Review of the Financial Reporting Act 1993
Submissions
of the
New Zealand Retailers Association
to the
Ministry of Economic Development
in respect of
The Review of the Financial Reporting Act 1993: Part 2
February 2005
Introduction
These submissions are presented by the New Zealand Retailers Association.
Background
The Association is the largest trade association involved in the distribution industry in New Zealand.
Our membership includes the major supermarket and general merchandise chains, specialised chains, traditional department stores and thousands of owner operator stores spread throughout New Zealand.
We also service a number of specialised trade groups of plumbing materials suppliers, metal fastener distributors, jewellers, pet shops and equestrian suppliers.
Viewed statistically, the industry has annual sales of some $54b and employs some 325,000 people (17% of the workforce) in some 49,000 outlets throughout the country.
General Comments
The Association does not propose to make detailed submissions on the discussion document as the implications of the proposals will affect our members in differing ways depending upon the nature and financial structure of the individual business enterprises.
We note however that the general principles of financial reporting have been analysed in some detail by Business New Zealand and we are generally supportive of the recommendations made in their submission.
We would point out that most of the larger chain stores are offshore owned or are public companies and as such produce accounts in line with accepted accounting standards and established regulatory practices in New Zealand.
However, many medium to small owner operators are family owned businesses that produce their own accounts but employ an accountant to file tax and GST returns and prepare their annual financial statements.
They would generally be a 2 person type of business which would have a turnover in the range between $0.75m and $5m.
Many of these financial statements for such smaller businesses would not be independently audited and we would oppose any suggestion that all financial entities should be required as a matter of course to have their financial accounts independently audited as to do so would introduce additional compliance costs to the operator concerned.
The current discussion documents preferred approach is that any entities being classified as being small, should not be subject to filing financial statements and having an audit if they have unanimous consent of their shareholders. This effectively is no change for many organisations from their current requirements. As the shareholders and financiers of these entities will receive a copy of the financials anyway, we agree with this proposal as we feel that smaller entities should not be required to file financials or have any audit requirements if that is the decisions of the independent owners, stakeholders or shareholders of the particular business entity.
We also feel that similar dispensation should be given to large closely held entities, as there readership base would be even more limited given that all shareholders should have an intimate knowledge of the business through being on the Board of Directors.
Unfortunately the MED discussion document makes no allowance for closely held entities.
Our preference is that the principles outlined in the Institute of Chartered Accountants exposure draft ED98 on Differential Reporting under the NZ IFRS Regime are followed.
In this exposure draft they propose that any large entity that has no segregation between the owners and the governing body should be able to qualify for differential reporting and thus not be required to comply with International Accounting Standards.
We feel the same principle should be added to the public accountability and size criteria promoted in the MED discussion document.
We recognise that the proposals in the second document recognise that smaller companies could opt out of some or all of the requirements through shareholder resolution but we feel it is important to stress our reservations should a more stringent reporting regime be ultimately implemented by Government.
We also feel that proposals of this nature should be considered by the Small Business Advisory Group that was established by the current Government.
We feel that all to often Government officials moot proposals that prove to be totally unworkable as far as SMEs are concerned and believe that financial reporting is an issue that warrants more detailed consideration by the Government Advisory Group that has been specifically established to make laws more workable as far as small business is concerned.
New Zealand Retailers Association
February 2005
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