Auditor Regulation and External Reporting Bill

I am very pleased to take a further call on this very important bill, the Auditor Regulation and External Reporting Bill. As I was saying prior to the lunch break, auditing is not a matter people would rate very highly as having influenced greatly the lives of us ordinary human beings. But I think we underestimate the importance of auditing and the nature of accounts.

💬 Mr SPEAKER: I apologise to the honourable member. I ask members leaving the Chamber to please cease their conversations as they leave. I thank members. It is discourteous to have members standing with their backs to the Speaker, conversations going on, and people on their feet being rowdy. It is discourteous to this place.

I started with one Antonio Mancini, a Florentine of the 13th century. He is the man attributed with having devised double entry accounting procedures. It flowed on to the Medici bank in the 14th century, and was codified and spread further from there. The device has transformed the way in which we look at the world. Max Weber once said capital did not exist before double entry accounting.

💬 Hon Simon Power: Max Weber—that’s highbrow.

The Hon Simon Power smiles and laughs, but it is true. When one thinks about it, one sees that capital did not exist before double entry accounting.

The fact is that the whole of our world today is built around complex financial systems that are based on double entry accounting. We have money in, money received, assets, liabilities, and equities, and we have much more sophisticated forms of financial instruments that have been developed from those systems.

All of this is little known to many ordinary people, who simply rely on the numbers that are given to them by the financial markets and by their auditors. It is on the basis of these numbers that people make important decisions, such as to invest in companies like Enron and WorldCom, and trust accounting firms that once existed, like Arthur Andersen LLP. The world has seen a number of massive collapses and the loss of huge amounts of capital, and we have watched the financial crisis sweep across the globe. It has eroded huge sums of money and caused huge losses of capital. All of this has been felt in New Zealand by the collapse of a number of finance companies. Millions of hard-earned dollars have gone—vaporised. People’s lifetime savings have gone, and their ambitions for a life in retirement have all disappeared.

People need to trust the financial system and they need to have confidence in the financial system. Recent events, I would say, have severely shaken the confidence of the ordinary public. This Parliament, therefore, must do everything it can to ensure that people have confidence in the financial system.

The Auditor Regulation and External Reporting Bill is not particularly exciting legislation to read. It does not read like a Stephen King novel. For most people it would be a great piece of work to read when trying to sleep at night, if they could penetrate its dense language. Nevertheless, it is an important advance in ensuring that our accounting systems are strong and stable, that our financial institutions can be relied upon, and that the figures that they produce have rigidity and value and will stand the test of time.

My own experience of auditors is rather limited, but it has been very illuminating. I started by having a set of accounts prepared, and every year the accountant came along with an additional requirement in order to get my accounts approved. As these extra requirements went up, I found that the auditor’s waiver of responsibility became longer, deeper, and more expensive. In the end I asked the auditors what I was paying for, because it seemed to me that they were not guaranteeing anything in particular.

One of the issues that arose was the liabilities that they faced. This is a complex legal question that is dealt with in part by the Auditor Regulation and External Reporting Bill. We want auditors to be able to give opinions that are of value. This bill will shift the emphasis to that, and give us a better and more robust system. I support that shift.

This is particularly arcane legislation, and not many people would be interested in it, but for those who are interested in auditing and financial reporting it will be a very important step forward. I see that the bill has been the subject of extensive submissions. It has been well considered by the Commerce Committee, and deserves a thorough and detailed consideration in this House. I recommend the bill to members as a good piece of reading. They should make sure they get up to speed so that when they are confronted in the future with an audit and have to sign off on their audit requirements, they do so with full knowledge of all of the standards and the rigour in the regime that stands behind them. They will be able to assure themselves that the numbers are well represented, are accurate, and will stand the test of time. That should happen not only with their own accounts; when they look at the accounts of another company, an enterprise, or a bank they should feel the same confidence about the figures. This bill will take a significant step forward in producing that confidence.

Bill read a second time.