Small-firm reports next to go?

By Marie McNicholas

Friday 25th October 2002

The government is considering axing onerous financial reporting obligations for small businesses but it wants to hear hard reasons that it should before going ahead.

It is inviting submissions on a discussion document looking at the options for reforming the present requirements as part of the government's programme to cut red tape and compliance costs.

Commerce Minister Lianne Dalziel said the key issue was whether the present reporting regime for small companies, which provides partial exemption from the extensive reporting and accounting standards demanded of big companies, should be retained or whether small firms should be truly exempt.

The present exempt-company regime applies to small businesses that have no more than $450,000 in assets, have annual turnovers no higher that $1 million and are not part of a group of companies.

It aims to limit their requirements to core information through the preparation of financial reports according to regulations rather than Gaap (generally accepted accounting practice).

It is designed to foster financial discipline and provide basic information to shareholders and outsiders like banks, investors, suppliers and customers. But the discussion paper, prepared by the Ministry of Economic Development, says research suggests the regime may not be fulfilling its objectives.

Preparing financial statements may cost firms up to $5000, compliance is not enforced and numerous stakeholders told the ministry the statements were either not prepared or simply "left in the office drawer."

It reports an overwhelming view among those it consulted that the information was of limited practical application, partly because the shareholders and owners of small-to-medium-sized firms are usually the management and already have access to the information.

Other users do not rely on the information, with groups like suppliers and customers preferring to use credit checks.

The arguments for retaining the regime include modifying it so it does fulfil its aims.

The ministry said though it had heard both sides of the modification-versus-abolition argument it had little reliable information to support either proposition. It wanted further feedback before it reported to the government.

Ms Dalziel said the work had potential to resolve a source of irritation and frustration for small businesses. It was hoped stakeholders would provide reliable information on whether to remove the regime or, if it was retained, what changes would make it more effective, she said.

Submissions close on December 6 and the government plans legislation to make the changes some time next year.

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