Published 21 December 2009
The Securities Commission is undertaking a slow & gentle education programme on transparency – but should it be so gentle?
In its discourse on cycle 10 of this project, the commission continues to come across as a rather academic inquirer into transparency. The exercise has run through the back of the collapse of the financial sector, locally & internationally, combined with the suggestion – only ever a suggestion, never too much reality about it – that all will never be the same again.
Financial institutions in New Zealand have lost hundreds of millions of dollars of their own built-up value and of investors’ savings. Nobody – so far – is going to jail for that demise, and it’s very likely that, when the collapse of the sector is all washed up, nobody in New Zealand will have gone to jail for their roles in cutting money into small pieces & throwing it down the drain.
In the executive summary of its latest review, to March 2009, the commission says: “Compliance was generally good in many areas and the commission’s view is that issuers’ financial statements, in general, reflect a level of compliance with NZ IFRS that is appropriate for a developed capital market like New Zealand.”
That is so sweet.
The commission said it wrote to 17 of the 20 issuers assessed. “The main matters raise were:
financial instruments, particularly the non-disclosure of fair-value assumptions, the expected maturity of financial instruments and estimates of the fair value of collateral heldimpairment of non-financial assets, particularly the non-disclosure & reasonability (yep) of assumptions underlying goodwill & intangibles impairment testingrelated-party information, including omissions from key management personnel compensation disclosures and the non-disclosure of terms & conditions of related-party transactionsvaluations of property, plant & equipment, particularly a lack of disclosure of the assumptions underlying such valuationsthe composition of “other expenses” – we note some issuers are not providing sufficient descriptions for significant amounts of their expenditurethe non-disclosure of the nature of non-audit services provided by auditors.
“We consider such disclosures to be particularly important when the amounts derived are based on significant judgments & estimates.”
Later in the report the commission has picked pu on that little question of the fair value of collateral: “2 matters raised related to issuers’ failure to disclose an estimate of the fair value of collateral in relation to such financial assets. The commission considers financial institutions would usually obtain fair-value information when accepting those assets as collateral.”
That is an exceedingly polite way of saying you do the numbers for yourself, tell your investors too. But the recourse if you don’t? Nothing so far.
In the next paragraph, the commission wrote: “We think it important that issuers provide information on the loss they might incur in the event of default by the counterparties to their financial instruments.”
The full report seems, at a quick flick-through, to be a more long-winded version of the executive summary. And out of it all the commission issued a press release telling the world transparency wasn’t just a nicety but an obligation to be taken seriously. Or something like that – I threw it away.
The commission did recognise it’s been a tough climate to make assessments of value in, and said it also appreciated the requirements were complex & demanding.
But if ever the commission is going to use this handy mechanism for change in a way that is positive, constructive & beneficial for investors, round 10 of its surveillance project looks like a good chance missed.
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Attribution: Commission release, story written by Bob Dey for the Bob Dey Property Report.