No Change To Financial Disclosure Rules

The decision by the Government not to require large non-issuer companies to file financial statements at the Companies Office comes as no great surprise.

The Financial Reporting Act 1993 requires most companies to prepare financial statements, except for certain non-active entities. In most cases these financial statements are not filed and so are not made public. But some companies must file audited financial statements with the Companies Office. These statements can be accessed online by anyone without charge.

At the moment the only companies that must file financial statements are “issuers” (entities such as finance companies, unit trusts and listed companies), and certain large companies where 25% of more of their shareholding is controlled by overseas interests.

One of the arguments in favour of requiring large companies to disclose their financial affairs is that their failures harm others: employees, creditors and customers. It is argued that financial transparency would benefit these “stakeholders”.

But the counterargument is that businesses should be entitled to a degree of privacy and confidentiality in the way they operate their affairs. The requirement to disclose may also unfairly assist competitors, many of whom will have no disclosure requirements.

It would seem that privacy proponents have won the argument, as was always likely to be the case. National is perceived as being more friendly to business-owners, and most business owners would prefer their financial affairs were kept out of the spotlight.

It will be interesting to see what changes Simon Power proposes in other areas of financial reporting. Some of the financial reporting requirements imposed on smaller companies, such as the obligation to prepare financial statements in accordance with generally accepted accounting practice, are costly and arguably unnecessary.