the Auckland Festival Trust and also Auckland Philharmonia and also Auckland Regional Rescue Helicopter Trust. All these are quite familiar to us and also quite important to our daily life. As a matter of fact, I myself encourage some people to donate to the Auckland Regional Rescue Helicopter Trust. I also remember I took my children to the observatory. These amenities are important to us, not only for just our own life but also to our younger generation.

To help these amenities, of course, I believe is a common interest—a common intention. That is why the bill enjoys support from different parties. To make it even better, of course, we made some other changes later on. Now, as I said, we’ll come to these amendments later.

Overall, I think this is a very good bill, and I again thank Dr Parmjeet Parmar, I thank all the submitters, and I thank all the members of the committee. Of course, we’ll talk to other points later on. Thanks.

Thank you, Mr Chair. I’m quite interested in this bill because, of course, it affects amenities in my own area, up in Auckland; so that matters. But what I actually want to hear from the member in the chair today—actually, just a point of clarification: how actually do I refer to the member who is in charge of a bill? Is that the—anyway, from Dr Parmar I’d like to hear some of the detail of this bill. And, in particular, Dr Parmar has said this is quite a technical bill, and I would like some technical explanations from her, partly because, actually, I need to understand the difference myself but also I think that people at home need to understand what the technical differences are, and they need to be confident that the member who has sponsored the bill actually understands what the technical details are otherwise. And I’m sure Dr Parmar will be able to do that. So the area in which—

CHAIRPERSON (Adrian Rurawhe): Sorry, I’m just going to interrupt the member. We’re debating the preamble—the overview of the bill. The technical parts of it will actually be debated later on, clause by clause. The member can actually ask those technical questions at that stage. So we’re looking at an overview—what the bill is all about and what it does. So I will hand back to the member to carry on.

Thank you, Mr Chair. I am getting to the technical questions I need to understand, that are in the preamble, and that is the difference between generally accepted accounting practice—you’ll see that’s referred to in recital 4 of the preamble, and also in recital 7 of the preamble, and in recital 8 of the preamble, and in recital 9 of the preamble, and in recital 10 of the preamble. Oh, did I miss recital 5? And in recital 5 of the preamble as well. So I’d like to understand the difference between GAAP—generally accepted accounting practice—and the New Zealand International Financial Reporting Standards. They’re integral to this bill, and they’re specifically covered in the preamble as the justification—as the justification—for this bill. So I think it really is important for the member in the chair to be able to understand and explain to us the difference between those standards.

It does seem odd that there are two sets of standards around for accounting. And, of course, one set of these standards applies to, as we’re told in the early parts, not-for-profit entities, and the other set of standards there—the International Financial Reporting Standards, or IFRS—applies to for-profit standards. And that’s a clear difference between the two. But it’s the detail in there that makes the difference. Why does it mean that there is such a difference between these two sets of accounting standards that there needs to be two sets of financial statements prepared? Now, it’s all sitting in that preamble in terms of the justification for it. And, of course, as an accountant myself by training, I do understand generally accepted accounting practice, and I do understand that there is a set of international financial reporting standards, but what is the difference between the two that makes it necessary to prepare two different sets of financial statements? What exactly is the detail that is required? How do the standards apply differently? Why is generally accepted accounting practice so different from the IFRS ones? And, even if it is the New Zealand IFRS statements, what is the difference there?

Now, as I said, this particular bill has been sponsored by the member, and I do trust that the member actually does understand those differences there, but at the moment it just exists as an assertion that, because one was for profit and one was not for profit, it makes a difference to the way that the entities have to prepare their financial difference. And, more to the point, it makes a substantive financial difference. So it really is important to understand why it makes a difference—not just that it makes a difference but why it makes a difference. Is it in the way that revenue is recognised? Is it in the way that assets are depreciated? Is it in the way that expenses are recognised? Is it in the way that, say, the members have ownership of the capital in the organisation? So what kinds of things actually make a difference between IFRS and GAAP that actually applies with respect to these Auckland regional amenities that are covered by this particular bill?

