Accounting Infrastructure Reform Bill — In CommitteeText is incorporated into the Bound VolumeAccounting Infrastructure Reform Bill — In Committee[Sitting date: 28 October 2014. Volume:701;Page:312. Text is incorporated into the Bound Volume.]Accounting Infrastructure Reform BillIn CommitteePart 1 Amendments to ActsDr DAVID CLARK (Labour—Dunedin North):Part 1 of the Accounting Infrastructure Reform Bill contains the real meat. It is the part that lays out the arrangements for combining the New Zealand Institute of Chartered Accountants with its Australian counterpart or perhaps it should be put the other way round. This move opens up both opportunities and risks as one would expect. The opening up of audit activities to trans-Tasman competition effectively will ensure that the standards are fair across things and we can imagine that there is going to be an advantage in scale for some auditors. Often where there are big jobs New Zealand firms miss out in favour of those Australian firms that are geared up have an office in Sydney and can service the greater Australasian area for overseas clients. However New Zealand is also a nimble economy and often competitive. We have people here who are ingenious and can create opportunities so we would be hoping in supporting this bill that those risks of trans-Tasman dominance that we have seen in the banking sector would not take hold in the audit sector in the same way and that instead we would see some innovative New Zealand firms bidding for and picking up audit work through being competitive professional and generally good at the work they do.The provisions in the bill that we like are about simplifying things and making the system more transparent. That has got to be a good thing. Transparency is incredibly important in our market place. Quality auditing and the ability to have a look through companies are the kinds of things that make for a competitive and effective market and one that services the needs of New Zealanders and people offshore for the provision of services that assist with growing an economy. We will be supporting the bill and we will be lending our voice to it getting through this Parliament non-controversially. Those in the area who submitted to the Commerce Committee pointed out those risks that we have already discussed and the opportunities that lie there. The Institute of Chartered Accountants is not fighting this so we are prepared to take its lead in seeing less red tape across the Tasman and we will be waiting to see what happens.We do hope that New Zealand’s interests will be protected too in the setting of standards. We have seen in areas like housing regulations that where red tape is removed solutions that are regarded as standard across Australasia can give more weight in the regulations to Australasian climatic conditions than to New Zealand climatic conditions. So in the audit sector as we know issues that arise in Australia are likely to dominate in an Australasian environment. We may see regulations or the expectation on those auditors that reflect the situation the conflicts the risks and so on that arise in Australia more nearly more closely and more loudly than they reflect the risks that arise in New Zealand. So there we are putting a heavy burden of proof on the New Zealand companies to be innovative to be professional to put their case when it comes to setting standards for audit and to carry out those audits in a way that is both compliant and cost-effective.I want to take a second to congratulate the Minister in the chair the Hon Paul Goldsmith on his recent elevation. He has been alongside this bill as it went through the select committee if my memory serves me correctly and is now in the ministerial chair shepherding it through the Committee. He will correct me I am sure if my memory is inaccurate on this. He is a kind man. [Interruption] Well I did support his bid to become the chair of the Finance and Expenditure Committee and I have seen him then rise rapidly through the ranks. We may differ though heavily on our particular view of the world but I suspect we will both agree that properly regulated markets—though we may disagree on what constitutes a properly regulated market—are important to New Zealand’s future success in the international commercial environment.The proposal of the Institute of Chartered Accountants has been accepted. Some of its other proposals which we think could have been—STUART NASH (Labour—Napier):As my colleague Dr David Clark mentioned we are supporting the Accounting Infrastructure Amendment Bill. But I do have a couple of questions that perhaps the Minister in the chair Paul Goldsmith may want to answer. One thing that we know we need in this country is a high level of confidence by the public in the people who are charged with actually ensuring that our companies are well run that our level of governance is high and that the people who are charged with making sure that things work actually are the right people to do it.First of all I would like to look at clause 24 in Subpart 2 “Amendments to Charities Act 2005”. What it talks about there is the difference in compliance between large charities and medium and small charities and what their requirements are in terms of audit. If a charity is a large charity—and the definition of a large charity is if you have revenue of $1 million or more—then it must get its accounts audited and I have no problem with that. Where I have a little bit of a problem is that what it actually says here is that if you are a medium-sized charity then you do not have to get your accounts audited. All you have to do is get your accounts reviewed. This is in section 42C(2)(b) in clause 24. It states: “audited or reviewed by a qualified auditor if A is of a medium size”. The concern I have about this and