Accounting Infrastructure Reform Bill

I rise to speak in support of the Accounting Infrastructure Reform Bill, or the “AIR Bill”, as referred to by the Minister of Commerce. The Minister’s stated objective with the bill—the fair, effective, and transparent functioning of our markets—is an admirable one and in so far as this bill supports that, we are keen to add our support on this side of the House. The opening up of audit activities to move trans-Tasman competition, effectively, to ensure that standards are consistent between Australia and New Zealand introduces an interesting dynamic into the audit world. It comes with risks and with opportunities. One would hope that our New Zealand firms and our New Zealand - based firms will take advantage of the opportunity to secure business in the audit area through being competitive, professional, and indeed just generally good at what they do. The risk, of course, is that the business of audit becomes concentrated in larger, more successful firms in Australia, as we have seen in our banking sector. There are always risks that accompany opportunity.

The good provisions that are in here are actually about simplifying things, and about making things more transparent. One hopes that New Zealand’s interests, as new accounting standards are set, are taken into account in a proportionate or more than proportionate manner so that the accounting standards are suitable for New Zealand purposes. Something that we have observed on the Commerce Committee and on the Finance and Expenditure Committee in the past is an increasing requirement for reporting that is more detailed, more complex, and more expensive. The intention behind that increased reporting, generally, is to ensure greater protection for consumers and to ensure that effective, transparent, and fair functioning of markets. We—I am sure others in this House as often as I am—are reminded again and again by constituents, by business people, and by those in the accounting profession who have a mind to the future and to the better interests of our country that the overcomplication of financial reporting requirements can hinder the productivity of our business sector. So I ask that those who implement this legislation—which we are supporting here, and which I expect will pass through the House relatively non-controversially—will take note of this Parliament’s wish that they do not overly complicate matters when it comes to audit and reporting and, indeed, that they take into account the interests that we have in seeing that fair, efficient, and transparent market without being overly burdensome in their requirements. I do not hear any loud objections from the other side of the House on this point. It is something that I think we will all agree on.

On this side of the House we are always motivated to see a fairer system in place, and to see red tape reduced. Again, an opportunity here to simplify standards across the Tasman will mean a reduction in red tape for people who do business on both sides of the Tasman. It will make New Zealand firms potentially more competitive, as they are complying with only one set of standards for the products that they export, rather than two, in the broadest sense. The trick comes when the bigger neighbour, which dominates the professional body, sets the standards if they are not in our interests. We see this in things like the housing sector. When it comes to setting common standards for the building industry, New Zealand is sometimes on the wrong end of the deal, where standards that are appropriate in Alice Springs or Brisbane may be different to those required in Gore or Invercargill—different priorities, different materials.

💬 Grant Robertson: Colder.

It is not that cold in Brisbane, Mr Robertson.

💬 Grant Robertson: It’s cold in Gore.

Gore is a lovely place and a nice place to visit. It is the case that we want to see standards that are open to the interests that are represented across the professional body.

I would like to congratulate the New Zealand Institute of Chartered Accountants on its work in bringing a full submission. The institute is a body that makes a constructive contribution, in my experience, to the legislation that we put through Parliament. I note that in my own field—or the field where my interest lies—of tax simplification, the institute has had a proposition on the table for many years that would see our tax system in New Zealand simplified. It would reduce red tape for businesses and would make sure that we are not performing compliance unnecessarily. The institute is a body that is open to expressing New Zealand’s wider interests even where, in the case of tax simplification, it may actually lose professional fees through suggesting a more simple tax-reporting process. The institute’s proposal, I have to say, has not been addressed by this Government and that is a personal disappointment that I have. I speak to many constituents who feel aggrieved that they have to prepare retrospective accounts for their businesses that add no value. When they are a small business, these are simply for tax-compliance purposes.

I would appeal to the people on the other side of the House, who are pushing through this bill on making the market and auditing fair, effective, and transparent, that they also look at the other suggestions that the Institute of Chartered Accountants has brought. I know it is setting up a tax simplification board at present, and Minister McClay has expressed a desire to proceed with this work, but I would suggest that this work has not proceeded fast enough. We know very well that this proposal has been around for years. Minister McClay is pushing a lot of useful tax work out beyond the election because this Government has not repaired the Inland Revenue Department tax system. It has not upgraded it in time to handle the kinds of changes that would actually make life a lot simpler for New Zealand’s small businesses, that would enable business in New Zealand to get on with doing the things that it is good at, that add to our exports, that add to our gross domestic product, and that mean that we can afford the kind of infrastructure in New Zealand that ensures that future generations get ahead—that hospitals and schools are funded to an adequate standard so that kids can have the opportunities that those of us sitting in the House had once upon a time when we were attending school or had to attend a hospital.