So, as I said, it is a very, very technical question, but it is a technical question that specifically relates to the justification for this bill, and it’s one that falls straightforwardly out of the preamble to the bill. So we support the bill and we understand that it’s necessary. We can see the reason for reducing compliance costs for these entities, but what exactly are we trying to achieve here? Why is it that these accounting standards, which are pretty good but, nevertheless, got us into this sort of tangle, need to be fixed by legislation? So I look forward to the member explaining that to us.

Thank you, Mr Chair. I appreciate the chance to take a call. I want to congratulate—again, as I did in an earlier reading—Dr Parmjeet Parmar for picking the Auckland Regional Amenities Funding Amendment Bill up and for shepherding it through. She’s correct when she said earlier that she is currently the list MP for the Stardome Observatory, but, with boundary changes, I hope to be the MP again for Maungakiekie, which will take back in Stardome Observatory. I was, prior to becoming a member of Parliament, an Auckland City councillor where Stardome was. I’ve been in, out, in, out, and, hopefully, in again.

💬 Hon Member: Back in again—that’s right.

That’s right. Of course, Stardome is one of the amenities that has the privilege of being a beneficiary of the amenity funding regime. It’s been going for 10 years. I note that when the bill refers to the principal Act not being amended, there is a maximum finding regime of 2 percent of rates revenue. That’s interesting. Normally, in scenarios where funding is allowed for via Parliament or other entities—local government entities—it’s normally a total of operating expenses or total revenue, but in this instance it’s tagged to rates revenue only, and it’s a maximum of 2 percent of rates revenue. That’s interesting, again, because we’ve got a context right now of Auckland Council’s emergency budget, where revenue in the rates debate is very much to the fore in Aucklanders’ minds.

What I’ve appreciated about the amenities listed in this legislation is their very reasonable and considered approach—and their privileged approach, I would say, and I’m sure they would say—to gaining this funding. For them to look at the fiscal envelope, the maximum that they’re allowed—according to my figures it’s about $34.3 million is the maximum that they could be given, according to legislation. But, in reality, in this last financial year it was a $15.5 million envelope. So we see that while there’s a maximum, there’s actually a reasonable approach that has been taken, and I would like to congratulate all the amenities. Knowing that they could go that far, they’ve gone to a more reasonable approach, and have adopted what I’d call a great process for how they put their best foot forward.

So again, just referencing when I was an Auckland councillor, we used to have the amenities come before us, one at a time, and put their best foot forward. It was a very mood-boosting experience, I’d say—hearing all the good work that these charities are doing.

I would like to, again, congratulate Dr Parmar for picking this up. We know that the primary reason is to fix up that accounting anomaly. I think the previous speaker, Dr Deborah Russell, said something along the lines of, “What are we doing this for?” It’s just simply that. They don’t want to do twice the accounting practices and find that the New Zealand International Financial Reporting Standards regime is not fit for purpose for them anymore. I’d also like to point out in clause 5(b), it talks about those accounting standards and wanting to go towards the generally accepted accounting practice. But in subclause (c), it’s talking about the amenities bringing forward “any other information reasonably necessary”. That’s been a really warming process for me when I have been there in Auckland Council and have seen them bring their best foot forward, and under that clause of “any information reasonably necessary”.

So look, with that, Mr Chair and Dr Parmar, we very much support this. We think that it’s a way that we can get some clarity and some ease of accounting practice, and I look forward to more contributions here in this committee stage. Thank you.

Thank you, Mr Chair. I probably won’t take a very long call, actually, I think we’re still under the standing—[Interruption] I know, such a disappointment! Look, I could read all the lists of those who fall under this, but no, I’ve got a serious question for the member in the chair, Parmjeet Parmar. It’s actually always a great honour to take the role to be in the chair as the member sponsoring this private bill—obviously, the Auckland Regional Amenities Funding Amendment Bill—I think it’s actually one of the great challenges to the House that we may need at times to find shorter titles, and that’s no disrespect to the particular member.

