Accounting Infrastructure Reform Bill

I move, That the Accounting Infrastructure Reform Bill be now read a first time. I nominate the Commerce Committee to consider the bill. At the appropriate time, I intend to move that the bill be reported to the House by 30 May 2014.

The Accounting Infrastructure Reform Bill will enable the accounting and audit industry to be more efficient and effective. The bill will continue to progress a raft of important changes, which began with the passing of the Financial Markets Conduct Act 2013 and the Financial Reporting Act 2013. These Acts contribute to the Government’s Business Growth Agenda by promoting fair, transparent, and efficient financial markets. The Financial Markets Conduct Act ensures financial markets are fairer. It regulates how financial products are offered, promoted, issued, and sold. This supports confident and informed market participants. The Financial Reporting Act improves transparency. It has reformed reporting obligations by removing the requirement for smaller companies to produce complex financial statements. It allows shareholders of small and medium sized companies to decide whether the company must prepare financial statements, enabling companies to better direct resources where the need is greatest: growing their business.

The Accounting Infrastructure Reform Bill will improve efficiency. It will realign the structure of the audit and accounting industry so that participants are able to quickly adapt to an evolving environment. A more competitive and efficient accounting market will ensure better business practice and advice for New Zealand firms, while a robust audit industry provides improved assurance for users of financial statements, building confidence in our financial markets. Together, these pieces of legislation will encourage the confident and informed participation of businesses, investors, and consumers in our financial markets. This supports the capital market initiatives of the Government’s Business Growth Agenda.

This bill will enable the accounting and audit industry to be more efficient and effective through five key amendments: firstly, to amend the rules of who may perform statutory audits. The bill refines the rules on who may perform non-financial markets conduct statutory audits. Financial markets conduct audits are those audits required by the Financial Markets Conduct Act. There is a separate auditor regulation regime already in place for the auditors of the financial markets conduct entities. It is designed to support increasing public interest in those audits and to raise investor confidence. Under that regime, auditors are licensed by professional bodies that have been accredited by the Financial Markets Authority. This Accounting Infrastructure Reform Bill addresses non-financial markets conduct audits. It recognises that accredited professional bodies have undergone rigorous checks under that regime and have strong systems and processes in place for all of their members. The bill will allow accredited bodies to authorise their members to perform non-financial markets conduct statutory audits. In the same vein, the bill will amend the few remaining public Acts that specify that a chartered accountant must perform a statutory audit. This will ensure that the qualification requirements for all non-financial markets conduct audits are consistent across all public statutes.

The second change is to replace references to a chartered accountant in a range of statutes with the term “qualified statutory accountant” where the context is for a statutory accountancy function other than audit. This new term encompasses both chartered accountants and members of other accredited bodies. This change will enable more people to perform statutory accountancy functions, providing a wider choice of professional bodies. The third change reduces restrictions on legal form for audit firms. It allows New Zealand audit firms to incorporate as a company and allows incorporated overseas audit firms to operate in New Zealand if they meet certain requirements. The ban on incorporation is outdated and no longer serves a useful purpose.

The fourth change introduces a requirement for independent assurance of financial statements for medium sized and large charities. Charitable entities with a total operating expenditure of $1 million or more over the two preceding accounting periods are large and will need to have their financial statements audited by a qualified auditor. Charities that are not large but have a total operating expenditure of $500,000 or more over the two preceding accounting periods will need to have their financial statements audited or reviewed. The fifth change is to allow the New Zealand Institute of Chartered Accountants, or NZICA, more freedom in how to structure itself. The members of the institute have voted to join with the Australian chartered accountants in a new trans-Tasman professional body. However, this cannot be given effect to with the New Zealand Institute of Chartered Accountants Act 1996 in its current form.

There is one issue that I am sure the select committee will pay attention to, which is that the Registrar of Companies has the power to approve overseas professional accounting bodies, whose members can then conduct non-financial markets conduct statutory audits in New Zealand if they are eligible to do so in their home State. The registrar can also directly approve individual auditors. This issue is closely related to the bill and has been raised with me by several professional accounting bodies during the drafting of the bill. I expect that these accounting bodies may repeat their concerns in submissions on the bill. I agree with them that it could be an issue, and I look forward to the select committee’s consideration of the bill.

There are two potential weaknesses in the system. First, the registrar has been given no criteria to apply in considering applications. Second, there is no ongoing check that professional bodies and auditors are still up to the approval standard. I recognise that audit is a highly skilled and specialist profession, and I wish to ensure that clients and users of financial statements can have confidence that overseas auditors meet the same high standards as those based in New Zealand.

