Luke Hartsuyker (Cowper, National Party, Deputy Manager of Opposition Business in the House) Share this | Link to this | Hansard source

I welcome the opportunity to speak on the Corporations Amendment (Corporate Reporting Reform) Bill 2010. The intent of the bill is to improve Australia’s corporate reporting framework by reducing red tape and regulatory burdens on companies, altering disclosure requirements and implementing a number of other refinements to the framework. Reducing the regulatory burden on companies and businesses is a goal that should be supported by both sides of parliament. Reducing government imposed costs on businesses allows them to produce at a more efficient level and offer products or services at a more competitive price. These amendments to the Corporations Act and the Australian Securities and Investments Commission Act make a number of changes to corporate reporting that will reduce the regulatory compliance costs for companies. The coalition supports this legislation and these aims of reducing government burdens on business and corporate structures generally.

The bill contains four measures that I will detail. It also contains a number of minor amendments that I will discuss briefly. Firstly, there are a number of measures designed to improve the reporting requirements imposed on companies limited by guarantee. Currently, companies limited by guarantee are required to prepare a full audited financial report using accounting standards and including a director’s report. The amendments streamline this process by introducing a three-tiered reporting framework that will exempt small companies limited by guarantee from reporting and auditing requirements and will provide other companies limited by guarantee with simplified disclosure requirements in the director’s report. Companies limited by guarantee will no longer be required to distribute an annual report. Instead, they will be required to write to members informing them that an annual general report has been prepared and of how they can obtain a copy.

Companies limited by guarantee will also be prohibited from paying dividends. This is because these companies almost exclusively consist of non-profit organisations, and the government wishes to make it clear in the legislation that this type of company structure is not suitable for dividends to be paid. There are around 11,000 companies operating in Australia that are limited by guarantee. These measures will allow them to spend less time on preparing annual reports and to use their resources more effectively and efficiently. However, it has emerged that there are a small group of companies that will be adversely affected by this bill. For instance, these might include companies currently set up as a company limited by guarantee for purposes including perhaps charitable work and with the intent that dividends will be paid in future years to beneficiaries. This legislation could force a restructure of those firms.

Following concerns expressed by the coalition, the government will be moving an amendment to insert a grandfathering clause which will exempt these types of companies limited by guarantee that are currently operating from being forced to restructure. In particular, the amendment will ensure that the new measures apply only to a company limited by guarantee incorporated after the commencement of this legislation. The coalition thanks the government and minister for responding to the concerns raised and for their willingness to amend the legislation. We will be supporting this amendment.

The second group of measures I will detail relate to parent entity financial statements. The current law requires an entity to prepare a financial statement in relation to itself. However, if the entity is a parent entity, it is also required to prepare financial statements in relation to the consolidated entity. This legislation streamlines how parent entities are treated for the purpose of reporting. An entity will have the option of preparing financial statements either in relation to itself if the accounting standards did not require the preparation of consolidated financial statements or in relation to the consolidated entity if the preparation is required by the accounting standards. By effectively halving the double reporting imposed on parent entities, these measures will assist the management of consolidated holdings and will reduce the compliance burdens of preparing multiple reports.

The third group of measures involves the rules allowing companies to pay dividends. Currently, the law requires that a company may only pay a dividend from profit whilst each director has a duty to prevent insolvent trading. These measures clarify the treatment of dividends by allowing a company to pay a dividend where the company’s assets exceed its liabilities immediately before the dividend is declared and where net assets are sufficient for the payment of the dividend. Payments of dividends must also be fair and reasonable to the company’s shareholders as a whole and they must not materially prejudice the company’s ability to pay its creditors. Importantly, these amendments retain the duty of directors to avoid insolvent trading. This group of measures allows a company more flexibility when determining the level of dividends paid in a particular year. It also allows companies to look at their net asset position for the purposes of determining dividend payments rather than restricting the approach to profits earned during the year of operation.

The coalition notes the concerns from company groups such as the Australian Institute of Company Directors, which thinks a profit based test and these amendments today are still too restrictive on the ability of companies to pay dividends. The AICD suggests that an insolvency test would be a more appropriate measure for companies to use when intending to pay a dividend rather than an assets test or a profit test. Whilst this legislation does allow more flexibility for determining dividend payments, it would be useful for the government to review how the measures operate in effect and the merits of different tests for determining the amount of dividends available.

