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2 February 2010 Review of the Financial Reporting Framework ...

  1. 1. 2 February 2010 Review of the Financial Reporting Framework Competition, Trade and Investment Branch Ministry of Economic Development PO Box 1473 Wellington NEW ZEALAND Email: financialreporting@fmed.govt.nz Dear Sir or Madam Comments on The Statutory Framework for Financial Reporting CPA Australia, the Institute of Chartered Accountants in Australia (the Institute), and the National Institute of Accountants (the Joint Accounting Bodies) are pleased to respond to the Ministry of Economic Development Discussion Document The Statutory Framework for Financial Reporting. The Joint Accounting Bodies represent over 180,000 professional accountants. Our members work in diverse roles across public practice, commerce, industry and academia throughout Australia and internationally. The Joint Accounting Bodies have considered the Discussion Document. We consider it important that the Single Economic Market Initiative of Australia and New Zealand inform developments in the statutory framework for financial reporting of both countries. We have noted that the Australian Government has articulated proposals in the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010 some of which relate to topics that are the same as those that are the focus of the Discussion Document. We would encourage the Ministry of Economic Development to make a submission to the relevant Australian Government proposals and liaise with the Australian Government about the Australian experience. Our response to matters on which specific comment is requested is included in the Attachment. Further we have attached our submission to the ASRB on a related discussion document. If you require further information on any of our views, please contact Mark Shying, CPA Australia via email mark.shying@cpaaustralia.com.au, Kerry Hicks, the Institute via email kerry.hicks@charteredaccountants.com.au or Tom Ravlic, the National Institute of Accountants by email tom.ravlic@nia.org.au. Yours sincerely Alex Malley Graham Meyer Andrew Conway Chief Executive Officer Chief Executive Officer Chief Executive Officer CPA Australia Ltd Institute of Chartered National Institute of Accountants in Australia Accountants
  2. 2. NEW ZEALAND STATUTORY FRAMEWORK FOR FINANCIAL REPORTING Institutions and statutory responsibilities (Part 3) Q1 What comments do you have on the proposal to transfer the Institute's financial reporting and assurance standards responsibilities to a reconstituted ASRB? The Joint Accounting Bodies consider the resolution of the question “who should have the responsibility for standard setting?” is fundamentally an issue of public interest. The Discussion Document paragraph 33 opines there is only one feasible alternative to the status quo; to consolidate all standards-related responsibilities within the Accounting Standards Review Board (ASRB) and rename it to reflect its broader responsibilities. Public interest is rarely a homogeneous set of ideals and there may well be competing interests. The Joint Accounting Bodies believe that as a short to medium-term measure the transfer of the standard-setting function from the New Zealand Institute of Chartered Accountant’s (NZICA) (and the NZICA Board’s Financial Reporting Standards Board [FRSB]) to a renamed ASRB is in the public interest. In the eyes of the public, the transfer will deliver a more rigorous, independent standard-setting process, which in turn will enhance the public’s confidence in financial reporting and auditing. Australia’s experience supports the preceding observation. We encourage the New Zealand Government to explore as a long-term objective and as part of the Single Economic Market initiative of Australia and New Zealand, consideration of the establishment of a single body to set accounting standards and a single body to set auditing and assurance standards for both nations. The Joint Accounting Bodies consider it desirable that the renamed ASRB – the XRB (and its committees) be financially independent of the accounting profession as a means of enhancing public confidence in the independence of the “Crown Entity” and to enable it to meet the technical demands placed upon it. Q2 What comments do you have on the proposals for the manner of setting the number of tiers and the qualifying criteria for each tier? The Joint Accounting Bodies strongly believe that the resolution of the question “Who should have to prepare and publish General Purpose Financial Reports (GPRF)?” sits with the New Zealand Government. In contrast, we believe that it is for the accounting standard setting body to determine what accounting standard requirements are to be imposed on entities that either are obliged by law or choose to prepare GPFRs. We are not convinced by the arguments put in the Discussion Document that removal of the formal linkages between determining the “who” and “what” questions” is problematic. The Joint Accounting Bodies consider it important that the qualifying criteria used to answer the “who” question is included in Statutory Regulations rather than an Act of Parliament. Including them in an Act of Parliament increases the likelihood of good qualifying criteria becoming suboptimal over time as it is highly likely that governments will regard changing them a low priority. The Joint Accounting Bodies consider it important that the policy of the Single Economic Market initiative inform the establishment of the number of tiers and the qualifying criteria for each. It is important that trans-Tasman companies prepare only one set of financial statements to one set of standards. We do not think it appropriate to require such a company to report in one jurisdiction when that company does not have that obligation in the other. More generally, the Joint Accounting Bodies would like to see an equivalent number of tiers and the same qualifying criteria in place on both sides of the Tasman. As Australia has addressed this issue in its legislation, we believe that legislation would provide a useful starting point. We would encourage the Ministry of Economic Development to make a submission to the relevant Australian Government proposals articulated in the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010.
