Mark Hucklesby: Take your opportunity to influence the changes to company reporting

With so much focus on spending and costs at this time of year, there's some good news to share with the shareholders and directors of more than 500,000 New Zealand companies. Back in September 2009 the Government introduced some radical proposals to reduce the cost and complexity associated with preparing and filing company financial statements. The closing date for submissions is January 29, 2010 - so you still have some time to submit on matters such as whether or not you agree with the idea of allowing companies to choose for themselves what they will and will not include in their financial statements and at what size companies should be to be excluded from reporting and filing financial statements with the Companies Office. So why should company directors submit?

The Ministry of Economic Development (MED) has made it very clear that these are proposals only. The MED admits that it needs more insight from constituents on complying with current legislation and the savings that the new provisions might generate, so it's really looking for some feedback.

It is believed that the reduction in compliance will reduce the cost of producing accounts, enabling companies to produce accounts more quickly and efficiently. For example, the MED's preliminary determination of cost savings for companies at the high end of the medium company range (ie companies with annual revenue of $10-$20 million) could be up in five figures annually, but on average they are more likely to be between $2000 and $5000 per annum.

Cumulatively, the savings for the estimated 25,000 to 50,000 companies that the MED believes fall in this size range could be between $50 million and $250 million per annum. If this estimate is right, then there are some significant gains to be achieved.

Even for small companies there will be savings. The MED has calculated that for many small companies there will be savings of around $250 per company per year, so a conservative assessment of savings might be somewhere between $25 million and $50 million per year.

The MED Discussion Paper primarily focuses on those entities that are not publicly accountable (ie those companies where money is not taken directly from the public). Many people call these "private companies" - even though this term and distinction no longer exists in the Companies Act.

So what does the MED want to achieve?

The main objective of this review is to produce a financial reporting system that is clear, coherent, consistent and cost effective and one that works efficiently and effectively for all categories of entities.

It is also forward-looking and will help facilitate harmonisation with Australia in line with the goals of the Single Economic Market. It will be future-proofed by enabling a rapid response in the financial reporting areas to changing market needs and conditions.

The proposed changes give New Zealand the opportunity to reassert itself as a world leader in combining innovation and pragmatism in the financial reporting arena. Not only are companies impacted, significant changes to the not-for-profit sector and the public sector (that together are deemed to be public benefit entities) are also being proposed.

* Mark Hucklesby is the national technical director for chartered accountants Grant Thornton New Zealand.