To conclude, a more competitive and efficient accounting market will contribute to the Business Growth Agenda by providing better business advice for New Zealand firms and building confidence in financial markets through better assurance to investors. The New Zealand Institute of Chartered Accountants and the Institute of Chartered Accountants Australia merger will contribute to the single economic market initiative with Australia by supporting a seamless trans-Tasman business environment. Thank you.

I rise to take a call on the first reading of the Accounting Infrastructure Reform Bill. Can I thank the Minister of Commerce for his explanation of the bill. The Labour Party accepts that this is, on its face, good legislation. It is housekeeping legislation that updates the regulatory framework that oversees audits outside the financial markets audits, which are provided for in separate legislation. I agree that it is timely that this be done, in part because it also enables through the same legislation the ambitions of the New Zealand Institute of Chartered Accountants to merge with its Australian counterpart to form a trans-Tasman body. My understanding in respect of that, from the explanations that have been made to me, is that as a consequence of that we are likely to see an increase in its back-office functions in New Zealand, which will increase employment opportunities in New Zealand. It is somewhat sad that, again, New Zealand is trading on its low wage comparison with Australia, but we will take that particular advantage on this occasion.

I understand that there are sections within the accounting profession that think that this decision is not the right one, and they will, of course, have the right to make submissions to the Commerce Committee and try to convince the select committee as to why their viewpoint is correct. I think there are some within the profession who think that although the majority of accountants quite clearly want this change, they would like to be able to prevail despite the fact that they are the minority. They have the right to put their submission to the select committee, and the select committee will consider it properly.

One of the issues that I will be interested in at the select committee is in respect of incorporated audit firms and whether there will be a requirement of a certain level of either capitalisation or professional indemnity insurance, because if we are going to allow the incorporation of partnerships, they of course then escape the personal liability that accrues from partnership structures through limited liability company structures to provide audits. I think it is proper for the select committee to inquire whether, given that we are effectively letting the current auditors have personal liability, through their partnership structures, to people to whom they owe duties as auditors, if they negligently breach their duty—and I am not saying that it often happens, but it does and can happen on occasions—then the damages for which they could be liable to the injured party would not be limited through a corporate veil, whereas if we allow limited liability auditors, then they will not be able to have recourse to the personal pockets of the auditors.

I am sure there are strong reasons for the proposal as put forward, but I would be interested to see whether there are minimum capitalisation rules or insurance indemnity rules that apply, to ensure that there would be a remedy for someone who is relying upon an audit that has been negligently conducted. I am sure there is some complexity around that that we can explore at the select committee.

In terms of the proposals in respect of the audits of charities, I agree that larger charities should have decent audits. They are responsible for large amounts of money and they trade, sometimes, on their charitable purpose and present themselves to the public as being a worthy recipient of charitable donations. So in respect of large charities I agree that audits are appropriate. I think that at select committee we would want to check the thresholds that were applying to what is medium and large, because we do not want to unduly regulate small charities and push them into difficult circumstance through expensive compliance regimes. We know that a lot of small charities do a lot of good work. They often run on the smell of an oily rag, they do not have a lot of income, and there is actually not a lot there to audit. So I do not want to impose on those smaller charities onerous audit rules that would be inappropriate, given the size of the money that is in question and therefore the number of things that can go wrong.

You can get disproportionate in regulatory response if you try to apply the same rules to organisations of all sizes. It appears that the Government recognises that, because for medium and large sized charities it is introducing rules that are different from those that apply to smaller charities. So we will have a look at whether it has got that differentiation about right when we go to select committee, and we look forward to receiving submissions from interested parties who would be interested—the charities; in particular, the smaller charities—as to whether they are being unduly caught up in this.

It is important that we have audits. It is one of these things that we so often take for granted in Western countries—that we can rely upon information that is presented in accounts that are relied upon by citizens when they go about their business with different legal entities. People can have some assurance that the company, for example, has a certain level of assets. If there is an audited set of accounts that certifies that the accounts have been prepared in accordance with some accounting standards and that, according to the audit, it all looks in order, that then aids commerce, because we have people being able to have confidence that the institution they are dealing with is likely to be good for the contract that they might be entering into with them.

I do not want to overstate the importance of this legislation. It is not going to, I think, in any meaningful way change the way in which the New Zealand economy operates, but it is a bit like most areas of legislation—they do have to be tidied up periodically, and I thank the Minister for his efforts in that regard.