An economy that works for all New Zealanders is something that we on this side of the House want to support on every occasion. We are told by the professional bodies that this will make their lives easier. We want to see a fair and just society where all live in dignity. In the Labour Party, we have a view about equity of access. We hope that that will be taken care of as professionals deal with these audit requirements—that they have an eye to making sure that they are accessible to everyone, that the legalese and the technical aspects of audit compliance are kept to a minimum, that an eye is kept out for those who are new business people, who are small-business people, and who are people on the margins of requiring new processes and accountabilities as they wrestle with the need to be fair, effective, and transparent participants in the market.

We look forward to seeing this bill pass through the House. Reducing red tape is something that we always support. Not enough of that happens at the moment. As spokesperson on small business for the Labour Party, I visit businesses all the time that are affected by unnecessary regulation. It hampers New Zealand’s competitiveness internationally, and it is something this Government has not worked hard enough to address. Tax simplification is another one. Making our tax system compliant, useful, and easy to access for our citizens so that they can hand over their information securely and not worry about the kinds of privacy breaches that have dogged this Government over recent years must be a priority. We need a functional tax system. We need these functional audit capabilities. We need a Government with energy. I am hoping that people watching this broadcast and following the Accounting Infrastructure Reform Bill at home on their TVs are considering that it is important to change the Government—to vote for a Labour Government, which will see a fairer, more just society in future.

It is a pleasure to stand and speak at the second reading of the Accounting Infrastructure Reform Bill. Just following on from the previous speaker, David Clark, I am glad that he has finally got what this is all about. He was quite a feisty contributor in the Commerce Committee before he was demoted and went to the Finance and Expenditure Committee.

Yes, this bill achieves many things. One of the things that it does is create, I guess, an ability for New Zealand and Australian institutes to work together in a common organisation, Chartered Accountants Australia and New Zealand. In fact, I went just the other night to its brand launch, and no doubt it will be thrilled to see that the second reading is happening this week. On its website, just to give a little bit of a look at where this is all heading, it says: “In the same way there are many different types of doctors and lawyers, the same is true of accountants.” They are not just people who count things; they are people who can investigate, analyse, and recommend. They become the sort of people who help our companies and our investors to make some pretty solid decisions. Some people think that accountancy is boring, but, in fact, it is not. It is very dynamic, and it enables people to make some great—

💬 Hon Maurice Williamson: Ha ha!

I see one of my colleagues here is probably not in full agreement with that, but it is very much part and parcel of a very strong economy going forward.

One of the things the previous speaker mentioned was the cost of compliance. If he was on the Commerce Committee at that point in time, he will remember in respect of the Financial Reporting Act that, particularly around charities, we determined that there were different levels of reporting needed, because if a charity had an income of less than $140,000, a full-blown audit was too high a percentage of its cost. So instead of having an accrual-based accounting system, we are looking at it as a cash-flow - based system. Likewise, in this bill, when charities are brought into the audit realm, for a charity that has expenditure under $500,000, it would have a review, as opposed to an audit. Then it would have to have expenditure of $500,000 for 2 years in a row to qualify to go up. When I say the member understands it, he understands that what we are trying to do is require a higher level of compliance where there are higher levels of risk to contributors, to investors, to donors, etc., so that is what is happening.

It has been an interesting process as we have gone through the select committee consideration. As the Minister of Commerce mentioned, there were a few additions and amendments to what we did, but, by and large, they were quite small. I think this is quite an exciting—if I can say that about accountancy—step forward for our accountancy firms and our financial advisers out there, and they are all very keen for this process to go through in a very timely way.

As I wrap up in the next minute, the main purpose of this bill is to allow the accounting and audit industry to be more efficient and effective. That seems to be a call right across every sector of our economy—that people are more efficient and more effective. We know that that drives down costs to consumers. We know that that is a great thing to happen. The principal amendments proposed in this bill would amend the rules as to who may perform statutory audits to replace references in legislation to “chartered accountant” with “qualified statutory accountant” or “qualified auditor”, allow audit firms to incorporate, introduce a requirement for the independent assurance of the financial statements of large and medium sized charities, and allow the New Zealand Institute of Chartered Accountants to enter into an arrangement with its Australian counterpart, the Institute of Chartered Accountants in Australia, to form, in effect, a trans-Tasman institute of, as they say, around 100,000 members. I am very pleased to commend this bill to the House.

