Early announcement on financial reporting changes

In an early announcement aimed at putting business concerns to rest, Commerce Minister Simon Power announced on 24 February that the Government has decided that large non-issuer companies will not be required to file their financial statements with the Registrar of Companies. Partner Gavin Macdonald outlines the details.

The proposal that stakeholder interest warranted greater public disclosure of the financial performance of large non-issuers was contained in the discussion document released in September 2009 by the Ministry of Economic Development (MED) entitled 'The Statutory Framework for Financial Reporting' (Discussion Document).

Bell Gully made one of the 147 submissions received by MED on the Discussion Document. A substantial focus of the Bell Gully submission was on MED's proposal that large, or economically significant non-issuer entities be required to file public annual financial statements. The Discussion Document indicated that the primary basis for this proposal was the view that the economic or social impact that a large entity is likely to have on the national or regional economy if it fails generated broader stakeholder interest in the financial position and performance of such entities, even if they do not have public accountability.

Bell Gully submitted that there was no evidence or analysis of any benefit from such increased disclosure and that legitimate interests were already protected (or capable of being protected). We submitted that there would be a significant increase in the compliance burden as a result of a requirement to provide access to otherwise private information well beyond those stakeholders who have a legitimate interest in and need for that information.

The Bell Gully submission commented that a similar proposal by MED in 2005 to require large non-issuers to file financial statements met widespread opposition and was not implemented. We submitted that little had changed since 2005 to indicate that the unproven views of the benefits claimed in the Discussion Document outweighed the considerable disadvantages including a possible disincentive to overseas investment in New Zealand.

In his 24 February press release, the Minister stated that he was familiar with the main arguments for and against filing requirements for large non-issuer companies. He added that some of the arguments against, such as respect for privacy and commercially sensitive information, are underpinned by the core values of the Government.

As a result, the Government concluded that the arguments against filing outweigh the arguments for filing, and the status quo should remain. The Minister suggested that this will allow the focus of the debate to move to other reform proposals that are being considered as a part of the review of the financial reporting framework. These include:

• whether to remove the requirements for SMEs to prepare financial statements in accordance with generally accepted accounting practice (GAAP); and

• the need to rationalise the financial reporting system for not-for-profit entities – particularly by removing the inconsistencies between the rules applying to different types of not-for-profit entity.

The Bell Gully submission also indicated strong support for the removal of a requirement for overseas companies that are not issuers (and which are not "large") to publish financial statements. We commented that this requirement is presently seen as inconvenient and a disincentive to foreign investment in New Zealand by requiring the publication of segmental financial information that is seen to be of little use to anyone other than competitors.

The Minister's press release indicated that announcements on the balance of the proposals in the Discussion Document were expected in the second half of 2010.

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