Proposed Financial Regime Offers Advantages

Proposed financial reporting regime
offers significant advantages

“The proposals from the Government to simplify New Zealand’s financial reporting regime will improve the targeting of financial reports to the needs of external users,” Terry McLaughlin, Chief Executive, New Zealand Institute of Chartered Accountants (NZICA) said today.

Mr McLaughlin said NZICA had initiated the process for a new financial reporting framework because the existing one imposes unwarranted complexity and costs on many New Zealand organisations.

“We need a financial reporting framework that is consistent, clear and that sufficiently weighs the benefits of financial reporting against the associated costs, for all types of entities. We also need a system that aligns us with Australia and comparable international regimes but allows flexibility to adapt for the New Zealand environment,” said Mr McLaughlin.

NZICA recently submitted its comments on proposals from the Ministry of Economic Development and Accounting Standards Review Board to improve the existing framework.

Mr McLaughlin supports the proposals for the removal of statutory reporting requirements from many small- and medium-sized businesses (SMEs), a category that includes close to 90 percent of all enterprises in the country, and clarification and some simplification of the reporting requirements for not-for-profit, private and public sector entities that are required to prepare financial reports.

“These proposals will bring significant advantages to all entities. There will still be some that are not required to prepare reports but choose to do so voluntarily. We can provide guidance to those entities on their requirements,” said Mr McLaughlin.

However, he said more analysis was needed on some of the other details in the Government’s proposals.

“It is critical that any major statutory changes are fully analysed to ensure they bring advantages that exceed the costs of compliance. There are some areas in the proposals where there is not enough evidence to change the status quo.”

“We agree with the Government that the three sectors – for-profit, public and not-for-profit – should be considered separately, as the information needs of key stakeholders are likely to differ. Our preference is for transaction neutrality, where the transaction is treated in the same way, regardless of the type of entity,” said Mr McLaughlin.

Mr McLaughlin said that he supported the move to transfer the accounting standards development and assurance standards to a reconstituted Accounting Standards Review Board.

“The current arrangements are not sustainable in the long-term. These proposed changes, if adequately resourced, will provide a more efficient process for the setting of standards for New Zealand.”

“We have fully consulted with our members on our submission and look forward to working with the Government on its final plans,” Mr McLaughlin said.

A summary of NZICA’s key points is below. To read the full submission, Review of Financial Reporting Framework, see nzica.com.

NZICA supports:

• The proposals to transfer accounting standards development and approval to a reconstituted Accounting Standards Review Board (XRB), as long as it is adequately resourced, set up as an independent regulatory model and not at risk from political or vested interests. The current arrangements for the development of standards are not sustainable, as they rely on volunteer expertise and need to be resourced at a much higher level.

• That the size of an entity should be proportional to its reporting requirements, ie it is appropriate that smaller entities have less (lower cost) reporting obligations.

• That the preparation and publication/distribution of reports be considered together. Only those entities required to disclose should be required to prepare.

• The proposal to remove the requirements for medium and small companies to prepare financial statements.

• That the needs of financial report users in the three sectors – for-profit, public and not-for-profit – should be considered separately. However, it is important to maintain transaction neutrality, ie like transactions in like situations are treated the same.

• That New Zealand reporting arrangements should be aligned, as much as practically possible, with international and particularly Australian reporting requirements.

• That listed issuers should be required to comply with IFRS, be audited and make their financial statements publicly available.

• The removing of filing requirements for overseas-incorporated companies that are not large.

• That all public sector entities should be required to prepare financial reports, and those reports should be subject to assurance and identify conditions that should prevail before it could be appropriate for New Zealand to adopt International Public Sector Accounting Standards (IPSASs).

• A principles-based reporting regime, without the need for assurance standards to have the force of law.

• That the opt-out rules should apply to all for-profit entities other than listed and non-listed issuers.

• That Maori entities should be treated like other entities from a financial reporting perspective.
NZICA does not support:
• That overseas ownership should in itself be a reason for imposing a filing or preparation requirement.
NZICA believes more work is required on:
• The accounting and assurance standards for not-for-profit private entities.
• The cost-benefit analysis of requiring large private entities to file financial reports.

Some facts about the New Zealand Institute of Chartered Accountants
- NZICA’s 32,000 members – of whom close to 6000 work overseas – make up the majority of the accounting profession in New Zealand. .

- NZICA is an active member of the Global Accounting Alliance (GAA), which facilitates cooperation between nine of the world’s leading professional accounting organizations and represents 700,000 professional accountants.

- NZICA prepares its submissions through a combination of member views, in-house expertise, research and input from its branch, committee and member networks.

- NZICA acts in the public interest by regulating the profession, developing financial reporting standards and promoting quality, integrity and expertise.

ENDS

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