A proposal for large privately held companies to have an audit and file their financial statements is likely to be controversial in the business community, Deloitte Dunedin audit partner Peter Gulliver says.
The Ministry of Economic Development recently published a discussion document which was regarded as the most comprehensive attempt ever to update New Zealand's financial reporting requirements.
Mr Gulliver said the proposed reporting rules for large privately held companies were the most controversial aspect of what the ministry was proposing.
The companies would be subject to grandfathering provisions, where existing companies which were either currently large, or became large in the future, could avoid the filing requirements.
"My feeling is that businesses will see this as an intrusion into private affairs as commercially sensitive information will be available to suppliers, competitors and staff."
The proposed rules would align New Zealand with what currently happened in Australia which introduced filing and audit requirements for larger, privately held entities in 1995.
Australia also introduced grandfathering provisions but, 14 years on, 70% of Australian large entities were now filing their financial statements, Mr Gulliver said.
That showed the creep effect over time and the impact of corporate activities, such as buying or selling business assets and placing them in a new legal structure which would trigger compliance with the requirement to file financial statements.
"The grandfathering provisions will provide some initial comfort and a shelter from the filing requirements, but as the Australians have observed, this will erode over time," he said.
The ministry released a similar proposal six or seven years ago, and it was met with significant opposition from the business community.
This time, the ministry was more organised in its approach, aligning the rules with Australia and comprehensively including all sectors in one paper, Mr Gulliver said.
However, he expected the level of opposition to be at least equal to last time that type of proposal was released.
The ministry was proposing some significant changes to financial reporting requirements, affecting every sector of the economy.
There would be winners and losers, he said.
"The proposals have been put forward on the basis our current framework has developed in a piecemeal way over the last 100 years, is seen as overly complex and illogical in some respects and is out of step with the requirements in Australia."
It was also a response to the vocal criticism from many directors, and the previous auditor-general, that international accounting standards were not appropriate for many New Zealand entities, especially those in the public sector, Mr Gulliver said.
At the same time the ministry paper was released, the accounting standards review board released a companion discussion paper setting out the accounting rules each reporting entity would need to follow.
Both discussion papers call for public submissions to be made by January 29.
Some of the ministry's proposed changes to existing requirements are:International accounting rules will only apply, in their full form, to publicly listed companies.
The public sector will get its own specific accounting standards.
Large for-profit entities, that are not companies - trading trusts and partnerships - will be formally brought within the financial reporting framework for the first time.
Size is based on a combination of annual revenue, total assets and number of full-time equivalent employees.
Some small companies might not have any legislative requirement to prepare financial statements complying with specific accounting standards as they do now.
In practical terms, they will still require financial statements meeting a minimum standard in order to meet their obligations to prepare tax returns and provide information on their financial performance position to those providing capital.
Overseas-owned companies which now have no requirement to file financial statements because they exceed the 25% foreign ownership threshold will be subject to the new financial reporting framework on the same footing as New Zealand companies.