as mentioned we are supporting this bill is that there is a significant number of charities in this country and a significant number of charities actually go out to the public and seek funds to undertake whatever they may be doing whatever their charitable cause is. And $500000 to $1 million worth of operating expenditure revenue is the definition here. Sorry it is not revenue; it is operating expenditure that is the definition. And $1 million worth of operating expenditure that is a lot. OK audit them I agree. But $500000 worth of operating expenditure even in this day and age actually is a lot of money. When we have got a significant number of charities in this country and the medium ones—$500000 to $1 million—only have to be reviewed I just have a little bit of a concern about that because I am not too sure what “review” actually means from an auditing sense so please excuse my ignorance from that perspective and maybe the Minister can talk about that.We all know what an audit is—that is when an auditor carries out his task an auditor is a defined person as defined by the legislation. But a review does that just mean that the auditor has to cast his or her eyes over it and then sign off and that is fine and then they have undertaken and completed their duties? It just concerns me because I think that this takes away a level of confidence that the public who give money to these charities actually deserve. And the thing also is that the cost of a full audit is actually not a substantial amount of money. I mean you can get an audit for a simple charity actually for I would say a couple of thousand dollars to be honest and when you consider the fine as set out in clause 24—this is still clause 24 but it is down to section 42E as inserted by clause 24—is $50000 for not complying with the conditions in the Act $50000 is a lot of money. It does not matter whether you are a large charity i.e. with an operating expenditure of over $1 million or a medium charity i.e. with an operating expenditure between $500000 and $1 million the fine is still the same but the conditions that must be met in terms of those audited accounts are different.The other thing I would like to talk about as well is clause 36I on the Registrar of Companies. This is quite curious: “Registrar of Companies may authorise person to continue to act in respect of audit despite cancellation or suspension under section 36H.” I do not get this. To be quite honest I do not get this. It says here in subsection (2): “The Registrar may authorise the person to act or continue to act as the auditor in respect of the audit on the terms and conditions that the Registrar thinks fit”. We have just been through this massive financial crisis and I do not think there would be any doubt in this Committee that the confidence in a lot of our financial managers was at an all-time low but what this actually says is that the Registrar of Companies may actually allow someone who has been suspended to continue to act as an auditor under certain terms and conditions. Well the term is actually—[Bell rung] Mr Chair can I continue this point? It is quite important.The CHAIRPERSON (Hon Chester Borrows): Stuart Nash.STUART NASH: The thing that concerns me a little bit here is that the test in section 36AA(5) in clause 31 is “conditions that the Registrar thinks fit.” I do not want to call into question the integrity of the registrar because the Registrar of Companies is held in very high standing but I actually think that the test of “sees fit” is a little bit loose and I think that just needs to tighten up. What I would have liked to see here and maybe the Minister can just elaborate on this is under what conditions the Minister would think that the registrar may continue to authorise a person who has been suspended or struck off to continue to act as an auditor in that role. It just seems a little strange.But again if we go down here—and this is where there is a little bit of misunderstanding. I am just a simple man from the bay so I become a little bit confused every now and again. What it says here is that the registrar “may allow a person” but then it gets quite strict. We are looking at section 36J inserted by clause 31 which says: “(2) The Institute any other accredited body or an approved association must … (b) keep available a record of the persons recognised by it at all reasonable times on an Internet site maintained by or on behalf of the Institute body or association” and it talks about keeping a register of people who have had their accreditation cancelled or suspended. So it is quite clear about that. Then we move over here and it says in (5)—it jumps around a little bit: “A record under subsection (2) is required to include information relating to a suspension under section 36G(4) only if the Institute accredited body or approved association is aware of the suspension.”What that says to me is that the test of “is aware”—it does not seem there is a proactive test. So if someone is suspended is it their duty to then inform their professional body that they have been suspended? The test here is how the institute is made aware that someone has been suspended. We all know that auditors play a very important role in making sure that the accounts of an organisation or an institute or a body corporate or whatever go through everything here are up to scratch—where it goes to court. I can see a case where it goes to court the auditor has done a bad job he or she has been suspended and actually the institute puts its hand up and says that it did not know this person had been suspended. So where is the onus on ensuring that this record is kept up to date? It does actually say in section 36J(4)(b): “the record must be reasonably prominent on the Internet site or the Internet site must contain a reasonably prominent