  3. 3. Financial reporting principles and indicators (Part 4) Q3 What comments do you have on the Primary Principle and the Indicators of financial reporting? Should any other principles and/or indicators be considered? The Joint Accounting Bodies suggest that the overarching reason for financial reporting should be explicitly that the information provided is useful for resource allocation decisions and assessing management’s stewardship. The Discussion Document proposes three indicators: public accountability, economic significance and the separation of ownership and management These terms have an origin in for-profit terminology and as such we would suggest considering an additional term that may be more appropriate for the other sectors, such as the term ‘public interest’. The Joint Accounting Bodies suggest that including a public interest indicator would be appropriate, however acknowledge that benefits may be obtained if their was greater alignment between Australia and New Zealand in this area. In considering such an indicator, consideration should be made of the current definition used in the IFAC Code for ‘public interest entity’ and any similar definitions considered by the relevant accounting bodies ethical standards. Q4 What comments do you have on our broad conclusions in relation to preparation, publication and distribution; and assurance? Where indicators are present, entities should be required to prepare, publish or distribute a GPFR. Otherwise no preparation requirements should be required. However, the a minimum percentage of owners or members of the entity should be able to require the preparation, publication or distribution of a GPFR. In terms of assurance, the Discussion Document notes that the two levels of assurance described by the Assurance Framework are reasonable and limited assurance. The Joint Accounting Bodies note that where assurance is required, these are the only two levels of assurance that can be provided under current arrangements, and for assurance of financial statements, they are audit and review engagements respectively. We suggest that the GPFRs of entities with public accountability be audited. In contrast, we suggest that requiring the audit or review of the GPFRs of entities with public interest should be a function of size. The Joint Accounting Bodies do not think the XRB would be the most suitable body to determine the type of assurance engagement to be performed for different types of financial reporting entities. Arguably, the XRB is the peak body of the two standard-setting boards, and to ensure that conflicts do not exist between standard-setting and regulation – that is, one would normally expect that where one body establishes the framework against which professionals’ behaviour will be judged, the Parliament should be responsible for identifying the circumstances when different levels of behaviour are expected. Entities not required to lodge financial will still have a requirement to maintain appropriate accounting records. Accountability may be enhanced if the management of such entities were required to furnish an annual declaration to the effect that appropriate accounting records have been maintained throughout the year. Indeed, stronger measures could also be considered which involve the engagement of a professional accountant, to undertake compilations (to transform the accounting records into financial statements) or some form of agreed-upon-procedures engagement to confirm the accuracy of the accounting records. The Joint Accounting Bodies would encourage the Ministry of Economic Development to liaise with the Australian Government re the Australian experience. The application of the indicators to for-profit entities (Part 5) Q5 What comments do you have on the tests (annual income, total assets and employee numbers) for determining whether a for-profit entity is economically significant? What comments do you have on the two-out-of-three test or the alternative "revenue plus one other" approach outlined in Section 5.3.1? What comments do you have on the current thresholds of $20m revenue, $10m assets and 50 FTE employees? The Joint Accounting Bodies believe that economically significant private entities should be required to lodge financial statements because of their size and potential to affect the community and the economy. We accept the quantitative thresholds as articulated in the two out of three tests (asset values, annual revenue and number of employees) as appropriate .However, we would encourage the New Zealand Government to include these thresholds in Regulations only and commit to an on-going review and updating of the thresholds to ensure that they do not lose relevance over time.