Look, at the moment we’re talking around the preamble. I suppose my question to the member is very simply: why do we have a preamble? This is highly, highly unusual and I’m not trying to be completely flippant. Sorry, there’s always an element of flippancy in my speeches. But why do we have a preamble I think would be helpful to know, because when I do think of preambles I turn my mind to such august documents as the Constitution of the United States, the Declaration of Independence. And I’m just wondering whether the member in the seat does see that there’s some convergence between those great constitutional documents and this amendment bill.

But in all seriousness, with a little humour aside, I wouldn’t mind understanding why there is a necessity for this preamble to exist. I suspect reading it through it’s relatively narrative, it’s explanatory, but that’s relatively unusual in New Zealand law. We often look towards committee reports and, if you will, the overall Hansard. Well, what’s recorded in Hansard, the overall debates—I’d be interested for the member to explain why there is a preamble. In some ways why is—well, we don’t appear to have what we will often have; it’s not so much the purpose section, but “definitions”; that’s the word I’m looking for. In some ways, if she would like to answer that, some of the usual elements we’d see in definitions such as what “GAAP” means, the acronym “GAAP”—has that just been deliberately incorporated into the preamble? So to the extent that she would like to take a call and explain, it would be welcome.

It’s a pleasure to talk today to the Auckland Regional Amenities Funding Amendment Bill, and I’d just like to start out by acknowledging the member in the chair, Dr Parmjeet Parmar, for bringing this issue forward. It’s an important issue for New Zealand’s greatest city, Auckland, and I’m really proud that she’s sponsored this bill.

Secondly, I’d just like to acknowledge the organisations that this preamble covers. These are really important organisations, and it’s going to be more important now, post-COVID, that we support these organisations. Organisations like the Auckland Philharmonia Orchestra—fantastic organisation—the New Zealand Opera—oh, just love it—and I’m not going to give you a demo, but I do want to acknowledge the role that these organisations play in the collective creative industry sector of Auckland.

Now, turning our attention to the preamble, which is what we’re discussing today, I would like to acknowledge that the purpose of this bill is laudable. We have now two international standards of accounting practice: the International Financial Reporting Standards (IFRS) on the one hand, which was created kind of more to do with the EU and the rest of the world, and generally accepted accounting principles (GAAP), which is very much centred on the United States. And these fantastic organisations unfortunately have to combine and do two sets of audited accounts. So the member’s bill that we’re discussing today seeks to address that by, essentially, eliminating the need for one audited accounts—that of IFRS—and favouring the generally accepted accounting practices thing.

So why is this important? It’s important because, at a time where a lot of these organisations’ funding streams are going to be drying up, we need to look at ways in which to reduce their cost base and reduce the burden that they have for operating. I believe that my colleague Dr Parmjeet Parmar’s bill does that, and it’s something that we will be supporting through—

💬 Michael Wood: How does it do that? Tell us more!

Well, we can tell you more about how it does it; it’s pretty simple. Michael Wood wants to know more about it. So how does it do it? Well, to put an audited set of accounts together for IFRS, you’ve got to go to an accounting firm, right? How much does an accounting firm—well, Deborah Russell can tell you; she’s an accountant. Oh no, she’s not. She’s a lecturer. Professor Deborah Russell has given us a lecture today in accounting, and essentially what we have here is the cost burden of going to an accountant, preparing the statements, that, in fact, perhaps a lot of these organisations are not doing—they’re not doing so because they’re technically in breach, but they already do it for GAAP. So this law is an important law that we’re debating today to seek to address that anomaly, to simplify cost of compliance for these fantastic organisations, and we on this side of the House think that anything that reduces cost of compliance for organisations in a time like this should be rushed through the House.

So I look forward, in the remaining stages of this discussion, to do a deep dive of some of these fantastic organisations and to support this bill further. So, without taking too much more time, we’ll wait for further opportunities for a contribution.