link to the record.”So what the bill says on the one hand is—and I completely agree with this—that we need a level of transparency to allow a level of confidence in the auditors who are undertaking these especially if you are part of a body corporate or an organisation that has its accounts audited. It is very important. We all get that. But then there are these other tests that do not quite fit in with that level of transparency that I think the bill is trying to bring in. Again I go back to subsection (5) the onus of proof—if you could just give me a couple of examples Minister where you think the Register of Companies may authorise a person to act if they have been struck off if the register thinks fit. They are the only questions that I have.Hon Paul Goldsmith: Registrar.STUART NASH: Sorry registrar. What did I say?Hon Paul Goldsmith: Register.STUART NASH: Sorry registrar. I apologise. As we know I am a simple man from the bay. Could you perhaps give a couple of examples where you think that the Registrar of Companies may allow a struck-off auditor to continue? They are the points I want to make. Thank you very much.KRIS FAAFOI (Labour—Mana):Can I just take this opportunity to congratulate you Mr Chair on your appointment as Deputy Speaker. This is my first substantial contribution to this debate tonight. I also congratulate Lindsay Tisch Trevor Mallard and the Speaker himself.I would like to go straight to subpart 2 of Part 1 of the bill which goes some way to amending the Charities Act 2005. Before I start that I do want to acknowledge the officials who are in the Chamber tonight because there is one clause of subpart 3 particularly clause 31 which I think adds new section 36M to the principal Act which contains an exemption from membership requirements for certain members of religious societies or orders in having to register under this legislation. This actually did trigger quite a serious debate at the Commerce Committee because the religious group that was looking for an exemption is known to politics in that they were members of the Exclusive Brethren. I thought as a member of the Commerce Committee in the previous Parliament that they gave quite an interesting submission to look for exemption from this legislation.Members of that religious group wanted to not be registered as members of the particular accounting society or organisation that is being given the rights and the responsibilities to police certain parts of this bill that we are debating today. It was for religious reasons that they did not want to be included or registered but they were quite willing to be I guess judged upon their actions as accountants and upon their behaviour under the legislation. So that gave us a bit of a dilemma as to whether or not they could act or transact business as accountants but not do that as registered members of the organisation at hand. We did come up in the select committee with something that is not necessarily done all too often in legislation and that is that we did exempt people with certain religious beliefs from being party to or members of an organisation—or in this clause under section 36M exempt from membership of accountancy bodies—because of their religious beliefs.Obviously this created quite a bit of debate as to whether or not we were setting a dangerous precedent but I understand and maybe we can get a nod from one of the officials that there was one other precedent for this—I am getting a nod so that is good—in legislation where we did give people who held certain religious beliefs an exemption from being members of organisations such as this. But I think in all honesty that we came to a happy arrangement. We had a submission from members of the Exclusive Brethren where they said that they would act in the spirit of the rules of the organisations that they did not want to be members of and if they were seen to be breaking any of the rules and regulations that that organisation had they would be quite happy to I guess be ruled by that as well.There were some conditions upon that. There had to be a written agreement between the parties looking for an exemption and the body they were looking to not become members of and at any time I believe that body could take away that exemption. If it did that my understanding is that it would almost be impossible for them to trade as accountants under the new law. I think that this was an issue that the Commerce Committee looked at in great detail because we did think that there were some concerns around setting a precedent in this way for this type of exemption. It was heated because the members of the Exclusive Brethren obviously have had a role in politics in the last 10 years but I believe that the select committee of the last Parliament looked at this in a very constructive way. They were given quite a grilling as to why they wanted to be exempted from this particular part of the bill but I think we came to what I would call a happy medium.I think we should watch this very closely. I wonder whether the Minister in the chair Paul Goldsmith would be able to suggest how we monitor this over the next 2 or 3 years as this is new ground not just for the Parliament but also for those people with those particular religious beliefs. I do think given the heat that could have been in the situation there—Hon PAUL GOLDSMITH (Minister of Commerce and Consumer Affairs):I do want to start by acknowledging the efforts of Jonathan Young as chairman of the Commerce Committee and my predecessor Craig Foss in bringing this legislation to the House. I do want to acknowledge the spirit of bipartisanship that we have seen on this issue which was so evident amongst my supporters in Epsom as well. I would like to carry that on in this area.I think it would be useful at this stage just to quickly remind