  4. 4. Q6 What comments do you have on the proposal to make no changes to the filing requirements for companies with 25% or more overseas ownership? The Joint Accounting Bodies do not support the inclusion of ‘special’ rules for private companies with overseas ownership. We believe that all private companies should be subject to the same rules. Accordingly, we consider the quantitative thresholds that are to apply private companies that are economically significant should also apply to companies with overseas ownership. Q7 What comments do you have on the proposal to remove filing requirements for overseas- incorporated companies whose New Zealand businesses are not large? The Joint Accounting Bodies support the removal of filing requirements for all New Zealand private companies that do not meet the relevant indicators. Q8 What comments do you have on the preparation/opt-out and no-preparation/opt-in proposals for for-profit entities that meet the Separation Indicator only? The Joint Accounting Bodies do not support Option A “Preparation/opt-out and No preparation/opt-in” as meeting the separation indicator alone does not recognise the importance of economic significance. We support Option B “No preparation/opt in” for all New Zealand private companies that do not meet the relevant indicators (and we would encourage extending the application of Option B to Public Benefit Entities (PBEs), and not just those PBEs that meet the separation indicator). We note that Option B currently applies to all Australian private companies when requested by greater than 5% of voting power (or when requested by the regulator). Q9 What comments do you have on the criteria we have used to illustrate the proposals described in the previous question (i.e. (a) 10 or more shareholders for identifying companies with a significant number of shareholders; (b) 5% of voting shares by value for opt-in; and (c) no vote against for opt-out and opt-down)? The Joint Accounting Bodies believe that operationalising Option B is best achieved by enabling shareholders with five per cent or more of the voting capital to direct the private company that does not satisfy the relevant indicators to prepare an annual report. We note that the Australian Government proposals articulated in the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010 are to require preparation of a financial report if directed by ASIC or by at least five per cent of members of not- for-profit limited by guarantee companies. We would encourage the Ministry of Economic Development to make a submission to the Australian Government on this proposal. Q10 What comments do you have on the proposal to remove the requirement for medium and small companies to prepare GPFR? What are the compliance cost implications? The Joint Accounting Bodies support the removal of the requirement that private companies that do not meet the relevant indicators prepare GPFRs. Q11 What comments do you have on the Australian ‘grandfathering' provision, exempting existing large companies at the time of the law change, from lodging financial statements with ASIC? In the past, the Joint Accounting Bodies have voiced support for the removal of grandfathering as a means of simplifying the law and ensuring procedural fairness in its administration. We believe it is in the public interest to ensure that the law is equitable and that like entities are treated in the same manner. Our view on this issue remains unchanged. It must be noted, however, that as with any legislative measure the New Zealand Government can expect that some entities will have additional costs in this process. Q12 What comments do you have on the advantages and disadvantages of requiring large non- issuer companies (and other entities impacted) to file financial statements under a ‘grandfathering' regime? The Joint Accounting Bodies do not support a grandfathering regime for the reasons stated in our response to Question 11 above.
  5. 5. The application of the indicators to public sector entities (Part 6) Q13 What comments do you have on the proposal to retain the requirements for all public sector entities to publish assured GPFR? Our response to Question 3 above, states that public interest embraces concepts of governance and transparency. We think all public sector entities will have public interest. We suggest that public interest is the indicator most relevant to public sector entities, considering various existing definitions such as that in the IFAC Code. Q14 Do you consider that the changes outlined in Part 3 will provide an appropriate framework for public sector entity standards setting? See our comments to Questions 1 and 2 above. The application of the indicators to private non-profit entities (Part 7) Q15 What comments do you have on the proposal to use annual operating expenditure as the means for determining whether a private non-profit entity is small, medium or large? The Australian Government proposes to amend the Corporations Act to use revenue to determine the obligation to report of a private non-profit entity. While using annual operating expenditure may be seen by some as a better measure, the Australian government have chosen revenue for simplicity since it is consistent with the way in which the large/small determination is used in the private for-profit sector. We see some merit in having consistent measures. We would encourage the Ministry of Economic Development to make a submission to this Australian Government proposal as articulated in the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010. Q16 What comments do you have on the proposals to use annual operating expenditure of $20,000 and $20 million as the cut off points between small and medium, and medium and large respectively? If you consider that other criteria should be used, what are those criteria and what cut-off points should be used? The public interest in some types of non-profit private entities is due to the nature of their activities. In contrast, the public interest in other types of not-for-profit public sector entities is a function of their size. The Joint Accounting Bodies note that Australia has proposed to address this issue in its proposed legislation – the amounts proposed are higher than that proposed by New Zealand and the basis on which they are proposed is on revenue and not annual operating expenditure. We would encourage the Ministry of Economic Development to make a submission to the relevant Australian Government proposals articulated in the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010. Q 17 What comments do you have on the proposal that financial reporting obligations outlined in this Part would not apply to gaming machine societies? The Joint Accounting Bodies understand that gaming machines can be operated by both profit and non- profit entities. We would expect the same reporting obligations to apply as apply to other entities in both the profit and not-for-profit sectors. Q18 What are your views on the preparation, distribution, publication and assurance proposals appearing in Part 7.6 and the Appendix insofar as it relates to private non-profit entities? The Joint Accounting Bodies suggest that non-profit private entities with public interest should be required to prepare, publish or distribute a GPFR. The default position for entities that do not have public interest should be to have no preparation requirements. However, more than 5% of the members of the entity should be able to require the preparation and distribution of preparation, publication or distribution of a GPFR. The Joint Accounting Bodies note that the Australian Government proposals articulated in the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010 are to require preparation of a financial report if directed by ASIC or by at least five per cent of members. We would encourage the Ministry of Economic Development to make a submission to the Australian Government on this proposal.
