By Ian Reid, Executive Director of the NZ Co-operatives Association

"Unless the International Accounting Standards Board have an absolute change of heart – and that is possible but at this later stage rather unlikely – then at least one new standard will have a considerable impact for many NZ co-operatives," says Reid.

The new standard would require any type of ‘redeemable capital’, however controlled it may be, to be classified as a Liability in the balance sheet of businesses.

This feature has particular impact for co-operatives because many co-operatives have types of Redeemable Preference Shares or similar instruments, which provide a revolving form of capital for trading co-operatives. The new standard, if unchanged before final release, is expected to require these instruments to be classified as Liabilities instead of Assets in the balance sheet.

Such a change could place some co-operatives in a difficult situation when applying the ‘company model financial reporting’ to co-operatives. That in turn could present challenges for financing arrangements in this predominantly company-oriented world of ours.

The challenge, says Reid, is whether NZ co-operatives will be willing to come together and use their collective strength to seek some form of modification of the requirement from the NZ Accounting Standards Board or legislative change by the NZ Government.

The change, seemingly being driven by international commercial company interests without any regard for the co-operative and mutual business model, could present additional challenges for co-operatives fighting to compete with companies around the world.

NZ co-operatives rallied in the early 1990’s when government proposed that there would be no separate co-operative legislation and that the then new Companies Act would include co-operatives. The question is, will NZ co-operatives rally again to protect the existing financial instruments, which serve the sector well and include some redeemable forms of capital?

The new international standards are expected to be released in March 2004.