In September the QBCC released a discussion paperwith proposals to strengthen the MFR and improve regulation. Changes to legislation may follow which would be implemented in a phased approach.
The discussion paper addressed 5 key areas for potential reform. Options up for discussion are provided.
Businesses with higher turnover will have to report more information to QBCC on an annual basis. Options considered include a step back to the pre-2014 reporting regime and all licensees reporting NTA and current ratio data annually to QBCC.
2. Fostering improved accountancy practices that meet the objectives of the Minimum Financial Requirements
The QBCC consider that a licensee’s accountant providing an MFR Report may lack independence and be reluctant to raise issues with their client. The proposals considered include establishing a panel of accountants to review suspect MFR Reports, changing the basis under which accountants may be excluded from conducting reviews and making it more difficult to change MFR information already submitted.
QBCC’s experience with building collapses involving companies reliant on deeds of covenant and assurance indicated that the covenantor was not always able to cover the licensee’s debts. The QBCC propose that the covenantor’s statement of financial position be revised to include further information identifying assets and liabilities and how these have been treated. They would also require the covenantor to certify the statement as true and correct.
QBCC note that in practice, when a licensee enters insolvency these types of loans are often not
repaid. They have three proposals in this area, the first is to exclude all related loan assets from NTA, the second is for the licensee to obtain a formal security over the loan which would provide the licensee some recourse to the related entity’s assets if the related entity fails to meet their obligations to pay the loan. Their third proposal is to provide more clarity on how related entity loans are assessed.
QBCC indicate that the current criteria for how assets are treated under the MFR policy may not be stringent enough. Their proposals include the exclusion of trade debtors over a certain age unless verified as recoverable, only allowing registered vehicles to be included as an asset, the requirement for a report from a registered valuer if assets are recorded at a value, real estate assets on the market for more than a year to be classified as non-current assets and certain monies held in project bank accounts to count towards NTA and revenue.
We will be following these developments closely.