I am very pleased to stand in support of the first reading of the Accounting Infrastructure Reform Bill. Just touching on what the previous speaker, the Hon David Parker, just spoke on, the Commerce Committee recently processed through the Financial Reporting Act, which has passed through the House and which, particularly for charities, enabled them to account on a cash basis, as opposed to an accrual basis, if their operational costs were less than $140,000 per year. We are very mindful as a Government that compliance costs for smaller groups need to be addressed and made aware of, so I am sure the matter that he raised will come up in the select committee process.

This bill is actually part of a suite of reforms in legislation that the National Government has progressed over its previous two terms. All of this is designed to restore confidence to the finance sector and also confidence to investors and the business environment here in New Zealand. We established the one-stop shop, the Financial Markets Authority, with a sharper focus on enforcing the law and we have tightened oversight of those working in the financial markets. This includes financial advisers, trustees, and auditors. We passed the Financial Markets Conduct Act, which is a major update of a 33-year-old securities law. We have removed barriers to trans-Tasman business and progressed legislation that will enable us to meet our single economic market goals and aspirations with Australia. We are working on the improvement of financial literacy, progressing legislation cracking down on loan sharks—which is very important, particularly in Auckland—and combating anti-competitive behaviour such as price fixing. All of these measures are ones that we as a Government have been working on.

We come to this one in particular, which is going to bring greater efficiency in an increasingly competitive environment in the area of auditing and accounting, in particular. That is going to be good for business, because we will hope to achieve through this better value for money for businesses in terms of what they receive from that industry. The bill proposes a number of important changes to enable the industry to be more efficient and effective. It widens the scope for qualified members of accredited professional accounting bodies to perform statutory audits. It updates legislative references to a “chartered accountant” with references to a “qualified statutory accountant”.

One of the things that the Minister of Commerce has mentioned is that the members of the New Zealand Institute of Chartered Accountants and the Institute of Chartered Accountants in Australia have voted in favour of the proposal to create a trans-Tasman voice for chartered accountants. This bill will enable them to put that proposal into action and will also recognise that New Zealand members of accredited bodies like the Certified Practising Accountants in Australia are well-qualified to perform accounting and audit functions. This is good because it enables the accountancy firms, particularly here in New Zealand, to have an international outlook and it enables them to be able to operate more competitively across the Tasman. The New Zealand Institute of Chartered Accountants and the Institute of Chartered Accountants in Australia merger will contribute to this single economic market initiative with Australia, which we desire to be effective and even more effective by supporting a seamless trans-Tasman business environment.

We look forward to this bill coming to the Commerce Committee. We will be open for submissions this week and will have a period of time where we look forward to receiving the views of the industry that the committee can then consider. Thank you.

Happy New Year to you, Mr Assistant Speaker Tisch, and happy New Year to all my colleagues on the Commerce Committee looking forward to another year of robust discussion and debate on legislation coming before us. I think it is important to say that, despite the robustness of the debate that happens in this House, in select committees the work of devising new and important laws that upgrade existing laws goes on.

This bill, the Accounting Infrastructure Reform Bill, appears to be one of those pieces of legislation that, as my colleague across the House, Jonathan Young, has noted, fits within a suite of particular legislation that is looking at financial reform. It also fits within the legislation around harmonisation of law, particularly between New Zealand and Australia. Certainly in principle those things are important. The upgrading of law in this area, the importance of trying to raise awareness of financial literacy out there in the community, how these sorts of laws operate, and ensuring that our laws make sense between us and our closest neighbour, Australia—all of those things are important. We certainly do support the referral of this piece of legislation to the Commerce Committee, and, in principle, we support its intent.

I do have, on looking closer at this bill, some questions in my mind that I am keen to see played out during the discussion in the select committee. I want to just touch on a couple of those tonight. We know that there is certainly broad agreement between New Zealand and Australia, and, to get to the guts of this legislation, it is enabling that harmonisation to take place. That seems to me to be one of the core things that underpins it. It is one of the core reasons for it. I suspect that it is something that will hasten the bill’s process through the second reading and further readings in this House, because it seems that there is quite a lot of support for that.

However, it is not universal support. There were some important issues raised in the discussion that preceded and happened during the merger discussions between the Institute of Chartered Accountants of New Zealand and its Australian counterpart that I think are worthy of some further scrutiny in the select committee. I am sure that we will be hearing the voices of New Zealand’s smaller accountancy firms in particular, and what I personally would particularly like to hear are the voices of smaller firms and also firms in rural and regional New Zealand, so that we can actually hear what their views are on the impact of a merger between the New Zealand and Australian chartered accountancy groups. Although big firms and urban firms may see direct benefits, those benefits do not always naturally accrue throughout the whole of New Zealand, and I have got a little warning bell in the back of my mind. We must be certain, if we are looking at any potential changes to this bill, that there is no disadvantage happening in rural and regional New Zealand.

