ICA to be stripped of audit oversight role

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

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