How CPA Australia is reducing red tape for business

Garreth Hanley:
This is With Interest, a business finance and accounting news podcast, brought to you by CPA Australia.

Simon Downes:
Hello and welcome to With Interest. I'm Simon Downes. CPA Australia exists to educate, inform, and advocate on behalf of the accounting profession. We work hard to make life easier for our members and all accountants, as well as their clients and the industries they operate in. One of the ways we do this is through our advocacy work. We're constantly liaising with governments, regulators, and standard-setters to ensure our feedback is heard and the views of our members are reflected in the policymaking process and beyond. Today we're talking about how CPA Australia is helping to cut unnecessary red tape in some specific sectors.

Accountants are an integral part of our economic prosperity and nothing restricts and hinders economic growth more than the excessive bureaucracy or adherence to official rules and formalities, to quote the dictionary definition of red tape for you there. So cutting out the burden of often onerous financial reporting requirements is high on our agenda and something our policy team is especially passionate about and we've had a bit of success in this regard in the last few weeks. Joining me to discuss all this is Ram Subramanian, who is our interim head of policy and advocacy at CPA Australia and someone who sees a red flag when he sees red tape. Welcome to With Interest, Ram.

Ram Subramanian:
Thanks, Simon.

Simon Downes:
Ram, you and others in the policy and advocacy team work closely with small business owners and managers and one of the things I didn't mention in the introduction is that red tape, especially that of the financial reporting variety, which is where we're focused, is especially frustrating and disrupting to small businesses and organisations who don't have the resources of their big counterparts. To get us started, tell us about your experience talking to the business community in recent times, what they tell you about the impact of excessive bureaucracy on the way that they operate.

Ram Subramanian:
I should perhaps start off by saying that regulation plays an important role in protecting communities and the public, and I want to make it very clear at the outset that we need good regulations and we want and expect our members to comply with regulatory requirements and also help their clients or employers comply with such requirements. So that's a given. It's non-negotiable. What we don't want is unnecessary and excessive regulation or red tape, as you call it, that makes life difficult for our members and those that they serve and does not achieve good outcomes that you'd expect from good regulations.

A good example is regulatory burden faced by not-for-profits that do fundraising. So each state in Australia has its own rules for fundraising except the Northern Territory, I should add. And they're all different. So if you are a national not-for-profit doing fundraising across Australia, you're potentially asked to comply with seven different fundraising rules that are different. This is a huge impost on not-for-profits that often have limited resources and we know that pretty much most not-for-profits in Australia lead a hand-to-mouth existence. But I should add, things are moving in a good direction in this space and we can talk about that.

Simon Downes:
Thanks, Ram. I mentioned earlier that we have enjoyed some success in the area of red tape cutting in recent weeks. This comes from Queensland where we've helped to spare small building and construction companies from the unnecessary and impractical financial reporting requirements that they've been burdened with in recent years. And Ram, you've been very much involved in this. So we are pleased that the Queensland government has heard our concerns and implemented simpler minimum financial reporting, MFR, regulations for small licenced builders registered with the Queensland Building and Construction Commission, that's the QBCC. The state government has decided to progress an amendment put forward by the joint accounting bodies, that's CPA Australia together with Chartered Accountants Australia and New Zealand and the Institute of Public Accountants. That means instead of having to comply with often onerous financial reporting requirements known as general purpose financial statements, which are primarily designed for bigger businesses, small licensees will only need to report in accordance with simpler requirements, also referred to as a special purpose financial statements.

The law which was implemented around five years ago had created additional and excessive reporting standards for smaller QBCC licensees without the resources of their big counterparts. But we should add that this had come about because of a subsequent change to Australian accounting standards That meant that compliance with the statutory requirements to prepare financial statements that complied with accounting standards had to be general purpose financial statements. Ram, this is an area that you know well and it's a good example of how our policy team is doing some great work behind the scenes working with governments in the interest of our members and the business community as a whole. And we're pretty pleased about the outcome here. Tell us about it.

Ram Subramanian:
Yeah, certainly. Probably I just need to set the scene a bit here in explaining what the issue was and then what outcomes we've achieved here and what outcomes have arisen. The issue here was with the building licensees registered with the QBCC, you have various categories and so at the smaller end of those categories, they had a specific financial reporting requirement, and we are not talking annual financial reporting requirements here, we are talking about specific financial reporting requirements, which are called Minimum Financial Requirements or MFR regulations, actually as you mentioned, Simon. And in those circumstances where the MFR regulations kicked in, the QBCC would require a licensee to prepare a financial report and provide it to them, and this would have to be a general purpose financial statements.