Thank you very much, Mr Chair. I have a hard act to follow, I fear. On the Auckland Regional Amenities Funding Amendment Bill, I do have a couple of questions for the member in the chair, Dr Parmjeet Parmar, which I’m confident she’ll be able to answer, but I think it’s worthwhile to go through a couple of them. My ability to ask the questions is probably more in doubt at this stage, but we’ll see how we get on.

I think it’s probably worth noting just by way of introduction that the significance of this bill is actually pretty serious for worthy organisations—charitable organisations with a capital “c”—including the Surf Life Saving Northern Region, many of whose members are in my electorate, the wonderful electorate of Helensville, as it currently is, and are soon to be in the New Lynn electorate, in the case of some of those. Now, these people do a wonderful job for the community and I don’t want to miss the opportunity to give a shout-out to them, and so my question to the member in the chair, first of all, is whether she anticipates that the effect of this bill will make their life easier or harder.

If I were to be a little bit—I don’t wish to be blasé about such a serious subject, but it occurs to me that for organisations that currently drown in red tape, it would be appropriate for the Surf Life Saving Northern Region to spend a bit more time in the waves, in the whitecaps, and less time in the red tape in terms of the activities that a volunteer organisation is able to undertake. So that’s my first question: will this, in practical terms, make a difference for life on the ground or, indeed, in the water for such organisations as that?

My second question for the member in the chair, again, would be about the retrospective aspect. Obviously, there’s a general rule in this House that we don’t legislate retrospectively, except that we tend to apply that rule in the criminal law sphere, and this is obviously not a criminal-type matter, and, secondly, we’re generally happy to retrospectively validate if that’s going to be to the advantage of those who are most directly affected. So can the member please assure us that what’s going to happen now isn’t that we impose on these organisations a requirement to go back and add extra burden, again, by asking them to redo their calculations, albeit in a more straightforward way. So if there’s any comfort that she can give us along those lines, that would be helpful.

Finally—he said, looking at the clock—my other question to the member at this stage would be whether she’s comfortable with the recommendation that the Governance and Administration Committee has made about the transitional arrangements. That’s where we’re looking at the fact that the bill will come into effect a day after the Royal assent, I believe—he said, checking it—but, obviously, there are pretty complicated arrangements whereby there might be a financial year that’s under way at the time that the bill passes into law and becomes an Act. So I’m just wondering if she’s happy that this legislation now is going to come in in a way that’s pretty clear—

CHAIRPERSON (Adrian Rurawhe): I’m going to interrupt the member and just tell him we’re debating the preamble. He’s asking questions that will be addressed in later clauses.

Yes, sir.

CHAIRPERSON (Adrian Rurawhe): I suggest the member ask those questions at that stage, and my ruling to the member in the chair is not to answer them until then. So, the preamble.

Yes, thank you, Mr Chair. I should have been much more explicit that recital (5) within the preamble talks about the amendment to the Charities Act. So, essentially, my question was around the point at which that amendment would become effective. I should have been clearer about that, so I apologise to you and, indeed, the committee for not being more up front about that point. So—

💬 Simon O’Connor: Start again.

I’ll start again—that’s the suggestion of the member of Parliament for Tamaki. I don’t think I could do that to myself let alone anyone else, so perhaps I’ll leave it there.

But, as I say, I look forward to the feedback on those points from the member in the chair: (a) whether it makes life easier or harder, (b) whether we’re going to run into any unanticipated difficulties or unintended consequences, indeed, with the retrospective element, and, finally, just around the transitional arrangements, at least to the extent that they are referred to at recital (5) of the preamble.

Thank you, Mr Chair. Some really good questions from members from all sides. I’ll go in the order they were raised. So, first, Priyanca Radhakrishnan asked if there was any other legislation we should be looking at. This bill is to amend the Act, which is to provide for funding for these amenities. According to that Act—the Auckland Regional Amenities Funding Act 2008—there is a requirement for preparing their financial position, their financial statement. Because they have to comply with the Charities Act as well—because they are not for profit—they have to prepare another set of financial standards on top of what they prepare for the Charities Act 2005. So these are the two pieces of legislation. We want to make sure that the standard that is required in these two pieces of legislation is the same.