the Committee of the four sets of changes that this piece of legislation brings in to improve accounting market performance in financial reporting settings. Subpart 4 deals with changes to the New Zealand Institute of Chartered Accountants Act 1996. The function of that Act is to require the New Zealand Institute of Chartered Accountants to regulate its members in the public interest and the non-regulatory functions including the promotion of quality expertise and integrity in the New Zealand accounting profession. The changes in this bill will permit the institute which has about 30000 members to complete a merger with the Institute of Chartered Accountants in Australia. Subpart 4 deals with those details and enables the benefits of the merger to go ahead.Subpart 1 which was discussed earlier on covers the changes to the Auditor Regulation Act. That 2011 Act prohibited bodies corporate from carrying out audits of financial statements prepared by financial markets conduct reporting entities. There was no real clear public policy purpose in that and so the Accounting Infrastructure Reform Bill removes that prohibition maintaining auditor independence and audit quality but also allowing flexibility around the arrangements. I do want to reassure the previous speaker Mr Nash who was worried about a review—Hon Annette King: Faafoi was the last speaker.Hon PAUL GOLDSMITH: —the previous speaker bar one—of the formal assurance process. I can assure the member that review is a formal assurance process that is subject to assurance standards issued by the external reporting board. It is a lower level of assurance than the audit but it still requires the auditor to carry out rigorous assessments.Subpart 3 deals with the Financial Reporting Act and changes there. Under the old legislation only members of the New Zealand Institute of Chartered Accountants and certain overseas-qualified persons were able to carry out statutory accounting functions. The Accounting Infrastructure Reform Bill broadens that so that all appropriately qualified New Zealand members of an accounting professional body can operate as accountants in New Zealand. That is all about expanding the base of qualified accountants in New Zealand.Finally Subpart 2 deals with the Charities Act which as has been noted by previous speakers allows registered charities with an annual operating expenditure of $500000 or more to have their financial statements audited or reviewed by accountants. We think that is an appropriate measure to be set.All in all I think we have got a good start here and on that basis I am sure that we can iron out any further details as the evening progresses. Thank you.Hon CLAYTON COSGROVE (Labour):As others have said this is a bill with very little controversy that is supported by my Opposition colleagues in line with the Government and supported by the New Zealand accounting profession and CPA Australia. I do agree with the Minister the Hon Paul Goldsmith—we all agree—that this will bring the profession closer together as trans-Tasman regulatory reform and legislative reform have done in other areas of banking and finance. It will create efficiency and some greater transparency. Again the Minister sort of leapt into the fray and has not answered some of the questions.I think the previous speaker Mr Faafoi in all seriousness raised some issues about the religious exemption. We want to make sure that the context is clear here. We are not going to enter into some religious discussion involving the Deity—I see a former qualified member of it over on the other side—or what people may or may not think. The issues in respect of this bill were in truth centred on whether we were somehow going to have the department or officialdom trying to define outside their brief what was for instance a legitimate religion and trying to be a sort of arbiter or referee of those nefarious forces—there always are in these things—who may try to use this particular clause to get around being members or being subject to the constraints or rules and obligations of the legislation. So it was as Mr Faafoi said a serious debate.I do question—and I suppose to my point—that the body itself would have to make judgments. New section 36M(1)(a) inserted by clause 31 states: “the relevant body is satisfied that A is a practising member of a religious society or order whose doctrines or beliefs preclude membership of any organisation or body other than the religious society …” blah blah blah. The question for us was quite simple. No disrespect to our friends in officialdom or to the new entity itself but how are they qualified to make those judgments? That was our question. How do you stop those folks who just want to pull the wool and walk around the regulations and the strictures? How do you avoid that happening?My colleague is right. There has been precedent. I believe it was labour relations legislation. I recall this because when we were in Government my colleague Damien O’Connor and myself were approached by members of the Brethren sect or whatever they call themselves to approach the then labour relations Minister Margaret Wilson to seek a continuation when we disposed of the Employment Contracts Act and reformed that legislation of an exemption based on their beliefs. Mr O’Connor and I went to bat for the Brethren out of genuine concern. Little did we know that that would come back to almost knife us in the throat back in what was it 2005 as certain members of that sect decided that they would abrogate their own religious beliefs—so-called—and enter the fray under surreptitious means and they almost bought an election with a million bucks. But putting that aside I think this is a fair clause that does tread a path to allow people who have religious beliefs to be a part of this legislation but it does not