There are three concerns that I have seen being raised around such a murder—merger. That was a Freudian slip, which may come back to haunt me. However, the perception was that this could be seen as a potential takeover of the Institute of Chartered Accountants of New Zealand by the Australians. Personally, I do not think that is the case. It seems to me that there has been a fairly robust discussion between the two organisations. I have read a number of things that have been written by the Chief Executive of the Institute of Chartered Accountants of New Zealand, Craig Norgate, who is very much in favour of the merger and sees some practical benefits accruing to New Zealand. However, as I have pointed out, there is the representation of those smaller accountancy firms.

Another issue that has been raised is the potential, if there is a merger of the two bodies and they become one, for us to see—I do not know whether “exodus” is the right word—some accountants moving across the Tasman. We must ask whether that would impact on New Zealand. So those things are things that I think we must be asking questions about. We must be looking at them and thinking about them while we are considering this bill.

There is another issue that I am interested in teasing out. This bill has four main aims. There is the amalgamation, which is one. There is also the allowing of competent auditors with appropriate qualifications to offer audit services to New Zealand firms, allowing audit firms to incorporate as companies if they decide that that is the most efficient business form for them, and replacing references to “chartered accountant” in various Acts, etc.

One of the changes that will be occurring is the requirements on charities, which my colleague David Parker touched on. There will be a requirement within this legislation for registered charities of a certain size to have their financial statements audited or reviewed by a qualified statutory auditor. The bill makes a differentiation between large charities and smaller charities. Large charities, which are those that have operating expenses of more than $1 million, are to have their financial statements audited. Medium-sized charities, which are those with operating expenses of between $500,000 and $1 million, must have their financial statements audited or reviewed. Smaller charities will have some requirements on them, and I think this is another thing that we must look at carefully.

As I understand it, there are around 26,000 entities on the Charities Register. Most of them are small or very small, so the impact of this on all of them, as I understand it, is quite minor, but I think that is something that we have to look at carefully. If there is an onerous impact on particularly those smaller charities, then we have to weigh up the effect that that might have, but around 2,800 of those registered charities, as I understand it, are put into the “large” or “medium-sized” categories. About 80 percent of those large or medium-sized charities already have an assurance engagement completed.

So I suppose that I am a little bit confused as to what import this actual change is going to have. I do also hope that charities are aware that this legislation is going through the House and is going to a select committee. I hope that charities do take the time to consider this legislation carefully, to come before us and tell us what they think the impact will be, or to ask us to consider certain matters. So those are the major issues that leap out at me on first looking at this piece of legislation, which is about to hit the select committee.

As I said, we support this bill. We agree with its intent. We think that it does fit within the broader scheme of changes to financial management in all of those pieces of legislation. We will be looking carefully, we will be listening carefully, and we will be listening for the voices of those who are raising concerns and issues with this bill, so that we can be assured that we are not rushing into an amalgamation in a way that may come back to bite us later on.

Tēnā koe, Mr Assistant Speaker. I rise to speak in the first reading debate of the Accounting Infrastructure Reform Bill. This bill, as other speakers have noted, makes changes to the auditing sector. On the first reading the changes seem to the Green Party to be a bit of a mixed bag. Some of the changes are good and we can support those changes, but some seem to take us in a general direction of deregulation, which we have some concerns about.

So, as the Minister of Commerce outlined, there are five main changes in the bill: expanding the definition of those who can conduct audits, enabling auditors to form limited liability companies, introducing penalties for auditing offences, requiring medium and large charities to be audited, and allowing the New Zealand Institute of Chartered Accountants to merge with its Australian counterpart. We can agree strongly with the move to audit medium and large sized charities, and allowing auditors to incorporate into limited liability companies is also fine. It is standard practice elsewhere, and currently auditors have the ability to limit their personal liability through trusts here in New Zealand, so it seems like standard practice.

The fish-hook for us is that the Government is proposing to set the minimum standards for audit companies in regulations, rather than putting them down in legislation. I guess it is important to realise that these standards really lie at the heart of the auditing profession and sector, and the auditing sector is crucial to the healthy functioning of markets, particularly in the long term. It is really important that investors have confidence and that the public have confidence that the auditors are doing their job correctly. So by leaving these standards to regulation that is set by the Minister, it makes the whole process quite a bit less robust, because the regulations do not come before Parliament and that means that one person or a few people in Cabinet are responsible for setting those regulations. It makes the process much more vulnerable to lobbying.