The second question, from Dr Deborah Russell—I thought Dr Deborah Russell will understand the technical bits of this legislation. We know that the New Zealand International Financial Reporting Standard is part of the generally accepted accounting practice (GAAP), but what happens according to the Charities Act—they are preparing their statement of financial position according to the public benefit entity standard. So we want to make sure that the standard in these two pieces of legislation that they have to comply with is the same so that they are not duplicating their work.

Then we had a question from Simon O’Connor about the preamble. I think it is just, basically, to explain what the legislation does. That’s it. All these terms which are used in this legislation have been already defined in the Act—for example the public benefit entity standard and GAAP—they all are in the Charities Act 2005 and the New Zealand International Financial Reporting Standards and the Auckland Regional Amenities Act 2008.

Then I go to a question asked by Chris Penk: if this was going to make their lives easier. It definitely is going to make their lives easier, because they will have to just prepare one set of financial statements to comply with both pieces of legislation. I know that the member asked two other questions, which we will address as per Mr Chair’s direction later on when we are debating those clauses. Thank you, Mr Chair.

I’m very grateful to the member for answering many of the questions that have been asked this afternoon and which do actually matter in terms of the preamble to this Act. It may only be a small technical bill, but it does have some—I do just want to say that perhaps the member didn’t quite get the extent of the question I asked. We all understand that generally accepted accounting principles (GAAP) apply better to the Charities Act and to not-for-profit entities, and that the New Zealand International Financial Reporting Standards (IFRS) apply better to for-profit entities. That’s the higher level reason for this bill. But the detail is a little bit underneath that, and it is a detail that I had hoped the member would be able to explain, given it is the motivation for the bill.

What is the difference between GAAP and IFRS such that it creates a difference that the entity is required to prepare two sets of financials? Now, we know that the law says they’re required to prepare two sets of financials. We know that the overall reason is because of the differences between GAAP and IFRS. What I want to know is what the actual differences are. Is it a difference in the way that revenue is recognised? Is it a difference in the way that donations are recognised? Is it a difference in the way that depreciation is recorded? Is it a difference in the way that members’ equity in the organisation is recognised? Is it a difference in the way that, say, Government grants are recognised? Is it a difference in the way that you have to record something as simple as GST? Is it a difference when it comes to maybe tax treatment of some items? There’s a whole series of difference, and I really did hope to understand the exact differences between the IFRS treatment of the entity’s financial performance and the GAAP treatment of the entity’s financial performance. We know they are different, but what are the differences?

Now, as I said in my first five minutes speaking on this bill, it is a highly technical difference and perhaps it is one that only accountants might understand. Nevertheless, I’d hope that the member who was sponsoring the bill would actually understand the difference, given that they were getting up to talk about this and stating it as a motivation for it. Perhaps, if it’s not possible to be explained, it sort makes me wonder as to—I mean, despite all the goodwill towards this bill, as to whether or not we should be engaging it, if even the member who is sponsoring it can’t actually explain those technical differences between GAAP and IFRS when it comes down to exactly what is handled in there.

Now, I do know there are a number of people who have an accountancy background in the House. I’m not the only one, though it might seem that way from time to time. But in terms of understanding exactly what goes on, the technical detail of a tax bill or an accounting bill or a financial reporting bill or something like that, I do think it’s important that when a member is sponsoring a bill themselves, if it has those implications, they really ought to understand that detail right down at that level. Otherwise, it does become a problem as to why you’re supporting the bill in the first place.

