Institute of Chartered Accountants to be stripped of audit oversight role
by Paul McBeth
Oct. 23 (BusinessWire) – Commerce Minister Simon Power is proposing to strip the accounting profession of self-regulated
oversight of auditors after damning criticism from the Registrar of Companies regarding the collapse of the finance
company sector.
Power wants to remove the Institute of Chartered Accountants from the dual role of overseeing and promoting the
profession.
Responsibility for auditor oversight would be moved to a beefed up Accounting Standards Review Board, to be known as the
External Reporting Board, according to a Cabinet paper published on the Ministry of Economic Development website.
The changes will see all statutory audits fall under this requirement, and limit more complex operations to “suitably
skilled practitioners.”
They will align New Zealand with global standards.
“The main benefit of establishing auditor registration and auditor regulation oversight will be to reduce the risks that
investors will incur large audit-failure-related losses,” Power said in the document.
“The marginal benefits clearly exceed the marginal costs in this case, given the scale of investor losses that can occur
where there is audit failure.”
Earlier this year, Neville Harris, the Companies’ Registrar, issued a damning report on the failure of the nation’s
finance companies, and said the auditing of the sector “lacked the rigour and analytical depth one would expect for
entities managing substantial public investments.”
The ‘big-four’ accounting firms, Deloitte, Ernst & Young, PricewaterhouseCoopers and KPMG, were often uninterested in finance company audit appointments, and left the
task to second-tier accounting firms which lacked the capability and experience to review the “complex and elaborate
company and business structures.”
Power has led changes to the Trustees Act in the wake of the sector’s collapse which will see the Securities Commission
take on board responsibility for licensing trusts, and will soon release a discussion document on an overhaul of the
Securities Act.
He was reluctant to add auditors to the Commission’s regulatory burden, saying “information is more likely to flow
freely from accredited accounting bodies to the overseer if they know that the information will not be used for other
regulatory purposes that are unrelated to oversight.”
Still, the Securities Commission will be able to be called in for certain investigations, and routinely surveys
published company accounts for accounting standards compliance.
Commission chair Jane Diplock this week criticised the low quality of disclosure in many accounts, especially since the
introduction of new, higher disclosure requirements under the International Financial Reporting Standards.
The External Reporting Board will focus its efforts on high-risk entities such as banks and publicly-listed companies.
The new entity will cost approximately $400,000 to set up, with ongoing annual costs of around $700,000, and will be
fully-funded through levies and fees.
The government hopes to have the new system being up and running in 2011. (BusinessWire) 13:14:29