Wilson: Accounting Standards Review Board
Wednesday 24 November 2004
Hon Margaret Wilson - Minister Of Commerce
Address To Accounting Standards Review Board
Thank you for inviting me to speak at this important occasion. This is a landmark day for financial reporting in New Zealand. It is the culmination of an intense period of very hard work.
The adoption of International Financial Reporting Standards brings a number of significant benefits to our small and open economy. There is a need to improve the level and quality of capital investment in New Zealand, as we increase our efforts to move from commodity-based export industries to a more value-added approach. This government is committed to building a strong and innovative economy, able to withstand the swings in commodity prices.
The IFRS will increase the international comparability of New Zealand's financial reports. This enhanced transparency will help ensure New Zealand continues to be perceived as an attractive investment destination with a robust corporate regulatory framework.
IFRS also fill a number of gaps not previously covered by New Zealand standards. These include such areas as impairment of assets and share based payments. I consider the latter to be particularly important. The government wants to increase the integrity and effectiveness of, and confidence in, New Zealand’s securities markets. Accounting for share based payments will be an important development in New Zealand’s corporate governance.
The adoption of IFRS follows Australia and New Zealand’s desire to facilitate trans-Tasman business as embodied in the Closer Economic Relations and other agreements. Australia will adopt IFRS from 2005. A common set of financial standards will make a valuable contribution towards reducing trans-Tasman business costs. And I am pleased to say that more co-ordination work is planned in this area, particularly through the work of the Trans-Tasman Accounting Standards Advisory Group.
Adopting IFRS will also keep New Zealand at the forefront of international best practice. New Zealand has been an active participant in the international standards setting process to date, and I hope the IASB will continue to value New Zealand’s strong contribution.
I would like to spend a few minutes talking about the other recent work in the areas of accounting standards and financial reporting. As many of you will be aware, last week I released a second discussion document on the Review of the Financial Reporting Act, prepared by the Ministry of Economic Development.
This document contains a number of proposals that will ensure New Zealand is able to take full advantage of IFRS. These proposals include shifting the emphasis of the Financial Reporting Act away from New Zealand’s role as a “standards setter,” more towards a “standards taking” role. This reflects the fact that international sources will be the primary basis for New Zealand financial reporting standards in the future.
However, it is also important that New Zealand’s standards setting bodies play a full role in both international and domestic forums. To this end, the discussion document contains proposals to reconstitute the Accounting Standards Review Board broadly along the lines of the Takeovers Panel, increasing the range of its functions and powers. This would include the power to issue determinations, interpretations and exemptions. The discussion document considers the appropriate enforcement mechanisms for financial reporting, and proposes that this reconstituted body be given an adjudicative role similar to that of Takeovers Panel. Both of these measures will provide much more flexibility to the Financial Reporting Act and allow a regime that is adaptable to circumstances as they evolve.
Aside from providing flexibility to take into account international developments, my other major goal for the act's review is to ensure an appropriate balance between the costs and benefits of financial reporting. The discussion document therefore sets out a revised financial reporting framework, designed to answer the question “who should have to report?"
Unlike previous consideration of this issue, the discussion document proposes that the Financial Reporting Act would determine only the content of financial reporting standards - that is, what must be reported and how. This essentially amounts to setting generally accepted accounting practice. The obligation to produce financial reports – or who must report - would be left to other pieces of legislation. For example, this would mean that the reporting obligations for charitable entities registered with the proposed Charities Commission would be set out under the proposed Charities Act; the reporting obligations for issuers of securities to the public would be contained in the Securities Act; and the reporting obligations for privately-held non-issuer companies would be set out in the Companies Act.
In regard to non-issuer companies and the Companies Act, I must thank Sir David for the work of the IASB. I understand the Ministry of Economic Development held the IASB paper, setting out its preliminary views for financial reporting by small and medium-sized entities, in high regard. I will be interested to see the final views of the IASB as they develop.
The review of the Financial Reporting Act also considers a number of issues related to the mechanics and practicalities of financial reporting. This includes consideration of electronic publishing of financial reports, the use of XBRL, and the appropriate requirements for consolidated financial statements.
Finally, last week's discussion document considers the appropriate framework for setting audit standards. In particular, it proposes an independent oversight role for audit standards, similar to that for financial reporting standards. We are seeking preliminary views on the regulation of auditors.
The adoption of IFRS has provided a timely opportunity to consider the appropriate arrangements for financial reporting in New Zealand. New Zealand’s financial reporting regime must be tailored to the country’s unique environment and balance the costs and benefits of financial reporting. It must also be flexible enough to take into account future changes in New Zealand and internationally, including IFRS.
I would like to encourage you to read the document and make a submission. Your input helps us develop policy that works in practice.
Finally, I thank all those involved in the process of adopting IFRS. The ASRB and Institute of Chartered Accountants must be specifically mentioned. Without their extraordinary contribution to this process, we would not be standing here today celebrating this occasion.
I would also like to thank Sir David again for his and the IASB’s dedication on the international stage. I know it has taken a lot of effort to adopt IFRS in New Zealand. I can only imagine how hard it must have been to craft the standards in the first place.
I look forward to your continued valuable contribution.