Well, perhaps the member could explain to us which expert she relied on to come to that opinion herself that this was a bill that needed to be presented to the House. Because perhaps, you know, I understand the member has real expertise. She, after all, holds a PhD—I believe it’s in chemical engineering or something like that—so obviously, a very, very smart lady. I certainly wouldn’t be able to claim expertise in that area at all. So perhaps it is something that the member herself doesn’t explain the absolute technical detail between GAAP and IFRS and the recognition of income and all those sorts of things. But in that case, I would assume that she had consulted experts who’d be able to explain to her what the difference was and which motivates this on the bill.

So I am looking forward to understanding that. It was a question I raised earlier, and I appreciate the member has talked about the top-level reasons for the differences between GAAP and IFRS and what impact it has on this bill. I appreciate that it’s a difference between standards that are more appropriate for not-for-profit entities and standards that are more appropriate for for-profit entities. But what exactly is it in the difference between GAAP and IFRS that makes that difference? I appreciate that the member may not have that detail herself, but, in that case, I would appreciate understanding whose advice she relied on to come to that bill. I’m sure it was good advice, but perhaps if she could provide that detail, because that, after all, is the justification for this bill.

We do all support it across the House—this bill is going to go through—but it would be good if we had that explanation available to us and our understanding of the advice that was given to her available to us, so that as members of this House, we can be absolutely confident that we are supporting this good bill and that we have good reason to support it. So I invite the member to answer those questions. Thank you.

It’s very interesting to see the argument that the member Dr Deborah Russell has put forward. She wants to understand what the difference is between the two accounting standards, because that will become the basis of their support for the legislation.

So, in simple terms, this is just making sure that the standard in both pieces of legislation is the same. If the member wants to understand, it should be clear that in the Charities Act 2005, the standard that is required is for any charities that have operating payments of $125,000 or more in the two preceding years. So that’s why they have been complying with the Charities Act 2005, and have been complying with the standard that is required under the Charities Act 2005. But then because their funding is provided through the other Act, they have to comply with that too.

So this legislation is not splitting the accounting standards; this bill is to make sure that the standard in both pieces of legislation is the same to make their life easier. So this is not an accounting lesson—I’m sure the member is really interested in having an accounting lesson. As I’ve already said, there is this operating payment of $125,000, or more, in two preceding years, which is the requirement as per the Charities Act 2005. Thank you, Mr Chair.

I would just like to clarify the question another time, if I may, because if we look at recital (4) of the preamble—so I just want to read it. It says, “In 2015, the Charities Act 2005 was amended to require that certain charitable entities (those whose total operating payments are $125,000 or more in each of the 2 preceding accounting periods) prepare financial statements in accordance with generally accepted accounting practice (GAAP)”. So that’s fine. All that does is specify which charitable entities have to provide financial statements in accordance with GAAP: those whose operating payments are $125,000 or more. That certainly specifies—and as I said before, I agree with this reason. We all understand that some entities have been required to prepare financial statements in accordance both with GAAP and with International Financial Reporting Standards (IFRS), and that for these not-for-profit entities that creates two sets of financial statements that they have to prepare—

💬 Priyanca Radhakrishnan: Onerous.

—and that is, of course, onerous. Yes, it’s onerous, and it means that the compliance costs are significantly increased.

Now, I’m sorry to repeat this, but what I really do need to repeat is the particular question I’m asking to be answered. It’s not the fact that the entities have to prepare two sets of financial statements. It’s not the fact that one set of financial statements is required by GAAP and the other is required by IFRS; we all understand that. It’s not the fact that that creates the compliance costs. What I’m trying to understand—and it is a technical detail—is how the accounting treatment differs between GAAP and IFRS. So there’s the top level overall reason and then there’s the—you know, there’s the compliance costs. The next reason is what causes those compliance costs is the difference between GAAP and IFRS. But then I want to understand the actual different treatment within GAAP and within IFRS. What is it in generally accepted accounting principles that differs from International Financial Reporting Standards? I believe one of these speakers on the other side suggested that I would not be interested in an accounting lesson. Actually, I’m always interested in accounting lessons. I know that’s a bit sad, but it’s always interesting to find out how things are recorded.