Finally, the legislation will change the annual reporting requirements for all companies with regard to the annual period in which companies are required to report. The financial year will remain 12 months long. However, an entity will be permitted to vary the length of a financial year subsequent to restarting a 12-month reporting requirement. This will only be permitted in a situation where the financial year is no longer than 12 months, where the previous five financial years have all been of 12 months duration and where the change in the length of the subsequent financial year is made in good faith. This amendment is important for companies wishing to change from an end-of-year reporting period to a 12-month period based on the financial year instead. The ability of companies to do so will be protected by the limits I have just outlined.

The legislation also makes some minor changes to five further areas. Firstly, section 299A of the Corporations Act will be extended to allow all listed registered schemes to report all information reasonably required, allowing an informed assessment of operations, financial conditions and business strategies. Previously, only public companies were required to report. Secondly, companies will be required to make a statement of compliance with the International Financial Reporting Standards in the director’s declaration of the annual report. This statement must be explicit and unreserved. Thirdly, the legislation will allow a company to reduce its share capital by cancelling any paid-up capital that is lost or not represented by available assets. Fourthly, the legislation repeals the funding requirements of the Australian Accounting Standards Board and the Auditing and Assurance Standards Board, which are no longer statutory bodies and whose Commonwealth funding requirements are obsolete. Finally, the amendments will change how the composition of the Companies Auditors and Liquidators Disciplinary Board is selected. Previously, three members were selected by the minister from a panel of seven nominated by the board of the Institute of Chartered Accountants and another three from a panel of seven nominated by the board of CPA Australia.

The new legislation allows the minister to select six members without involvement from the two accounting bodies. This allows appointment of members to be chosen from alternative bodies such as the Insolvency Practitioners Association of Australia and the National Institute of Accountants. Importantly, a person admitted to the board will be required to hold relevant qualifications in accounting or auditing, including membership of a professional body. This is important to protect the integrity of each board and ensure that the oversight is undertaken in a professional and responsible manner. The entire package of amendments contained in this legislation will reduce compliance burdens on companies, while clarifying and streamlining other areas of the law impacting upon the operations of corporate Australia. Whilst the intent of this legislation from the government is admirable, the Rudd Labor government does not have a great record in regulation and in imposing restraints upon the market which increases the operation costs of companies and business in general.

This government was elected on the promise that it would not introduce regulations where it had not also repealed a piece of regulation. Lindsay Tanner repeated this pledge in 2008, where he suggested that Rudd Labor had a ‘one-in, one-out policy’ when it came to drafting regulations. It was revealed in May of this year by the Office of Legislative Drafting and Publishing that the Rudd Labor ministers and agencies had introduced 3,335 regulations in 2009 and removed only 1,845. So, whilst this legislation helps companies dealing with the amount of regulation facing Australian individuals and businesses, the Rudd government is increasing regulations to the tune of around 1,500 new regulations a year. This is just another promise broken by this government. How can businesses trust Rudd Labor to reduce compliance costs with its record of misleading and backflipping on issues of government regulation and control? The coalition agrees that it is important to continually reform corporate law to reduce compliance costs and red tape but, unlike the government, the coalition is also committed to reducing market transaction costs faced by businesses.

The government is constantly increasing transaction costs for Australian businesses by interfering with market operation, sometimes without understanding the effects that policy announcements will have on the market. It has become standard practice of the Labor government to announce broad market-changing policies with no detail and no indication to the market as to how those policies might work. This approach distorts the market and it distorts costs for businesses and companies. We saw this with Labor’s emission trading scheme, which would have pushed the production and transaction costs up for practically every business in every market in Australia. Red tape would have increased significantly, with every carbon-producing business in Australia being forced to comply with the carbon-trading regime. In comparison, these amendments today will be minor in impact.