The Minister set out an excellent explanation, and we accept that the Government wants to do the right thing with this bill, but there were a few key buzzwords in his speech and in other Government MPs’ speeches, particularly “increasing efficiency”. That really should give us pause, because although it is easier to say that it is better to get things done quickly and cheaply—and I am sure a lot of people would agree that it is better to get things done quickly and cheaply—sometimes that can end up costing us a whole lot more in the end. I am sure that New Zealanders sitting at home watching this debate tonight would agree with that—that sometimes taking the quicker and easier option in the short term leads to unforeseen costs in the long run.

The global financial crisis really should have taught us about the importance of independent regulatory oversight, broadly and generally speaking. The loss of hundreds of billions of dollars of wealth across the world did not happen because of too much regulation; it happened because of too little regulation and a cosy relationship between the finance industry and regulators and legislators in many, many countries.

We should remember here in New Zealand that we are a small country with a small market, which makes us particularly vulnerable. We need to be very cautious. Ireland and Iceland come to mind as small countries that seemed to achieve enormous economic growth for a few years thanks to a certain level of deregulation, particularly in the finance industry, but that did turn out to have quite disastrous results. I appreciate that the factors leading to financial and economic calamity in Ireland and Iceland may seem quite far from a bill in New Zealand that is primarily focused on deregulating the auditing sector, but I think it is worth considering.

The pressure investment banks put on politicians in other countries overseas, and no doubt here in New Zealand, to deregulate so that they can earn bigger profits in the short term is suspiciously similar to the rhetoric that we hear from this Government all the time—cutting red tape to supposedly help the economy. I suppose there is some logic to that facile argument if one is concerned about only the short term. One of the big differences between this Government and the Green Party is that we are very focused on the long term and getting the best results for all New Zealanders and the New Zealand economy for more than just tomorrow or next year or next quarter. We are thinking about generations to come.

So although we agree with some areas, as I was looking through the regulatory impact statements on this bill I was really struck with the number of times officials had written that there was not any evidence to support the benefits that were justifying the changes that are laid out in this bill. One of those areas is the merger of the New Zealand Institute of Chartered Accountants with its Australian counterpart. I have spoken with the New Zealand Institute of Chartered Accountants. I accept that there might be some logic and that that is what its members want, but it is worth noting that the role that the institute plays in New Zealand is quite different from the role that its counterpart plays in Australia. Australia has a direct regulation model, whereas we in New Zealand have self-regulation. It is quite an unusual situation where on the one hand we have the professional body that is self-regulating and has a statutory function set out in legislation, and yet on the other hand it is also operating in a kind of commercial environment, as is its Australian counterpart.

So this regulatory impact statement explores the different areas on the regulatory spectrum. There is no regulation, self-regulation, co-regulation, and direct regulation. Australia actually has direct regulation, whereas we are already in this light regulatory regime of self-regulation. The regulatory impact statement really outlines that there are a large number of risks that come with self-regulation, and, in fact, with quite a few of the goals of promoting quality audits and achieving the extra benefits of aligning New Zealand’s regulation with other jurisdictions, because we are an outlier in this area. Most other comparable jurisdictions have either co-regulation or direct regulation. The UK has a co-regulatory model. So New Zealand is in the situation of already being less regulatory in the audit sector than many of its trading partners in other comparable jurisdictions. The regulatory impact statement states that many of the benefits that we want, like quality audits and being aligned with other jurisdictions, could be achieved if we moved to one of these other models. Yet that is not what we are doing, because it might cost more money in the short term.

So although the Green Party accepts that there are some good proposals in this bill, we will be listening very carefully—I will be listening with great interest—to submissions that we hear during the select committee process. We are simply a little bit concerned that there has not been enough evidence put forward for this move and that it is taking us away from more oversight, and independent oversight—which is so critical, particularly in 2014, I think—in the financial sector. And the auditing sector is absolutely crucial to the health of our financial markets in the long term. The Green Party will be listening carefully at the Commerce Committee, but we will not be supporting the bill at this reading.

I am very pleased to take a call on the Accounting Infrastructure Reform Bill in its first reading, and I look forward to receiving it as a member of the Commerce Committee.

I found it really interesting to hear the Greens spokesperson Julie Anne Genter get up and start advocating for more regulation and not less regulation. In a competitive economy where the country’s wealth is being generated through our private sector, it is extremely important to make sure that as part of our Business Growth Agenda we actually look at ways of making our companies more efficient and more competitive. That does not mean layering more red tape on them. It does not mean weighing them under with more red tape. It does not mean more regulation. It actually means good regulation.

This bill, on the face of it, looks like a very good bill. Its purpose is to make the accounting and audit industry increasingly more competitive, more agile, and more effective and efficient in a growing, globally competitive environment.