I am pleased to take a call on behalf of New Zealand First on the second reading of the Accounting Infrastructure Reform Bill. New Zealand First will be supporting this bill. Initially, we had a few concerns about some aspects of the bill, but we were pleased that this received close scrutiny through the select committee process, allowing New Zealand accounting firms, auditors, and all those involved to have their say in the legislative process.

New Zealand First supports the bill due to 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 cost 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. Accredited bodies will allow members to conduct audits under their umbrella controls. Therefore, as a result, if you are part of an accredited body and auditing company, there will be controlled accreditation to conduct such audits. Longstanding terminology of “chartered accountant” will be replaced with a new terminology of “qualified statutory accountant”. 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, when enacted, allow overseas audit companies to operate in New Zealand. We are advised that many companies that have international auditors currently have difficulties because they have to have a local auditor undertake the work, which provides some difficulties for some international firms. There is merit in this. We would hope that as 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. Therefore, New Zealand will gain by the local establishment of audit branches of international audit companies.

The bill requires larger charities to be audited by qualified auditors. We see merit in that as well. When you are the purse-holders of money given by the public and are taking public money in excess of $1 million, we must ensure that those funds are managed and audited correctly. New Zealand has a reputation for being one of the highest-donating countries in the world per capita, so this added scrutiny is more than justified.

This bill also brings 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 operate in a Closer Economic Relationships situation with Australia and there are significant advantages from having harmonisation with our Australian cousins. This can potentially bring great benefit to both sides of the Tasman by being able to offer standard accounting and auditing practices for businesses operating on both sides of the Tasman.

In closing, New Zealand First has always stood on the basis of supporting New Zealand commerce and supporting New Zealand domestic and export businesses, and we support reducing compliance costs. We hope that New Zealand citizens and businesses will operate more effectively as a result of this bill. We commend the bill to the House.

I rise to speak on the second reading of the Accounting Infrastructure Reform Bill. When this bill was introduced in the House, the Green Party did not vote to support it. We had significant concerns and we said that we would be watching carefully during the select committee process. Even though there were things that we initially thought were good—for example, we thought requiring large charities to comply with standard audits was quite good to bring those in line with other organisations—generally our concern was that this bill was part of an overall movement towards less regulation in a sector where it is absolutely critical that we do have good standards and careful regulation. Particularly in the wake of the global financial crisis, I think it is absolutely critical that citizens of New Zealand and investors can feel confident that the people conducting audits and financial reporting are complying to an absolute maximal standard. We have to have confidence in the reporting that is being done.

Ultimately, the changes that the bill makes are minor enough that we will be supporting them. Unlike other jurisdictions in the world, New Zealand is very light on regulation on the spectrum of regulation in this sector. We rely on self-regulation and this bill does nothing to take us towards a more standard and centralised type of regulation that might be beneficial. The Green Party would like to investigate the merits of that, particularly in the wake of the global financial crisis. I think it would be worth looking at, but, ultimately, that was beyond the scope of this bill. The minor changes that are made within it, I think, make minor improvements, so we have to support them.

The changes, ultimately, around the definitions of “qualified auditor” and “qualified statutory accountant” make sense. It does continue this type of regulation, which is ultimately self-regulation, and there are going to be accredited bodies that are able to register people as qualified auditors and qualified statutory accountants. Obviously, there is a merger of the New Zealand Institute of Chartered Accountants with its Australian counterpart, the Institute of Chartered Accountants in Australia. We never really saw any major problems with that. All of the members of both organisations did support it, so I think it does make sense to allow for that to happen. The changes in terms of approval of overseas auditors, again, make sense. We hope that the Registrar of Companies will be carefully scrutinising when they approve overseas individuals to act as qualified auditors in New Zealand and approve associations of accountants. I think that is something that I guess we will just have to keep our eye on to see how it is working, once the legislation comes into force. Of course, it is entirely possible that there will need to be some changes in the future.

As I said, initially we always did support the fact that there were provisions regarding the Charities Act, and we think that there are some benefits to doing that. Ultimately, what the Green Party wants to see is a progressive economy that is going to look after people in New Zealand in the short term and in the long term. We cannot have an ideological approach that all regulation is bad. There is an important role for the State to play in rectifying market distortions, in upholding standards, and in ensuring that consumers are protected because we do not live in a world of pure and perfect information on markets. There is an important role for the State to play in regulating that. Particularly, I think, we need to be looking towards making changes in these sectors that are going to allow us to meet some of the greatest challenges that we are going to be facing over the next few decades.