impinge on their own individual religious beliefs and views and values. But I would be interested if the Minister could perhaps claw back into history and into his own I think Anglican upbringing and perhaps reassure us that the entity—Hon Paul Goldsmith: Baptist.Hon CLAYTON COSGROVE: —Baptist; my apologies—will not be asked to make arbitrary decisions around what is a genuine religious belief or not because that would be rather absurd. I doubt whether the Australians would want to enter into that sort of activity themselves.But this is a good piece of legislation. It will promote efficiency and transparency and a high degree I think of quality work within the professions and will allow expansion and amalgamation across the trans-Tasman boundary. We do support it. It is a pity it has been around for so long and it does worry us—no disrespect to the new Minister who I am sure is diligent in all his work—that the commerce portfolio has slid down the greasy pole from being inside Cabinet to being outside Cabinet and then being at the bottom of the outside of Cabinet somewhere near the dunny. So we do worry about that because the commerce portfolio has I think we would all agree been through the offices of Simon Power and Lianne Dalziel and a number of Ministers and has been treated very very seriously.CLARE CURRAN (Labour—Dunedin South):First of all I would like to congratulate the new Minister on his role as the Minister of Commerce. I echo my colleague Clayton Cosgrove’s concerns about the place that commerce is now held viewed by the Government as being outside Cabinet. I would also make the comment that I look forward to the new agenda that the Minister of Commerce is going to announce very soon to the country as to what he has in store in terms of ongoing legislation and the particular stamp that he wants to put on his portfolio. There is particular interest around the necessary reform called for by the chair of the Commerce Commission of section 36 of the Commerce Act and the improvement of competition law—leaving aside the cartels bill that is going to be hitting the House at some point soon—and where he wants to take that evolution of competition law next.I am very keen to hear the views of the Minister given that his previous claim to fame has been passing after many many months of discussion in this Chamber the august Electronic Transactions (Contract Formation) Amendment Bill. It was one of the most shall we say meaningless pieces of legislation I have seen come through this House in the 6 years that I have been here which tidied up a small area of uncertainty in contract law around the timing of when a contract is accepted by electronic means. That summary is basically about all that bill deserved.Just in relation to this bill and the debate in the Commerce Committee there is no doubt first of all that there was a very cooperative discussion on this bill across all parties in the House and that some useful outcomes came out of the select committee stage in the changes that were made. As colleagues have mentioned the biggest part of this bill that taxed the discussion in the select committee was the religious exemption. There is no doubt that that created some real challenges for the officials—and I would like to acknowledge their role in the whole of this bill not just on that particular part—because leaving aside all hilarity around the particular issue it actually presented a real moral dilemma for the committee. The officials had to work quite hard to go back and look at precedent around exemption on religious grounds and I think that at one point we heard about a similar provision in the Valuers Act of 1948 which is really going back quite a long way.I just want to put on it record in the Committee tonight that I still have reservations about the position that we came to. I think it was a fair outcome but I still have reservations around the unintended consequences of that religious exemption from belonging to an accredited body and the importance of that—how you can sit outside that body and still perform the functions and how there can be the necessary scrutiny. I would like to hear from the new Minister any views that he would like to share with us around that.I just want to quickly mention another matter that was brought to us as a result of submissions and that did raise some discussion with the officials but never actually made it into the bill and that is around whistleblower provisions. I just want to briefly inform the Committee around that. “BDO New Zealand”—which is the accountants and auditors and advisers—“noted that due to confidentiality rules the auditor cannot share client information unless there is a misstatement resulting from fraud.” and it recommended “a wider ability for auditors to communicate with the relevant regulator for statutory audits.” This is actually quite important and the committee went away and looked and said that “Under the [Financial Markets Conduct Act] auditors must whistle-blow in relation to certain financial products. Auditors of issuers of debt securities and registered schemes … will have an obligation to provide information to supervisors or in certain cases to FMA if there are reasonable grounds to believe that there is a serious problem with the issuer or scheme. Auditors will also need to provide relevant information about issuers to supervisors on request.” So that Act does protect auditors “against civil criminal and disciplinary proceedings in relation to the disclosures made.”There are also similar provisions for auditors for banks and insurers to report to the Reserve Bank and obligations for “auditors of other companies or corporate entities to provide requested information to the Registrar of Companies …”. Although the officials told us that they could “see the value of extending