Just from my own experience with, say, a small organisation like Age Concern in my own electorate of Rodney, if we can find a way of creating more efficiency and reducing the compliance costs in terms of audits for an organisation like that, it would go a long way to relieving stress on organisations that actually sometimes rely on voluntary services to carry out an audit.

So this looks like a very good bill. I look forward to receiving it at the Commerce Committee and having a look into the details of the bill. Thank you.

I take a call on behalf of New Zealand First on the Accounting Infrastructure Reform Bill. New Zealand First will be supporting this from its first reading through to the Commerce Committee for the very reason that we see merit in some aspects of the bill. However, we do have some concerns in other areas. With that in mind we feel that it is appropriate for this to go to the select committee to allow New Zealanders, New Zealand accounting firms, New Zealand auditing firms, and all those others involved to have their say in this legislative process.

New Zealand First supports this bill for the fact that it will help reduce compliance costs for small companies. We are a party that supports New Zealand enterprise, and we stand by the reduction in costs to operate small companies in New Zealand, which are increasingly burdened by compliance costs. The audit and accounting industry will be more efficient as a result of this legislation, we are told, so it will be interesting to see how this bill, coming through the select committee process, will show the greater efficiencies that can be achieved.

We are also advised that accredited bodies will allow members to conduct audits under their umbrella controls. Therefore, as a result, if you are part of an accredited body, an auditing company, you are supposedly accredited to conduct audits. Therefore, it will be interesting to see how that fleshes out through the select committee process as to how those accredited bodies will administer that.

It is interesting that this bill replaces the longstanding terminology of “chartered accountant” with new terminology: “qualified statutory accountant”. Again, whether or not that has much meaning we do not know, but the longstanding term where people say that you have to get a chartered accountant goes back a long way in New Zealand’s history. Again, it will be interesting to see whether this is just playing with names or whether there is any real substance to that name change.

This bill will also, if enacted, allow overseas audit companies to operate in New Zealand. We are advised that many companies that have international auditors currently have difficulties in that they have to have a local auditor to undertake their work, and that provides some difficulties for some international operators, and I can imagine that could be the case. There would be merit in that change. We would hope that as a result of this bill many international firms might see fit to establish offices here in New Zealand to conduct such audits on behalf of some of their global companies. New Zealand would gain by international audit companies establishing local branches.

We are also advised that in terms of charities, larger charities would be required to be audited by qualified auditors. We see merit in that. When you are the purse holders of public money, taking public charity money in excess of $1 million, there is great merit in ensuring that those funds are audited correctly. Therefore, we see that there is advantage in ensuring, for those New Zealanders who are donating—and New Zealand has a reputation for being one of the highest-donating countries in the world per capita—that those funds are properly administered. Medium-sized charities, in the order of half a million dollars up to $1 million, will require audit or reviews, and those smaller charities under half a million dollars will have lesser requirements.

Again, as we have heard from other members, when you are talking about very small charities the burden in terms of auditing and compliance can be very onerous, and it can chew into a lot of the very good money that is being donated to those charities. Again, if through the select committee process we can identify ways that very small charities can reduce their costs, then that would be a benefit.

This bill also brings together the opportunity for New Zealand and Australian accounting bodies to come together as one trans-Tasman statutory body to oversee Australasian auditing. This is an interesting process, bringing those trans-Tasman accounting practices together. We do operate in a CER situation, where we do try to operate in harmonisation with our Australian sister country, and therefore this can potentially bring great benefit to both sides of the Tasman by being able to offer standard practices across businesses on both sides of the Tasman.

However, as New Zealand First has always said, we would have great concerns if this was seen as some sort of takeover of New Zealand accounting practices by Australian practices. We are informed that this is not the case and that, indeed, it could be the reverse, whereby the smaller partner could in fact benefit much more greatly by being part of this harmonisation with Australia and many Australian firms could actually look to New Zealand firms to conduct much of their business on this side of the Tasman on their behalf. If that is the case and we benefit out of it, then that is fantastic. However, if it is another situation, as in the banking industry, where the Australian side of the deal seems to be the great benefactor, then New Zealand First would have grave concerns about that. So we will be following that issue through the select committee process and we look forward to submissions from all those involved to flesh this out and ensure that New Zealand does indeed protect its interests.

Just in closing, New Zealand First has always stood on a basis of supporting New Zealand commerce, supporting New Zealand business, and, particularly, supporting greater efficiency in New Zealand business. We have always stood for reducing compliance costs and helping our people of New Zealand operate for the benefit of all New Zealand citizens and all New Zealand businesses. We see significant merit in many aspects of this bill, and we will be following the bill through the select committee process with great intensity. Thank you.