Even though this is the Accounting Infrastructure Reform Bill, I think that it is absolutely essential in all areas of financial reporting that we start moving towards having a more holistic type of reporting that actually looks at the impact on people and the environment, because ultimately that is what the economy is here to serve. The economy is here to serve people, and we cannot have an economy if we do not have a healthy environment. If all we look at is the dollars and cents, we are quite possibly going to miss out on changes that would actually leave us all better off in the long run. So it is a core component of Green Party economic and finance policy that we be very careful about what we measure and what we count, and that we do start to move our economy on to a more sustainable path to meet the challenge of climate change, which is incredibly urgent and is going to require action from all of us—all companies, all citizens. It is the Government’s role to show leadership on this, and the Green Party would like to see more leadership from this Government. Thank you.

It would appear that peace and harmony has broken out in the debating chamber this evening, I think. Maybe I have got it wrong, but I am thinking that there might be 100 percent support for this bill. In some worlds, that could mean—I doubt it, but it could—that it makes the front page of the New Zealand Herald that there is peace and harmony in the House, or maybe the front pages of the Press or the Dominion Post. [Interruption] But possibly not, to be fair.

I rise to support the Accounting Infrastructure Reform Bill as well. The National Government is proud to bring this piece of legislation through the House. Can I briefly acknowledge the Minister of Commerce, Craig Foss, who has steered this bill through the House and the Commerce Committee, which is led by Jonathan Young, and I acknowledge all the other members of the select committee from across the House who have also contributed to this.

This bill is another part of National’s Business Growth Agenda, and another of the small steps that we have taken to continue to grow the economy and to take New Zealand forward. It is part of our recipe for building growth, building wages, and building better prosperity for New Zealand, so I must say on that note that it is fantastic that we do see support for the bill from across the House and agreement for this part of our recipe. So, without any further ado, I commend the bill to the House. Thank you.

I am pleased to take a call in the second reading of the Accounting Infrastructure Reform Bill. This is an example of the Commerce Committee doing pretty good work—

💬 Andrew Little: Its job.

—pretty solid work, and doing its job on what might seem to the listening public to be a fairly stolid subject, but a subject that is actually quite important. It shows that there is an important synergy across the Tasman between New Zealand and Australia around how the business of commerce and the regulatory environment is actually being worked out and established. This is very important, and we are in support of it. We had some very good discussions in the select committee and good advice from the officials, and I think what we have come out with is quite a professional piece of legislation to put before this House. It shows the ability of that select committee to get on and do the job within a wider stable of work that has been worked on over the last few years.

There were some very interesting components and pieces of discussion on this bill. In fact, I have to say that the vast majority of the discussion in the select committee concerned an exception to the accounting body—the trans-Tasman converged accounting body that is being established as part of this bill. It was an interesting conundrum because it was essentially on the grounds of conscientious objection that the submitters who came before us were asking for an exemption, and therefore that did exercise the committee. It took us quite some hours to determine the rights and wrongs and the ethical issues that might result from a body or a group of individuals who wanted to exempt themselves from being recognised under a particular part of this bill on the grounds of their religious affiliation.

I refer to a pair of submitters. It is important because I think the House does need to be aware of this exemption. I think it is clause 31, which inserts a new section 36M—I think that is the part of the bill—that allows for an exemption. The pair of submitters who came before us contended that the changes in the bill requiring auditors and qualified statutory accountants to belong to professional bodies was a limitation on the right of freedom of association under the New Zealand Bill of Rights Act 1990. They said that their religious beliefs prevented them from joining groups with non-believers. In particular, the extension of the requirement to those assuring large and medium-sized charities meant that those submitters could no longer perform this work. They recommended that the Financial Markets Authority be empowered to directly approve auditors, so that they would be accountable under a wider regime, rather than accountable to a body to which they would have to belong.

💬 Hon Simon Bridges: Take us to the bell.

The member across the House may laugh about this, but it was quite a serious issue, which did, as I said, exercise the minds of the committee members. I am sure the two submitters would not mind their names being used because they were actually publicly submitting to the select committee. They were Brian Prestidge and Michael Powell, and their group was the Exclusive Brethren.

It was a very substantial discussion that occurred because ultimately the discussion came back to a principle. Essentially, there we were, as a select committee, referring back to the House a piece of legislation that related to all of New Zealand. It will be the law of the land, and it will create a new, updated regulatory regime. Here was a pair of submitters who wanted to be exempt from having to belong to the professional authority, which would be accountable, on the grounds of their religious beliefs. How we came to accommodate them is going to be heard in the next instalment of my speech on this bill, I would presume.

In summary, though, before I get to that next instalment, we do support this bill because it is an important upgrade to the accounting infrastructure in New Zealand. It is solid and, I guess, modern.

Debate interrupted.

The House adjourned at 6 p.m.