And that was as a result of the law being implemented in 2019, which you mentioned Simon and of course a change that was made to accounting standards itself. And that was around the removal of the reporting entity concept. This meant that most small building licensees that were captured by the MFR regulations had to prepare general purpose financial statements as part of their obligations to the QBCC. Now we've been advocating on behalf of these small building licensees and of course their accountants who are our members. And of course it was a joint effort between us and CA ANZ and IPA, as you mentioned, Simon, and we've been having this advocacy initiative ongoing for the last three or so years and we've been pushing with the state government, we've been pushing with the department, which is responsible for the law itself, and of course with the QBCC to make changes to this onerous requirement.

And very recently they have actually gone ahead and made a change, which has meant that the rules have been simplified. Now they will allow for special purpose financial statements or most small building licensees under the MFR regulation requirements, which is a good outcome. I would say. There are some details that we need to work through and some clarity we need around some of the requirements that have been brought about, but we'll have to work through that and get clarity around that from the QBCC and the Queensland state government, which we are in the process of doing at the moment.

Simon Downes:
Thanks, Ram. And just to sort of hit home the difference that a change like this could make, what would it mean to a typical small business in the construction centre in Queensland in terms of the time that they might save? Would it save them money? What is the actual practical benefit that they should see from this?

Ram Subramanian:
So the general purpose financial statements that they were required to prepare so far are really intended for large businesses. Your typical BHP or ANZ or Rio Tinto, they're the kinds of entities who are expected to prepare general purpose financial statements, listed companies is what I'm talking about here. Of course, the same requirements are validly applicable to larger proprietary companies as well and for sure larger building companies as well. No question about it. And we've accepted it. We don't have any issues about larger businesses and larger building licensees preparing general purpose financial statements. They have the capacity to do it and they do it on an annual basis as well. Here we are talking about one-off financial statements being prepared by smaller building licensees who would not normally prepare general purpose financial statements, having to prepare them as a one-off because they're caught under the MFR regulations.

And this causes a huge impost on them and their accountants because what will the building licensees do? They will turn to their accountants and say to them, "Can you please prepare GPFS a general purpose financial statement for me?" And the accountants will have to really put a lot of effort into doing this. And when we’re talking about general purpose financial statements, we're not just talking about one set for the current year. We have to prepare comparatives for the previous year as well. And all this has to be prepared from scratch because they wouldn't normally have done this as part of the annual reporting exercise. And that's where the issue was. And this was a huge cost on small building licensees. We heard quite regularly from our members and even from some building licensees themselves that this was causing them a huge amount of grief and that's why we continuously advocated for change on this topic.

Simon Downes:
Thanks, Ram.

Jacqueline Blondell:
If you're enjoying this podcast, you should check out our in-depth business and finance show, INTHEBLACK. Search for INTHEBLACK on your favourite podcast app today. And now back to With Interest

Simon Downes:
This year could be a big one in helping to reduce red tape in other areas too. Certainly that's what many in our policy team will be hoping to do. Another interesting issue we're involved in and a very Australian example of red tape, I think, which you've already touched on, is the way that charities and the not-for-profit sector more broadly are limited, restricted, frustrated by the different rules that govern the fundraising across our states and territories. The issue, especially for small charities with limited resources is that they're met with a mountain of red tape when they want to engage in a national fundraising campaign. In response, the federal government has created the national fundraising principles in an effort to address this, but not all states and territories are yet on board and we are involved in the work going on behind the scenes to make this happen. Ram, as we've said several times now, it's the smaller corporations, smaller businesses that are impacted the most by red tape like this example. Tell us about this particular issue and how it's progressing to hopefully a positive outcome.

Ram Subramanian:
Thank you, Simon. The not-for-profit issue is a particularly troublesome one, that we've been working on for a number of years now. We've been part of an initiative called Hashtag Fixed Fundraising that's a coalition of a number of big bodies across the not-for-profit sector including CPA Australia and a number of others. And that initiative has been advocating for a streamlined and consistent fundraising regulatory regime across Australia for not-for-profits. We've had some success, but it's been very slow and somewhat painful, I must add. So just to set the scene, as I said earlier, each state across Australia, except Northern Territory, has its own fundraising regulations and they're all different. They're not necessarily look similar or have the same requirements.