I am pleased to stand in support of the Accounting Infrastructure Reform Bill in its first reading. The Minister of Commerce mentioned in his introductory remarks that the bill is part of the Government’s Business Growth Agenda. This bill will keep achieving efficiency, competition, and an international outlook in the New Zealand accounting market. A more competitive, efficient accounting market will contribute to the Business Growth Agenda by providing better business advice for New Zealand firms and building confidence in the financial markets, to the better assurance of investors. With these words, I commend this bill to the House.

I rise to add yet again Labour’s voice in relation to the Accounting Infrastructure Reform Bill. I take this opportunity to sound just a note of caution about this bill, notwithstanding Labour’s support for it, at least in its first reading and to get it to the select committee. I have to say I get very nervous when I see as one of the objectives of a bill of this nature what is described as a “more efficient and effective” accounting and audit industry. If that is one of the objectives for this bill—a more efficient accounting industry—let us just understand what that means, because it may not necessarily be good.

We need an accounting industry that operates to professional standards, because that is what is needed for commercial transparency—at least for those who operate in the public eye, such as listed companies—and certainly when it comes to the audit function, the last thing we need is an auditor motivated by greater efficiency. What we need, actually, is auditors motivated by the need to do their job of scrutiny, exercising professional judgment, so that existing owners of the business and potential future owners of the business can make an informed decision about their ongoing ownership or potential future ownership. That is what we require of auditors—to cast a searching eye over the work that the finance arm of a particular company has done and to provide some level of assurance that the reports that have been provided and the picture that has been painted of the financial health of a company are largely accurate. That is not achieved by greater efficiency; it is achieved by having a proper set of standards and by having those who have the professional responsibility operating within, not so much an industry, but a sector that has a culture of high professional standards. So when we have a bill that is about facilitating, as it says, greater efficiency and effectiveness, let us be clear about what is being asked for.

You know, well within the memories of every member of this House, and many others besides, are the activities of Enron and its auditor, Arthur Andersen. Let us face it: the big chartered accountancy firms operate on a commercial basis. That is not necessarily a healthy thing. We do not need accountants and auditors who are motivated by greater profit—who are motivated by trying to get the job done as quickly as possible for the least cost and the greatest charge out to the client. That is actually not a good thing. What we need is an accounting profession that is motivated by the best professional standards and is doing the very important task for those who undertake the audit function of making sure that proper scrutiny is applied.

The consequence of Enron and what was ultimately the failure of Arthur Andersen, the auditing company, was in the United States the Sarbanes-Oxley Act, which then led to the International Financial Reporting Standards, which we adopted and which have become, frankly, the bane of many organisations as they adapted to them. But for organisations that are required to undergo a statutory audit—and in this country trade unions are one of them—we gladly adopted the higher standards required in the International Financial Reporting Standards that were adopted by our Institute of Chartered Accountants because we thought that provided greater transparency and greater assurance. I think that set a good standard. What we do not want to do is undermine that by having a set of measures in this bill that enables or empowers accounting firms to operate in a way that is about pursuing the profit motive.

My colleague David Parker alluded to one of the provisions in this bill that is allowing accounting firms to operate as limited liability companies. The question will arise: how will they be capitalised? And the question will also arise: who will own them? Will it just be the professional operators—the professional accountants and auditors—in the firm? Or will other private owners be able to have a stake in that firm? It does not engender a great deal of confidence in me that we could have accounting firms with a multiplicity of ownership spread throughout those who have no stake in the professional standards of the organisation, but who have a great stake in the profit-generating capacity of it. So let us be very careful about what we are asking for, because the fear is that we might actually get it, and that will not necessarily be a good thing.

You know, we have just come through the global financial crisis. I know that the Government members are going to try to convince the public that we are still in the middle of it for some things and say that they are the great austerity managers of the decade, and then they will be splashing the cash around for other reasons when they want to—

💬 Hon Damien O’Connor: Deficit after deficit.

Deficit after deficit. But now the Government wants to try to present a softer face after 6 years of flintiness, 6 years of presenting a hard-nosed face to the public of New Zealand. Now it wants to splash out on education. It will splash out on early childhood education—we can see that coming—and when it is talking about those things, the global financial crisis will not rate a mention. But when it is about taking money away from other things, of course, we are still in the middle of a global financial crisis. But let us remember what underpinned that. It was a failure of audit standards. It was a failure of transparency. It was a failure of the commercial sector. What we do not want to do, having just got through one of the biggest financial lurches in Western history, is to then start treading down the path as if none of this matters. Well, it does matter. Professional standards in accounting matter.