  6. 6. The Joint Accounting Bodies’ response to Q4 above noted the observation made in the Discussion Document that there are two levels of assurance described by the Assurance Framework – reasonable and limited assurance. The Joint Accounting Bodies note that where assurance is required, these are the only two levels of assurance that can be provided under current arrangements. They are audit and review engagements respectively. We suggest that the requiring of an audit or review of the GPFRs of a not-for- profit entity with public interest should be a function of size. See also our other comments made to Q4 above. The application of the indicators to M ori asset governance entities (Part 8) Q19 What are your views on the proposal to make no changes in relation to M ori trust boards? The Joint Accounting Bodies suggest that Maori Trust Boards with public interest, like non-profit private entities should be required to prepare, publish or distribute the General Purpose Financial Report. See also our response to Question 18 above. Q20 What are your views on the proposals appearing in Part 8.3.1 in relation to M ori incorporations as summarised in Part 8.4? The Joint Accounting Bodies’ response is the same as that made to Question 19 above. Q21 What are your views on the proposal to make no changes in relation to M ori reservations? The Joint Accounting Bodies suggest that the requirements applicable to non-profit private entities also apply to Maori asset governance entities, incorporations and reservations. Q22 What are your views on the proposal for the M ori Land Court to continue to have the responsibility for setting financial record keeping and reporting obligations for M ori land trusts? The Joint Accounting Bodies would prefer that the responsibility for setting financial record keeping and reporting obligations sit within the statutory framework for financial reporting developed by The Ministry of Economic Development. We believe that the New Zealand Government has the opportunity to develop a single piece of legislation applicable to all entities. Q23 What are the advantages and disadvantages of requiring economically significant Maori land trusts to publish GPFR? The Joint Accounting Bodies suggest that public interest should be the requirement to prepare, publish or distribute the General Purpose Financial Report. See also our response to Question 18 above. Consequential issues (Part 9.1) Q24 What are your views on the advantages and disadvantages of giving assurance standards the force of law? Recent research in the area of ‘force of law’ auditing standards discussed indicates that perceived advantages of ‘force of law’ standards by stakeholders prior to their introduction included: providing a clear public interest to standard-setting and the auditing profession; ensuring auditing processes and standards are of the highest quality; ensuring the integrity of the audit function; restoring public confidence in the profession and financial markets more generally following major corporate collapses in which the quality of auditing was implicated; and overcoming perceived ineffectiveness of self-regulation by the accounting profession.