So a not-for-profit that say has a fundraising operation in Victoria and another fundraising operation in New South Wales effectively has to comply with two sets of rules and that is not a good thing because they've got to spend money on complying with two sets of rules. That money could have gone towards a purpose that the not-for-profit is there for. Instead, it's being spent on compliance, and unnecessary compliance. That's the issue here. So as part of this initiative, the #FixFundraising initiative that was commenced a few years back, we've been advocating for a consistent set of rules across the country, and we've had some success here as well. All the states and territories actually accepted and agreed to a single set of principles, national fundraising principles, and they agreed to it in February 2023. What hasn't happened though is we haven't had all states and territories implementing these changes since they were agreed to one year ago. Well it's more than a year ago now. So we've been pushing for that change to happen. So just to give you a sense for where we are at so far, South Australia has done it.

So they've actually said, yep, we've agreed to the national fundraising principles and we've implemented it as part of the local law. And they've also made sure that those fundraising principles have been adopted with no change. Tasmania has once again put in an implementation plan and that's going through their parliament at the moment. So no further news on that, apart from the fact that they've said yes, they are doing it and we are putting it through our parliament. The rest we don't know yet. So this is the problem we've got. The speed at which things happen is not desirable. We would like to see things move faster than this because not-for-profits are struggling to deal with compliance.

Simon Downes:
Ram, the policy team is working across numerous different subjects, numerous different issues all the time. Are there any others that you could point to, specifically around the issues of red tape cutting that are on the horizon this year that you expect to become prominent? Anything that come to mind?

Ram Subramanian:
This year, the big thing that's coming up is climate reporting standards and assurance of climate reporting. One of the things we've been advocating for in that space is consistency of reporting requirements. Once again, an area where Australia might create a set of standards which look different to what has been created internationally. Not a solution at all because once again, you've got the difference. So someone, say, from another country looking at the climate reports for an Australian company, we'll see things looking different to say the climate reports prepared in another country.

The whole area of climate reporting is a new area and many countries around the world are still in the process of developing their own standards and reporting frameworks here. So they will all perhaps be looking at it differently at this stage. But we do want consistency in reporting and across countries. For the same reason as I mentioned earlier in my IFRS example, you want that ability for someone looking at the climate reports in Australia to see the same information that they would see, say for example, in the UK or another country. And if Australia went its own way in developing reporting standards which are not aligned with the international reporting standards, we are going to hit that same problem again of inconsistency. So that is an area that we will be looking at advocating for consistency this year

Simon Downes:
Ram, the whole issue of red tape and bureaucracy, it's unlikely to ever be perfect, but our members are doing what they can to work with their clients and achieve the best outcomes. What are your final thoughts on the subject we've discussed?

Ram Subramanian:
Yeah, absolutely. What we really want government to focus on here is a holistic approach to regulation setting, because quite often what happens is a department or an agency will look at something very much isolated through their own lengths and what they need to regulate. They may not necessarily look at it in a broader sense, and that is what we've been asking for. Look at it holistically. I'll just give you an example of what a good outcome looks like. And that's in the context of international financial reporting standards. 20 years ago, globally, everyone agreed that every country was doing financial reporting that looked different.

So this was causing a huge problem with capital flows across countries. So they said, let's create a single set of financial reporting standards that everyone adopts and that gives consistency in reporting across countries and it will allow the flow of capital across countries. So IFRS or International Financial Reporting Standards came about. So what that basically means is British Airways financial statements, Qantas financial statements, will look the same. Both operate in different countries, both are based out of different countries, but both have the same look and feel with their financial statements. So someone looking, an investor looking at British Airways financial statements or Qantas' financial statements will be able to make a comparison and say, "Yeah, that makes sense. I understand." If you can do that for the large end of town, surely you should be able to do it to the small end of town. So I think that's a good example of where consistent and streamlined regulation works.

Simon Downes:
Thanks Ram. I know, it's been a busy time for the team, so we certainly appreciate you stopping by for a chat today. And that brings us to a close for today. Thanks very much to our special guest, Ram Subramanian. We’ll include some information in the show notes for anyone who is interested in reading more about what we've discussed today. From all of us here at CPA Australia, thanks for listening.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode and we hope you can join us again for another episode of With Interest.