The accounting profession is a very important profession—notwithstanding the number of them running this Government—and we should pay great homage to those who have qualified in that profession and earned their chartered status.

💬 Hon Damien O’Connor: Don’t overdo it.

I am not trying to over-egg the pudding here, but this is a very important profession, and accountants and auditors provide a very important function in our commercial world. But let us not contaminate their function and undermine their professional standards through measures that will actually have the opposite effect of providing greater assurance, greater transparency, and better oversight for the benefit of all those operating in the commercial sector but principally shareholders, commercial owners, and prospective owners as well—those who are looking to take up greater ownership, invest more, and expand their investment. What the accounting profession does, both as accountants and as auditors, is fundamental to our commercial integrity as a nation, and we do not want to undermine it.

I just want to add this point finally, before we get off this, in relation to the prospects of a trans-Tasman merger of the various chartered accountancy societies. We have had another example of this recently in the commercial sector—that is, with patent attorneys. We passed a law recently that provided some sort of harmonisation of measures for patent attorneys on both sides of the Tasman What that is gradually leading to, I am told by that profession, is an absorption by the Australian patent attorneys of work that would otherwise be done by New Zealand patent attorneys. I have no doubt about it because I know Australians, and I love them dearly, they are great people, and they are great comrades to have in many respects—

💬 Hon Damien O’Connor: Not all of them.

—even though they have not imported our apples for a long time. But they are very good at maximising opportunities for themselves. They are very good at making sure that they maximise their opportunities, often at our expense. We do not want to pass a piece of legislation that simply gives them carte blanche to be the auditors of New Zealand. We need to retain our own standards and integrity here, and we need to retain our capacity and capability in this area as well in New Zealand.

So let us give this bill some very close and intense scrutiny and examination at the select committee, but let us understand what the real commercial risks are here, the risks to our reputation as a nation, and what those commercial risks are. But, on that note, let us send the bill to the select committee and let us have a good look at it.

I am delighted to speak on the first reading of the Accounting Infrastructure Reform Bill. The bill proposes a number of important changes, and these changes will promote efficiency, competition, and an international outlook in the New Zealand accounting market. The bill is part of the Government’s Business Growth Agenda to improve regulation and promote healthy financial reporting frameworks. I commend the bill to the House. Thank you.

I understand the next call is a split call—Brendan Horan, 5 minutes.

May I say a happy New Year, and it is great to be back. I extend a hearty welcome to all MPs who are here tonight. I hope everybody had a wonderful break, and we are looking forward to an exciting year. I will take a short call on the Accounting Infrastructure Reform Bill. At the outset I say I am supporting the first reading, and I look forward to a speedy but not rushed process through the Commerce Committee, as it receives and considers what will no doubt be many hundreds of submissions.

Earlier we heard the honourable Julie Anne Genter speak of her party being the only long-term planners. Over on this side of the House we realise that National looks generally to only the next press statement, but in its headlong rush today to be seen to congratulate Lorde we see a momentous shift in its psyche. With Lorde being only 17 and not eligible to vote for a couple of years, perhaps that is an indication that National, by its standards, is finally thinking long term.

We are told that the main purpose of this bill is to enable the accounting and auditing industry to be more efficient and more effective. It will enable more people who are competent to perform audits to do so. That sounds good—replacing outdated and prescriptive legislation with a more appropriate and enabling framework is generally good. Lord knows, there is certainly a party here that could do with replacing its outdated leader. But it is interesting that the roll-out of our broadband infrastructure means that every accounting system is still in analog. I look forward to the move to digital and the many jobs that will be created by the industrial internet, with new skills and competencies required to change systems over to digital infrastructure. However, I digress.

There is one point that I would like the select committee to seek advice from officials on, and it is this. Although this bill builds on the changes made by what is now the Financial Markets Conduct Act 2013 and the Financial Reporting Act 2013, the three pieces of legislation together are quite complex. At present section 199 of the Companies Act sets out who may and who may not audit a company. There is also a flow-on effect as other pieces of legislation reference section 199 to define the qualifications of auditors of other entities. Yet it is not clear how or where, in the two Acts already passed and in this new bill, section 199 of the Companies Act will be updated to allow more competent people to perform audits of companies and other entities. This draws attention to the Electoral Act, perhaps, and who can audit parties’ returns of donations and expenses. So I would hope that the select committee can delve into this point and can shed some sunlight on this in its report, and I look forward to that report. I support this reading.

I move, That the Accounting Infrastructure Reform Bill be reported to the House by 30 May 2014.

Motion agreed to.