Financial reporting reforms: who benefits?

But will it really? Chris Miller, Managing Director of Greentree partner Endeavour Solutions, is not so sure.

The reforms follow a review of the financial reporting framework which found that the framework was overly costly and not meeting users’ needs or expectations.

Under the new regime, non-issuer companies which do not meet the definition of large companies (annual revenue of more than $30 million, or assets of more than $60 million), will be asked to prepare targeted reports for tax purposes, rather than financial statements under the Companies Act.

The changes will reduce the number of companies required to prepare general purpose financial reporting from 460,000 to less than 10,000, and is expected to cut business compliance costs by $90 million a year, Commerce Minister Simon Power said in a statement.

Endeavour supplies accounting solutions to a wide variety of SMEs. Chris Miller calls it “a bold move” that is “great for government costs”, but believes it will provide few direct noticeable benefits for businesses.

“The businesses we deal with in this category need to produce financial reports to ensure the health of their business, and we will be spending no less time ourselves in our own business as a result, I suspect,” he says.

“Tax compliance for a business that is producing financial reporting as good practice and a vital part of their governance, will not reduce costs unless the Tax Accountancy fraternity see less costs for our businesses as a result – now there’s a thought!”

Businesses would be well advised, Miller says, to have accurate accounting information, and part of the tax accountant’s role is to question anything that looks out of place.

“With a relaxed reporting regime it is still necessary to either have good internal controls, or to seek external support when you know you need it. In fact it may be more important to have good internal systems under the new regime.”

Terry McLaughlin, Chief Executive of the New Zealand Institute of Chartered Accountants, told iStart that it was important now to “find the balance between cutting unnecessary bureaucracy and having the right tools for solid financial management”.

Miller suggests it might be time for businesses to check they have an accounting system that delivers the information they need, whether the government wants it or not.

And one last thought, he adds: “Maybe it will assist the ongoing effort to reducing company tax!”

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*Open to Australian and New Zealand businesses only. Entries close on 31 October 2011.

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