Clendon David: Auditor Regulation and External Reporting Bill — Second Reading 
Clendon David: Auditor Regulation and External Reporting Bill — Second Reading 
[Volume:671;Page:18003] 
DAVID CLENDON (Green) 
: 
 Kia ora koutou. I am pleased to take a short call on the Auditor Regulation and External Reporting Bill. We will indeed be continuing to support this bill as we have supported related bills in large part because they seek to remedy the damage done by many years of the wholly inadequate regulation of our economy. The lack of regulation has caused considerable harm to individuals to companies and indeed to the reputation of New Zealand as a safe and good place to do business. 
It is clear that the wholly excessive deregulation of our financial markets our business sector and so much else in the late 1980s and 1990s is a failed experiment. It has done serious harm and few people in the House would not have a personal or family relationship or a friendship with someone who has suffered the consequences of this lack of regulation or some sort of financial misadventure caused by the inadequate oversight of the financial and business sector generally. Deregulation and the abandonment of adequate and appropriate oversight of the sector caused serious harm. It opened up the opportunities for greed. The whole mantra “Greed is good” suddenly became a good thing. It created opportunities for people to be exploited by the unscrupulous. It made those who were trusting vulnerable to being exploited and often unfortunately such things as celebrity endorsements led people astray. There was a general lack of financial literacy which has been referred to by previous speakers even on the part of those who were active participants in the market. So it is good to see that some serious attention and efforts are being made to put back into place some appropriate regulation. 
In the bigger picture clearly New Zealand is not alone in this. There is an international acknowledgment that lack of regulation or an unregulated free market is actually a recipe for financial social and environmental disaster and steps are being taken to remedy that. There will not be a substantial return of confidence in the financial markets until such time as people see a sensible and coherent regulatory framework in place to ensure there is transparency and a degree of comfort in investing and being in business. Although I am not denying there will always be risk and that that is simply a matter of business reality I believe that unregulated markets put the risk beyond what is acceptable or normal or reasonable. 
We acknowledge that this bill is one of a series of interrelated bills that are making their journey through the House in a series of fits and starts. It is to the credit of this Government in fact that it is engaging positively with this issue and indeed it is also a credit to the previous Government who initiated some of these measures that are now coming towards some fruition. 
A particular example of one amendment in this bill recommended by the select committee is the amendment to strike more of a balance between the responsibility of individual practitioners and that of firms within which they work and this was commented on by the previous speaker. Clearly financial competency and integrity of the individual is critical and there is a personal responsibility—an absolute responsibility—on practitioners to operate and exercise competence and integrity in an ethical approach. It is equally important that the policies and more critically indeed the practices of firms are equally in line with establishing regulation and transparency because not only the policies but the embedded practice affect behaviours in the market and that is as important as policy and legislation. The step to achieve that better balance is important and it is a useful element of this bill. 
Clearly progress is being made but we are still a long way short of exploiting and capturing a much broader opportunity to invest in change to get beyond short-term and quite limited thinking about how to make our economic prospects better to look for means and practices where we can survive and flourish economically and at the same time to reduce any adverse social and environmental effect of business and practice in business. What is really required here and what is actually emerging internationally—an area that I think we are a little slow in following—is a debate starting from first principles on the purpose and form of our economy and on some of the base assumptions underpinning it. That debate needs to occur here and as a matter of urgency if we are not soon to discover that the remedial measures we are seeing in this and other bills as beneficial as they are are really inadequate. They are far from sufficient other than as interim provisions. 
There is a very real and very positive opportunity for the Government to show some leadership: to take the opportunity to encourage and over time even oblige practitioners to adopt what is emerging as best practice internationally; to bring together alongside and as part of financial reporting the reporting on environmental and social information; and to bring those into accounting standards and practice. Globally a major thrust in accounting standards and practice is to bring those financial environmental social and governance strands of good management into one integrated reporting system. Although I acknowledge Mr Parker’s commentary about complexity in reporting this system does not need to add layers of complexity. It is about adding integrity; it is about a more integrated and much more rational approach to the financial and more expansive reporting of business activity. 
The accounting and auditing profession has always measured and continues to measure and to report upon the flow of money through a business an organisation or an economy. The New Zealand Institute of Chartered Accountants among others over time has also looked at expanding the role of financial reporting. It has looked at and had some hand in developing various mechanisms and models for extending accounting and auditing practice to report on the whole of a business’s activity and the effect of that activity when looking at environmental and social cost and benefit alongside the purely financial matters generated by business. That gives us a much clearer and a more complete picture of the real value the real influence and the impact of the business sector. 
There is indeed an International Integrated Reporting Committee that is leading the work globally headed by one Sir Michael Peat a former partner in KPMG and it counts among its members one Sir David Tweedie who is chair of the International Accounting Standards Board. Tweedie was quoted late last year as saying: “The case for globally consistent financial reporting standards is well understood and accepted. It is appropriate to apply the same global approach to other aspects of corporate reporting. This initiative represents an important step on that journey.” He is referencing there the inclusion of social impact and environmental impact information within regular financial reporting mechanisms. In some instances internationally it is becoming a legal requirement to incorporate social and environmental reporting. Incentives are being provided. It is probably too early for this House to legislate for a broader more comprehensive integrated form of accounting and reporting but certainly there is an opportunity to recognise the value of that approach and to facilitate to provide some leadership and encouragement to the industry and the business sector. Already some of our major companies like Zespri are doing this and so are some unexpected companies. Some of the major roading contractors like Fulton Hogan and Downer EDI are now building that sort of reporting into their financial cycle of reporting and it is to their credit that they are doing that in advance of any requirement. They understand they are being driven in part by the market but also by an understanding of the ethical and indeed the practical value of doing so. 
In summary these financial regulatory bills are useful. They are helpful in repairing some of the shortcomings of the non-regulated approach to finance and the economy. They are enabling us to become more reliable and to improve the integrity of financial reporting. But we need to take bolder moves and I believe that it would be to the Government’s credit and that it would gain value from making some moves to improve the understanding of the social and environmental impacts of business as well as the financial impacts and consequences of business. We could very easily improve our performance across all of those spheres of influence. Kia ora.