Red tape change to make credit crunch worse

“This is because the information contained in financial reports is key data that underpins current credit decisions. The ease of access of financial reports impacts the ability of a financier or trade-creditor to be able to make automated or real-time finance decisions.”

Growth in lending to small business has dived and a recent analysis shows growth in bank loans of between $100,000 and $500,000 has been negative for the past three quarters. Growth in that loan segment was down 0.5 per cent in the December quarter, the worst rate of annual growth for seven years.

Thresholds outdated

Under existing regulations, a private company must generally lodge accounts if it meets or exceeds two out of three thresholds: revenue of $25 million; assets of $12.5 million; or 50 employees. Under Treasury’s changes, these will values will be increased to $50 million, $25 million and 100 employees respectively.

The justification for the change is to reduce the financial reporting burden placed on small to medium-sized businesses. The thresholds have not been updated for more than a decade. The numbers were last increased in 2007, when they were raised by 150 per cent.

But Mr Polavidis argues Treasury’s count of companies that will benefit was overstated. He said Treasury had counted each individual entity within consolidated groups, which meant the numbers were inflated.

Accounting bodies CPA Australia and Chartered Accountants Australia & New Zealand support the change, saying it would will reduce burdens on small businesses.

CPA’s head of external affairs Paul Drum said financiers will have access to the information from companies that look for credit anyway.

“If you’re a smaller company and you’re looking for external finance, for example, and you’re going to a large financial institution, they will ask for whatever financial information they want anyway,” Mr Drum said.

“The whole reporting framework is about confidence in capital markets and information that’s of use to people to make economic decisions.”

The accounting standards board noted the changes were “integrally linked” with an ongoing project to develop with other regulators a “simple, proportionate, consistent and transparent” financial reporting framework for private companies.

The Tax Justice Network, which researches tax avoidance, opposed the changes, saying they would reduce disclosure of the tax paid by private companies.

“Australian proprietary companies already have significantly reduced financial reporting requirements compared to other jurisdictions around the world.”

Source link Finance News Australia

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