whistle-blowing protection provisions (and protections from liability) these are obligations that need to be considered in relation to particular regimes and regulators.” They said that these obligations have got “significant consequences for auditors and their imposition has given rise to concern from auditors in the past.” They said that “The International Ethical Standards Board for Accountants’ initial proposals on the appropriate extent of auditor responsibility for whistle-blowing under audit and assurance standards have not been well received … because ‘one size does not fit all’.” However they did say to us that “any extension of whistle-blowing obligations would be best considered once the outcome of that analysis is known.”I would just like the Minister to take note of that. Whistleblowing protections in this country are not that great. They are quite weak generally. In this particular area of financial markets and the collapse of financial companies and in all of the areas dealt with by the Commerce Committee—which with respect the current Minister has not been party to in the last 6 years—the ability to blow the whistle so to speak and the ability to reveal information and to bring stuff to the public attention and get it dealt with has been paramount and has underpinned a lot of the legislative changes that have taken place right across the board.In this particular piece of legislation this should not go unnoticed and it should be considered as an ongoing issue to be watched. Whistleblowing around practices whether it is through auditors or accountants whether it is lawyers whether it is financial advisers or whether it is anybody else operating in the financial environment where corporate crime white-collar crime is rife is an issue that I think we are only scratching the surface of in this country. It is something that I would hope that the new Minister in the chair will in this position be taking serious account of.There will be further discussion around this bill with the various provisions. I certainly think that there has been a lot of hard work done by the Commerce Committee. I do want to acknowledge the role played by the chair Jonathan Young and other members of the select committee and right across the Chamber. I think this is a good piece of legislation. I think there are some issues that still need to be paid attention to and I do again register some unease around the exemption on the basis of religious affiliation for belonging to and for having to belong to an accredited body.The CHAIRPERSON (Lindsay Tisch): I call—are you calling? I will just explain to Mr Tabuteau. If the member wants to have a call—and I know that you stood up earlier—you must call out “Mr Chairman”. If you do not call then the call goes to someone else. I know that you stood before and sat down. You stood again but did not call. So that is the procedure. You must call. All right? If the member wants to call he needs to stand up and call “Mr Chairman”.FLETCHER TABUTEAU (NZ First):Thank you for your patience Mr Chair and thank you to the members this evening. I take this as an opportunity as a member who has come from a tertiary background who has had the privilege to work as a stakeholder in this environment to commend the Commerce Committee and the members for what looks like to me to be an amendment to the bill that has obviously been well considered it has been well-thought-through and there is clear evidence of bipartisan discussions and relationships. So I think this will be a rare opportunity for me on behalf of the New Zealand First Party to stand in support of an amendment to bills being passed through this House.I spoke of my association with the stakeholders. As the head of a business school I spent the last 2 years working with the New Zealand Institute of Chartered Accountants and was privy to the discussions. I take this opportunity to acknowledge some of the individuals and say to the members here that it was not a straightforward discussion. It was not a straightforward decision for some of these members to amalgamate or merge with their Australian counterpart. I acknowledge the strength of will and the hope that the merger would benefit the New Zealand accounting association. I take this opportunity—thank you.The first part of this bill’s intent to create efficiency and effectiveness in terms of auditing an essential part of effective business operation is to be commended. Initially I was wary of some of the first part that lessened the requirements to be an auditor and lessened some of the regulatory requirements in terms of complying but I do note and am satisfied that contrary to this the stipulations and the requirements in terms of auditing and meetings standards were conversely increased. So on behalf of the New Zealand First Party it is a privilege to stand before you tonight with a quick word from me. Thank you.MELISSA LEE (National):I move That the question be now put.Motion agreed to.The question was put that the amendments set out on Supplementary Order Paper 471 in the name of the Hon Craig Foss and the amendments set out on Supplementary Order Paper 2 in the name of the Hon Paul Goldsmith to Part 1 be agreed to.Amendments agreed to.Part 1 as amended agreed to.Part 2 Amendments to other ActsThe CHAIRPERSON (Lindsay Tisch): Members we now move to Part 2. This is debate on clause 52 and includes schedule 2.STUART NASH (Labour—Napier):Can I just talk on Part 2 please?The CHAIRPERSON (Lindsay Tisch): You may.STUART NASH: Thank you very much. There are just a couple of questions here. Part 2 is one of those parts that talks about all the Acts that have been amended due to this legislation going through and there are a whole number of them in schedule 2.Hon Annette King: Read them out.STUART NASH: Well there are a whole lot