Labor’s ETS was called a market based approach, but it was an approach that would have prevented the market from working efficiently by increasing transaction and production costs. And now we have the resource super profits tax, Labor’s great big new tax on mining, which will also lift the costs for business in Australia. This is all because this Labor government have plunged Australia into record levels of debt and deficit and need to create new taxes in order to fund their policies. This great big new tax has no regard to the costs of business in markets. The purpose of the tax is simply to deliver revenue to the Rudd Labor government. We know that the statistics used in the modelling for the tax were based on the assumption that it will have no effect on the costs for business and the amount of future investment in mining production in Australia. Chris Richardson of Access Economics had this to say:

The KPMG Econtech modelling—

which the government used for its statistics—

assumes that the RSPT is the perfect tax, causing no harm. Its result —that the abolition of royalties and introduction of the RSPT will increase investment and output in mining in Australia—will therefore presumably hold regardless of the RSPT rate.

This means that no matter what rate of profits tax is placed on mining production will remain constant. The government could have put a tax rate of 99 per cent on the resources sector and it would allegedly have made no difference to production, investment and the impact of the RSPT on share prices. But we now know that this modelling is flawed and the RSPT will increase the costs for businesses. Modelling released today by Ernst & Young concludes that the modelling uses ‘an unrealistic key assumption about complete immobility of mining activity’. Mining companies who can relocate offshore will simply relocate offshore and production in Australia will suffer. According to Ernst and Young, the effects of this tax will result in:

… fewer jobs, reduced investment, and lower personal income tax revenue from workers in mining and associated industries … and will raise the costs of capital required for all investments in Australia (mining and non mining related) due to increased political and sovereign risk, thereby reducing investment spending in Australia.

The modelling also shows that the tax will reduce the valuation of existing mining companies, impacting on superannuation funds and on Australia’s sovereign wealth fund, resulting in lower personal income tax collections from capital gains and other taxes. So despite the positive intent of this legislation today to reduce compliance burdens and red tape, Labor’s approach in general is to completely increase the costs of doing business in Australia through its agenda of tax and spend policies.

The coalition does not take this approach. We have a proven history of paying off Labor’s debt and using a positive budgetary position to pursue reforms that improve the operation of markets and reduce both compliance and transaction costs for business. The coalition supports this legislation because it will reduce compliance costs and red tape. The bill contains a number of small measures, which I have outlined, to create an easier and clarified reporting for companies.

I commend the bill to the House.

Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

It is a pleasure for me also to speak on the Corporations Amendment (Corporate Reporting Reform) Bill 2010 because it is an important further step in the reform agenda of the Rudd government in making sure that we help small business and we ease their regulatory burden and their compliance costs and basically make life easier for them to do their business. It is always interesting to follow a speech from a member of the opposition who, on the one hand, supports our reform and the changes we are putting forward in this area, complains about them as you might expect, and then talks about how this is something we are somehow not getting right—yet they had 12 years in government themselves to do something of similar ilk but did not. We have come to this place with a view that you need to take action to make things happen. That is what we have done by introducing this bill. Even though the opposition complain about this bill, I understand they will be supporting it because it is good legislation. That is important to note.

This amendment bill has a number of very important and key parts, particularly reducing red tape and the regulatory burden on companies, improving disclosure requirements and implementing a whole range of important refinements to our regulatory frame work, to make sure that small business, in particular companies limited by guarantee, have the right sorts opportunities in front of them. There are no extra compliance burdens, regulatory burdens or other costs placed in front of them to do their job. It was back in December 2009 that the government announced the reforms aiming to cut red tape. This was part of our wider agenda, part of our agenda coming to government about what we would do in this area. It was also about improving Australia’s corporate reporting framework.

It is well understood in this country and overseas that Australia has well-regulated, strong, robust corporate governance systems and networks through our Corporations Act and our regulatory system. We are further cutting red tape to strengthen and add to those areas, rather than to weaken them. The reforms in this bill will ensure that Australia’s financial reporting framework remains strong and not just in accordance with world’s best practice but ahead of world’s best practice.

This bill will establish a tailored financial reporting regime for companies limited by guarantee and it will predominantly serve those in the not-for-profit area to reduce their burden and their costs, to let them get on with the business of what they are doing—they serve mostly sport and recreation and charitable organisations. The bill will also continue to ensure that we have the appropriate levels of transparency and disclosure and that we maintain a very strong standing in that area.