Now, it is a highly technical thing, the differences between GAAP and IFRS, and the actual financial treatment of some transactions under GAAP as opposed to those same transactions under IFRS, the treatment of the valuation of assets under GAAP, say, as to the treatment of the valuation of assets under IFRS, the valuation of liabilities under GAAP as opposed to the valuation of liabilities under IFRS, and so on, and on and on and on it goes. It can get quite long and tedious. Actually, people do often have to prepare two different sets of financials just because of different accounting treatments. But what actually are those different accounting treatments? And as—

CHAIRPERSON (Adrian Rurawhe): Can I interrupt the member, because it’s becoming a bit—

All right. If the member in the chair, Dr Parmjeet Parmar, could answer—

CHAIRPERSON (Adrian Rurawhe): OK. Well, I’m still going to say it. I found that rather repetitive. In so far as what the member is saying in terms of the preamble of this bill, this bill doesn’t alter those standards or explain those standards. It just changes the current accounting proceedings, so it’s not the member in the chair’s responsibility, although she did actually address it.

Look, in some ways, being a debating chamber—and just, hopefully, the member in the chair, Dr Parmjeet Parmar, if she chooses to reiterate—the Governance and Administration Committee’s intentions, and certainly hers, is not to worry about the two different types of standard but to make sure that there is alignment. That’s my general understanding. In fact, it seems a rather academic point if this House of all 120 MPs is meant to ascertain the different nature of accounting systems. I assume—and the member may want to speak to this if she chooses—is it’s not really the place of this Parliament to worry about the two types of systems. In fact, I wouldn’t be surprised if there are more than two types of systems. But the member was relying on previous legislation, particularly out of the Charities Act 2005, I suspect, to direct where we should go.

So a little bit of clarity around that. I know another member whose speech depreciated each time—that’s just a very bad piece of accounting humour there. Fundamentally, it’s not the nature of what the systems are but that the singular purpose, as being articulated in the preamble, that we have alignment. I know the member who resumed her chair, Dr Deborah Russell, was very worried about experts who were called, and I would wonder if Dr Parmar, as the sponsor of the bill, could give that member, who has resumed her seat, the confidence that there was a full and proper select committee process where not only officials but people were able to submit.

Look, I’m really delighted to be able to take a call on this bill. I followed it very closely during its passage in the House, and spoke on it during its second reading, only in the last session of the House. I have some personal interest in the bill. It’s been mentioned that one of the Auckland regional facilities is situated in the electorate of Mt Roskill, which I very proudly represent—that’s the Auckland Stardome; wonderful facility, and I recommend that anyone who has the opportunity come and visit it.

The important thing about Auckland regional facilities and its governing piece of legislation is that even though some of those facilities are located in particular parts of the city, the parent legislation creates a regime where people from across the region, who benefit from them, all contribute on an equitable basis. That’s really important to understand.

In this contribution, I want to touch on one of the points in the preamble that’s referenced in a very, very good submission from one Julia Durkin. I want to come back to this in later contributions, when we really get to the meat of the legislation—there’s a lot in there. But I just want to head this up in the preamble, because recital (2) of the preamble—I’ll read it out for the benefit of the committee—says that “Section 39 of the principal Act requires that the specified amenities prepare financial statements that contain a statement of financial position prepared in accordance with New Zealand International Financial Reporting Standards”—that’s the NZ IFRS that we’ve been hearing about a lot over the last hour or so—“and that contain the other statements and information set out in section 39(2)(b)”.

Where I want to come to in this is quite an important point that Julia Durkin made, and I want to spend some time on Julia Durkin’s submission in this call, but also in others, and there’s an important reason for that. Most of the submissions that were received by the Governance and Administration Committee were of a pro forma nature, and I don’t say that to diminish them in any way. Most of them came from some of the specified entities themselves, and they largely said, “We support this legislation.” That’s fine and well, and we should take note of that. Ms Julia Durkin’s was probably the one submission you can identify that was, to some degree, critical of the framework of this piece of legislation and of the parent legislation as well. So I do think, in terms of the scrutiny function of the committee, it is important that we give some weight to her submission.

