Curran Clare: Auditor Regulation and External Reporting Bill — In Committee 
Curran Clare: Auditor Regulation and External Reporting Bill — In Committee 
[Volume:672;Page:18304] 
CLARE CURRAN (Labour—Dunedin South) 
: 
 First of all I put on record my appreciation of the comments of the Minister in the chair the Minister of Defence on financial literacy and the work that is being done by the Government in that area. I note that it is in its early stages. I am pleased to hear that it is happening and that it is being seen as important and a priority. I also note that those of us on this side of the Chamber will be keeping an eye on this issue because we see it as being extremely important. 
With regard to Part 2 of the Auditor Regulation and External Reporting Bill and the licensing and registration accreditation issues I will go back to the harmonisation issue and think about why we are doing this reform—this regulation of auditors—in the first place. As we know it is hugely important to investors regulators and other financial market participants. It has now been acknowledged that in this increasingly complex world with its increasingly complex legislation the people doing the investing require more and more assistance with financial literacy. 
This legislation is here because in New Zealand there have been strong indications that the auditors of some of those failed finance companies lacked the necessary competence to carry out those audits or did not have a sufficient degree of independence. I think that demonstrated that New Zealand’s self-regulatory model is no longer within the range of acceptable auditing regulation systems and that New Zealand needs to change in order to obtain the right to practise in Australia and other jurisdictions such as the European Union which is where that harmonisation issue comes in. I know that the Minister responsible for this bill the Hon Simon Power has that issue in mind and he has talked a lot about it but with this legislation we have not yet seen the ability to move towards that harmonisation. 
We considered carefully whether the bill should be expanded to introduce measures to limit auditors’ liability—this is going to the limitations on liability issue—and we recognised that some form of liability limitations would harmonise the New Zealand system with international practice. However we concluded that we could not go down that path because the scope of the bill would not allow us to. But we signalled that we would like to see the issue addressed in the broader review of securities law in regard to amending the Securities Act 1978 and the Companies Act 1993 to remove the prohibitions on issuer and company audits being carried out by bodies corporate and to replace auditors’ current exposure to joint and several liability with alternative systems such as proportionate or capped liability. 
There certainly was a lot of discussion in the Commerce Committee about this issue. As I think I said in my previous speech we asked the officials for really comprehensive advice and they provided it. I certainly acknowledge that comprehensive advice because it will hopefully provide the underpinning to whatever happens next in relation to this limited liability issue. 
Four alternative approaches have been adopted elsewhere and I will touch briefly on them. The first one is incorporation. In many jurisdictions companies and limited liability partnerships are able to carry out audits and those limited liability partnerships are an alternative corporate business vehicle that gives the benefits of limited liability but allows its members the flexibility to organise their internal structures as traditional partnerships. The second approach is proportionate liability which is where the court determines liability among the negligent parties according to their share of the blame which allows the courts to have regard to the comparative responsibility of any wrongdoer who is not a party to the proceedings. The third approach is liability caps with the amount of liability to be capped at a multiple of the fee and/or a fixed dollar amount in relation to any one course of action. The fourth is contractual restrictions on liability; under that approach the auditor or the preparer may contractually agree to a restriction in liability. 
We looked at a number of jurisdictions internationally—including Australia the United Kingdom Singapore and Hong Kong—where auditor liability reform had been considered and was still being considered. Some of those jurisdictions such as Australia have already settled on their policies and laws and we would do well to look more closely at them. I hope that in terms of a broader review of the securities law we will go down that path and look at that jurisdiction. Given the fact that Australia is moving ahead on this issue and that it is one of the parts of the world where harmonisation is so important we could well do no better than to look at what is happening over there. Other jurisdictions such as the United Kingdom have implemented some reforms and they are now evaluating their performance. Others such as Singapore and Hong Kong are at a stage where they are considering and identifying the issues with their current regimes. They are still at the beginning of the process of considering possible reforms. 
As I said at the beginning although we considered that the amendment around limitations on liability would be outside the scope of this bill we asked to see this issue addressed in the broader review of securities law. If the Minister is able to give a comment on how and when that issue will be addressed that would be quite useful. The select committee believes that consideration should be given to amending the Securities Act and replacing the auditor’s current exposure to joint and several liability with alternative systems such as proportionate liability or capped liability. We would very much like to see that addressed. I am interested to see what the response is from the Minister if possible and I look forward to hearing it. 
The question was put that the amendments set out on Supplementary Order Paper 239 in the name of the Hon Simon Power to Part 2 be agreed to. 
Amendments agreed to. 
Part 2 as amended agreed to. 
Part 3Amendments to other enactments regulations transitional provisions and other miscellaneous matters