The proposed amendments introduce a three-tier differential reporting framework, exempting small companies limited by guarantee from reporting and auditing certain requirements and providing other companies limited by guarantee with streamlined assurance requirements and simplified disclosure in the director’s report. It also means that, for example, the distribution of annual reports to members will be streamlined and can be provided only when members actually ask for those reports, rather than being sent out to everybody. The bill also changes the way dividends can be paid: rather than being based on just profit they can also be based on the capacity to pay—that is, based on more flexible solvency requirements, which is also important. The bill will also relieve companies that are parent entities of the requirement to prepare financial statements for both, which really means that it can be done in one place. The bill goes through a range of other transparency and utility of disclosures contained in the director’s report and an extension of requirements.

There is a lot that I have to say in this area, but I am conscious of the time and I want to give the minister an opportunity to sum up debate on this bill. I am very supportive of this. It is part of our wider agenda in terms of reducing red tape, compliance costs and burdens, and to make sure that small business gets a company tax cut—from 30 per cent down to 28 per cent. In the end, while some people may speak of being the friends of small business, it is the ones who actually take action who are their real friends. I have no doubt that, in the amendments that we are putting forward, that is exactly what we are doing. I fully support this bill and I congratulate the minister for his good work.

Chris Bowen (Prospect, Australian Labor Party, Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

I thank the members for Oxley and Cowper for their contributions to this debate on the Corporations Amendment (Corporate Reporting Reform) Bill 2010. A robust financial reporting framework is an essential component of an efficient market. Appropriate financial reporting and audit requirements enhance the accuracy of financial information, ensure transparency and comparability, and promote confidence.

While Australia has a well-regarded financial reporting framework, opportunities do exist to cut red tape in several areas, and this bill does that. We are very mindful of the regulatory burden facing Australian businesses. The amendments contained in this bill will ensure Australia’s financial reporting framework remains strong and in line with world best practice. The bill establishes a tailored, three-tiered financial reporting regime, as the member for Oxley outlined. We will be moving a minor amendment to the prohibition on companies limited by guarantee paying dividends to members to ensure the prohibition will apply only to companies incorporated on or after the commencement of the bill. This avoids prejudicing any existing arrangements such companies may have.

The bill also streamlines parent entity reporting, relieving parent entities of the requirement to prepare financial statements for both the parent entity and the consolidated group. Additionally, the bill relaxes the statutory requirement that companies may only pay dividends from profits, replacing the profits test with a more flexible solvency based requirement. In doing so, the government has been careful to ensure that the wording of the new provision continues to protect shareholders and creditors.

I do acknowledge the contribution of the member for Cowper and the concerns he raised in this regard. He raised concerns that have been raised by the Australian Institute of Company Directors. I should note that the Institute of Company Directors support this bill and call for it to be passed, but they do have concerns about this particular element. I should also note that that is not a unanimous view amongst the accounting bodies in Australia and, as I understand, the position of the National Institute of Accountants is that they support the framing of this bill and do not share the concerns that have been expressed by the Australian Institute of Company Directors.

It is also the case that we have taken the advice of the Australian Securities and Investment Commission, ASIC, who are very strongly of the view that the framing of the bill is appropriate. It is not surprising that there is a divergence of views on this matter, but it is important this bill be passed. The government, of course, will continue to monitor the situation and is more than happy to talk to the Australian Institute of Company Directors, but it is important that I note for the House that their concerns are not unanimously held amongst accounting groups.

The bill also facilitates an easier change of a company’s balance date, reducing the burden on companies and their auditors particularly during peak reporting periods. Finally, the bill implements a number of important refinements to the corporate regulatory framework that will improve the usefulness of financial information provided to users. The bill underwent a two-month public consultation period and stakeholders were very supportive of the reforms that it delivers.

In summary, this bill improves Australia’s corporate reporting framework by reducing unnecessary red tape, a regulatory burden on companies, improving disclosure requirements and implementing a number of other important refinements to the corporate regulatory framework. I welcome the support of the opposition and the comments from the member for Cowper. I thought the first half of his speech was well constructed. The second half left something to be desired when he misrepresented the position of superannuation funds and the resource super profits tax, but that is a debate for another day. I commend this bill to the House.

Question agreed to.

Bill read a second time.