The 2006 Corporate Issues Report
Thursday, 11 May 2006
NZ Business Leaders on Australia, Corporate Governance & IFRS 2006 Corporate Issues Report Released
A survey of 125 senior executives shows New Zealand businesses would support moves toward closer alignment with Australia, are happy with progress in the area of corporate governance, and have some trepidation about adopting new reporting standards.
The 2006 Corporate Issues Report is the result of in-depth independent research commissioned by PricewaterhouseCoopers New Zealand. Chief Executives, Chief Financial Officers and Directors were interviewed and asked their views on a number of regulatory issues including financial reporting, trans-Tasman harmonisation, and auditor independence.
Warwick Hunt, CEO of PricewaterhouseCoopers, said it was important for the Firm to be aware of the market’s views. “We work alongside many of these privately-owned businesses, government organisations and public companies and it’s crucial for us to have an excellent understanding of their views on the issues they are wrestling with.”
Harmonisation and Australia
There was plenty of support for moves to bring New Zealand and Australia closer together in the business environment. An overwhelming 74% of business leaders said there would be benefits for New Zealand in aligning our regulatory model with Australia in terms of financial reporting and corporate governance. The major motivation for doing so was to create a single capital market, thereby reducing transaction costs.
However, although it was recognised that similar trans-Tasman regimes would be good, 61% did not support New Zealand moving to a more prescriptive model. Warwick Hunt said that New Zealand business saw positives in having systems better synchronised with Australia, but only where it suited overall efficiency and cost containment objectives. “Harmonisation is viewed as being worth pursuing but not at any price – and particularly not if we are to sacrifice our autonomy and introduce a much more complicated set of Australian rules,” he said.
On the tax front, 69% said harmonising trans-Tasman tax structures would be a positive move, particularly in terms of matching the corporate tax rate, personal tax rates, and reaching common ground on dividend imputation issues.
Audit committees rated well among those surveyed with more than 60% giving them an effectiveness rating of 7 or higher out of 10.
Warwick Hunt said this indicates local business leaders are supportive of a regime based on underlying principles rather than the prescriptive rule-based practices prevalent in the USA and, to a degree, Australia. “The common view is that the audit committee component of the New Zealand corporate governance model is a sensible, practical solution.”
He said high profile company collapses in the USA and Australia had served to underline the importance of good governance structures. “Company executives working with, or serving on, audit committees are taking corporate governance extremely seriously, and recognise that getting it right is critical to the long-term success of a company,” he said.
Transition to International Financial Reporting Standards (IFRS)
The move to IFRS in New Zealand is best described as gradual, but it was surprising that more than a third have made, or are in the process of making, the switch – 11% in 2005, and 25% in 2006. The majority (52%) said they will adopt the new rules next year.
Warwick Hunt said New Zealand companies had the move to IFRS on their radar and were getting up to speed on the impact of the new rules. “There’s been some talk of massive swings in reported earnings and so on, but I think this will be the exception rather than the rule. Once the transition to IFRS is made, many companies will be able to benchmark their performance more easily against overseas competitors, and that’s important given the increasingly global nature of capital markets.”
He said he was not surprised at the negative views of those surveyed, given the change programme required. More than 50% said they remained unconvinced about the benefits that IFRS would bring.
“We’re aware that not every company is enthusiastic about a change in reporting standards and the associated costs of adopting a new regime,” he said. “Ultimately the benefits will be there in terms of consistency and comparability. If the offshore experience is anything to go by, views will soften once the bulk of our companies have switched.”
Other highlights from the survey included:
- auditor independence policies are now entrenched as a part of business in New Zealand – 77% of major companies have one in place;
- corporate opinion is more divided on whether auditors are best placed to provide other services – 65% were neutral or supportive of the auditor doing other work; and
- the idea of establishing a regulator to provide oversight of financial statements received guarded support.
PricewaterhouseCoopers commissioned an independent research company to survey a broad cross-section of senior executives. The findings are compiled from more than 120 interviews with New Zealand-based CEOs, CFOs and directors in the period from November 2005-January 2006. Those who took part in the research are involved with companies ranging from public sector organisations and SOEs, through to privately owned and listed companies. To download a PDF of the report please visit: www.pwc.com/nz/2006issues