  7. 7. While regulators and the professional bodies felt that the ‘force of law’ standards had positively affected audit quality and public confidence, the firms were less certain. However, the firms did note benefits associated with providing discipline and focus for the profession, improving consistency in practice, and promoting global compatibility of practice. The perceived costs of ‘force of law’ standards related primarily to the financial costs related to practice changes and regulation, and the negative impact on the perceived attractiveness of the profession as a career. In terms of practice costs there are the usual costs associated with updating manuals, policies and programs, and training staff accordingly. Arguably, those costs should not be significant as the change in the standards is limited to their now having the force of law. However, It is possible, that auditing firms will be far more diligent in the areas where the standards have the force of law. Potentially there will be additional costs pertaining to the regulatory oversight of auditors. Where standards have the force of law, it will be necessary to establish an oversight body (inspection team) to ensure that standards are appropriately used, and that non-compliance can be penalised. Finally, there is a view that force of law standards has promoted greater use of checklists, and a move away from the exercise of professional judgement, as audit firms attempt to minimise the risks of non-compliance. In turn, it is argued that this makes the auditing profession less attractive as a career and is hence creating labour (and skills) shortages in this field. An interesting matter to consider when discussing the legal enforceability of auditing standards is the relationship between auditing standards and relevant ethical requirements. Ethical behaviour, in particular the need for independence, is integral to the auditing profession and practice. If ethical requirements are not given explicit legal force, uncertainty can be created around the entire legal enforceability issue, especially where poor audit practice can be attributed directly to an ethical issue. Ethical requirements within Australia are not given explicit legal enforceability, and therefore the status of the ethical requirements is not clear (having not been tested). Put another way, Australia does not have any experience of the consequences if any of the ethical requirement not having explicit legal enforceability. We encourage the Ministry of Economic Development to explore this issue; we note that the quantification of costs and benefits may prove problematic. Q25 What are your views on the proposal to make it an offence to unduly influence, coerce, manipulate or mislead an auditor? The Joint Accounting Bodies are supportive of this proposal, which would make the legislation in New Zealand similar to that which exists in Australia, thus assisting in promoting a single market for financial reporting. Q26 What are your views on the proposal to make it an offence to recklessly or knowingly include false or deceptive matters in an audit report? The Joint Accounting Bodies do not support this proposal, as “force of law” auditing standards would require auditors to comply with relevant ethical requirements, which would prohibit such behaviour. (However, as noted previously there may be some uncertainty where relevant ethical requirements are not explicitly given the force of law. Where they are, this proposal is definitely not required.) The situation in the UK (from where the proposal has its genesis – i.e., the UK Companies Act 2006) is different, as auditing standards are not legally enforceable, and therefore there would be no other legal prohibition of this behaviour. Q27 What are your views on the proposal to introduce a requirement to change statutory monetary thresholds within a certain time period? What are your views on the ten year proposal? The Joint Accounting Bodies believe that a gap of ten years for a review of the thresholds and then the complexity of having legislative changes is not an efficient way to handle such a measurement-based test. We believe that thresholds must be reviewed at least four years from the effective date of introduction, and that the thresholds test be subject to an on-going regular review. In Australia this can be done, as the thresholds and the requirements to review have been included in the Regulations to the Corporations Act.
  8. 8. Q28 What are your views on the proposals appearing in Part 9.1.3 concerning the three exemption powers? The Joint Accounting Bodies support the preliminary proposals to retain Section 35A (whereby, the Securities Commission may grant exemptions to directors of issuers that are incorporated outside New Zealand if it would not cause significant detriment to New Zealand investors) and Section 35B (whereby the Registrar of Companies is empowered to grant exemptions to overseas companies where the New Zealand financial reporting system would impose a compliance burden without compensating gains for New Zealand users). Q29 What are your views on the proposed change to the solvency test? The Joint Accounting Bodies note that Australia has proposed to address this issue in a slightly different way in its legislation. We would encourage the Ministry of Economic Development to make a submission to the relevant Australian Government proposals articulated in the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010. Other issues (Part 9.2) Q30 Do you consider that the parent company preparation and filing requirements should be retained, modified or removed? What are the compliance cost implications? The Joint Accounting Bodies note that Australia has proposed to address this issue in its recent proposals articulated in the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010. We support the removal of parent company preparation and filing requirements where consolidated accounts are prepared and filed. We anticipate compliance costs to be reduced as a result of the proposal. We would encourage the Ministry of Economic Development to make a submission to these Australian Government proposals. Q31 Assuming the parent company requirements were to be modified, what modifications should be made? See our response to Question 30 above. Further, the draft proposals include some suggested disclosures to be incorporated into the consolidated financial statements in place of complete parent entity financial statements and notes. We support these suggestions which are intended to be incorporated into relevant Regulations. Q32 What are your views on the proposal to require contributory mortgage brokers and the broker's nominee company to make GPFR available to investors? No response. Q33 Do you consider that the filing deadline for entities with publication requirements should be reduced? What are your views on the IMF suggestion of four months? The Joint Accounting Bodies encourage the Ministry of Economic Development to research further the pool of auditor availability were there to be any reduction in the time period for publication requirements. A BDO Kendalls study of Australian listed companies reporting deadlines (see BDO Accounting News October 2008) reported more than half of the total number of annual reports, Appendix 4Es and Appendix 4Ds were lodged in the final week leading up to the deadline for lodgement. Approximately 40% of the companies below 500 by market capitalisation lodged on the day of the deadline. Approximately 10% of the companies below 500 by market capitalisation lodged the next morning before the ASX opened. BDO Kendalls claims this is a result of the lack of time allowed by smaller listed entities with limited resources to complete the financial reporting process. Q34 What are your views on the issues relating to remuneration disclosures for key management personnel? The Joint Accounting Bodies note that the Productivity Commission's final report on Australia's director and executive remuneration framework contains some recommendations on this issue. We suggest the Ministry of Economic Development analyse those recommendations.