Here’s a point that Julia Durkin makes that relates to recital (2) of the preamble in respect of section 39. Again, I’ll read out what she said, just so that I am very, very clear about the intentions of Julia Durkin. She says, “The proposed Bill provides reduction in reporting requirements of the chosen amenity and that of the Funding Board under section 40 must be viewed against the backdrop of perceived lowering the level and layers of reporting and accountability of the chosen organisations, who are the net recipients of $14,602,000 [in] (2018-2019) of Auckland ratepayers money.” That’s an important point, that last one, actually. The money that funds these entities that this bill is dealing with actually isn’t appropriated by this House. There’s a levy on Auckland ratepayers that gets funnelled, and it’s important that people understand that, and I don’t know that everyone necessarily will.

The point that Ms Durkin is making here, and it’s relevant to recitals (2) and (3), in fact, of the preamble, is that there are actually some substantive changes, and we’ll get to this later on in the debate, when we get to the guts of the bill—there are actually quite significant changes to section 39(2)(b) that do actually change some of the reporting standards. I’m not just talking about the accounting standards themselves; the text of the bill actually changes what must be reported on and publicly disclosed, and that’s going to be really important. I’ll come back to that.

But what I’m coming to in terms of the preamble is really a question for the member in the chair, Ms Parmar: really, her reflection and response to that point that Julia Durkin has made in her submission, and in relation to recitals (2) and (3) of the preamble. That is just to ensure that she has a level of comfort, as the member who is overseeing this legislation that ultimately provides accountability for over $14 million of public money that’s provided by the Auckland ratepayer—that she has confidence that the direction that’s set out in this preamble is not, in fact, lowering the reporting standards, and therefore the transparency that applies to quite significant amounts of ratepayers’ money.

So I really would like it if before we finish the debate on the preamble, which has been very engaging so far, we could hear from the member in the chair about that point and about whether she’s satisfied that recitals (2) and (3) in the preamble don’t set us up for a bill and a subsequent piece of legislation that actually lower the reporting standards, when we would all, I know, in this House, want to ensure that the reporting standards are fit for purpose. Thank you, Madam Chair.

Thank you, Madam Chair. I wasn’t going to take a call on this bill but it occurs to me that there are some questions that I need to ask and have answers to in terms of the relationship to the Charities Act and the work that’s currently under way modernising charities legislation.

The questions that I would like to ask the member in the chair, Parmjeet Parmar, if she would be so good as to respond is: we’re looking at the Auckland regional amenities; could this equally apply to other parts of the country where there are other frameworks and set-ups that sit outside of the current charities legislation? Is she aware of that? Also, just in terms of the work that is currently under way in my portfolio with modernising the charities legislation—which has had some significant response in submissions from charities and the like, about reporting requirements, working alongside the External Reporting Board: will this piece of legislation, when that work is completed, actually then provide another anomaly?

Has the member actually worked to align this piece of legislation with forward pieces of work, and has the member considered the framework that the External Reporting Board now requires, because that will likely have an impact on this particular piece of work? So I’m just seeking from the member whether by passing this piece of legislation, at a later point we may need to come back and look at, potentially, an anomaly that’s been created by this. Thank you, Madam Chair.

Thank you. I wish to answer some of the questions that have come up since I spoke last time. One is about if there is any other legislation that could be affected, because this legislation is just amending the Auckland Regional Amenities Funding Act 2008. This is confined to only Auckland regional amenities. So that’s one part.

The second part, to the External Reporting Board—so there was a consultation that was done with the External Reporting Board and also with the Ministry of Business, Innovation and Employment. After that consultation, the board decided to put forward this as an idea to resolve this issue. So that consultation has happened. That happened in 2016. Thank you, Madam Chair.

I was going to offer a small incentive for anyone who referred to recital (4) in the preamble by saying “Mind the GAAP.” That’s no longer on offer.

Preamble agreed to.

Clause 1 Title