  9. 9. New Zealand-Australia Single Economic Market (Part 11) Q35 Do you have any comments on the proposals appearing in this document from a Single Economic Market perspective? The Joint Accounting Bodies’ comments to some of the questions above articulate our view on the Single Economic Market. We consider it important that the Single Economic Market initiative of Australia and New Zealand inform the work of both countries. As Australia has addressed some issues in its proposed legislation, we believe it would provide a useful starting point. We would also encourage the Ministry of Economic Development to make a submission to the relevant Australian Government proposals articulated in the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010. MED's proposals for each class of entity (Appendix) Q36 Do you have any comments on the proposals in the table in the Appendix? The table highlights that there a large range of different permutations of financial reporting and assurance. Arguably, the sheer number of different options based on distinctions between types of organisations and thresholds, adds to the complication in this financial reporting area. It potentially provides incentives at the margin for entities to behave in a manner that may move them into a more “favourable” reporting environment (e.g., under reporting of revenue to stay within a lower threshold and thereby requiring a review rather than an audit). In the context of the Single Economic Market initiative, the Joint Accounting Bodies would like to see the same number of tiers in both countries. Furthermore, the third column of the table is headed “audit”, but includes at least two types of assurance engagements; an audit and a review. The column should be renamed “assurance”. As previously noted in the response to Question 4, consideration should be given to the type of governance and accountability arrangements that will exist for entities that are not expected to report but will still have a requirement to maintain appropriate accounting records (e.g., a governance declaration or some form of professional accounting services – e.g., agreed upon procedures or compilation). General question Q37 Do you have any other comments? The Joint Accounting Bodies make the following comments: Should the standard-setters also be the regulator (and regulation setter)?. The Joint Accounting Bodies believe that the determination of the level of assurance that should apply to reporting entities should be a responsibility of the Parliament, which is separate from the standard setting body. This is premised on the view that the body setting the requirements (i.e., the standards in the case of financial reporting and assurance) should be separate from those charged with the responsibility of oversight and enforcing the standards. Executive Summary – Part 9: the view that force of law auditing standards would reduce audit quality by encouraging “box ticking” is a concern shared by many in Australia. The contrary view however, is that force of law should not affect the practice of auditors as the requirements of the standards have not changed – and that the exercise of professional judgement is critical to any high quality audit. Executive Summary – Part 9: re consolidated statements. The Joint Accounting Bodies note the contrary view that consolidated reports are nothing but a “fiction”, and as consolidated groups do not exist as separate legal entities, that parent and individual entity reporting is paramount – as these are the individual entities with which investors and other stakeholders deal. However, The Joint Accounting Bodies are of the view that consolidated financial statements do provide useful information to equity investors, lenders and other capital providers, but some parent entity information may also be needed by these stakeholders to assess the liquidity and solvency of the company in which they hold a direct investment.
  10. 10. Paragraph 27 – it is of concern that the Ministry of Economic Development considers that practitioners outside of the Big 4 have little understanding of NZ IFRS. The Joint Accounting Bodies encourage the Ministry of Economic Development to work with the regulator to identify the extent of this deficiency and work with the accounting profession on a way forward to address the problem. Paragraph 78 – the comment by the Ministry of Economic Development seems to fail to acknowledge that even aggregated information – properly analysed – could provide insights into possible money laundering. Furthermore, the risk of money laundering would be obvious for auditors of particular entities, and to have financial statements prepared and audited could in fact provide a potential further means of detecting illicit behaviour.

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