of them. There are a couple actually and because I have not got those Acts in front of me perhaps the Minister in the chair Paul Goldsmith could just answer a couple of questions. We talk about the Education Act and in schedule 2 we talk about—there is a whole lot of this—“chartered accountant” being replaced with “qualified auditor” within the meaning of the Act. And we know what this means. The concern I have is whether any of these sections here relate to boards of trustees or anything like this? Or is it simply replacing something of the old with the new? The reason I ask is that if you have to have a qualified auditor when a chartered accountant might do in some of these bodies then you are taking it up another level because all qualified auditors are chartered accountants but not all chartered accountants are qualified auditors if you know what I mean. I am talking about the schedule 2 changes to the Education Act. There are a whole lot of these where all we are doing is replacing “an independent chartered accountant” with “a qualified auditor” but the onus on a lot of this may be quite substantial because there are not actually that many qualified auditors around to be honest whereas there are quite a few chartered accountants.One question—does a registered audit firm have to be a partnership? Can a registered audit firm not be a company? We are talking here about the schedule 2 changes to section 461E(3) of the Financial Markets Conduct Act: “after ‘registered audit firm’ insert ‘that is a partnership’.” That is just a question. I thought that audit firms could actually be companies but maybe I was wrong there. But the thing I really want to talk about—Mr O’Connor might know—is whether audited firms have to be partnerships? Can they not be registered companies?Simon O’Connor: I’ll leave that to the Minister.STUART NASH: Yes well the Minister might know. The thing I want to talk about here is the schedule 2 changes to the Lawyers and Conveyancers Act 2006. It adds quite a bit to that Act. I am not too sure where this came from and maybe one of my colleagues who sat on the Commerce Committee may be able to fill us in.There is a whole lot here in schedule 2 where it is talking about replacing clause 8 of schedule 2 with: “Restrictions on publication by Council of New Zealand Institute of Chartered Accountants or other accredited body”. What it says under subclause (1) is: “If any disclosure is made under clause 6(d) the Council or governing body referred to in that paragraph must consider the information given in private and not otherwise.” Does that mean it must only consider the information given in private and it cannot consider any other information? Is that what it says? I am not 100 percent sure there so maybe it should say “must only consider information given in private and not otherwise.” I am not too sure what this is about. I am wondering whether it means that the process has now been formalised to such an extent that the evidence is presented—like in a court for example—in a formal process where the person who is under scrutiny has the ability to have someone representing them beside them and that it is actually not open to abuse in any way shape or form. In a way I suppose what I am talking about is natural justice—the ability of a person who is being tried to have a fair trial. I do not mean tried in a legal sense; I mean by the rules and procedures governing the Council of New Zealand Institute of Chartered Accountants.Then it says in subclause (2): “It is not lawful for any member of the Council or governing body or for any officer of the New Zealand Institute of Chartered Accountants or the accredited body to publish to publish to any person any information so disclosed except in evidence in disciplinary proceedings” blah-blah-blah. I am wondering here what the purpose of that subclause is. The reason I ask that is to find out whether there have been instances where people from the governing body the Council of New Zealand Institute of Chartered Accountants have gone out and actually published material that they have heard as part of a disciplinary hearing. Has that been a problem and is this trying to remedy that problem? Or is it simply because it did not exist and the Institute of Chartered Accountants thought: “Hey this is our chance. We have got one of these amendment reform bills. Let’s just whack it in there just to mitigate the risk of this sort of thing happening.” That is where I am a little bit confused.The other thing that strikes me as slightly unusual is that I would have thought that at some point the Council of the New Zealand Institute of Chartered Accountants would need to publish these proceedings because what I am seeing with this Accounting Infrastructure Reform Bill is transparency and this is what this bill brings. I would have thought that at some point publishing them brings that transparency.Part 2 agreed to.Schedule 1AA agreed to.Schedule 1 agreed to.Schedule1A agreed to.Schedule 2 agreed to.Clauses 1 and 2CLARE CURRAN (Labour—Dunedin South):I just reiterate the support that Labour has for this bill. What we have done throughout this discussion and throughout the debates on the first reading through to the select committee hearings is that we heard from a broad spectrum of voices from the accountancy audit and professional services on this Accounting Infrastructure Reform Bill. It appears to be quite straightforward and in a lot of ways it is. It does make some general changes with the intent of making the accounting and audit industry more efficient and effective. I think it is part of a spectrum of measures that the Commerce Committee worked quite cooperatively around to take a common-sense approach to the way that our financial systems operate and to try to bring some accord between particularly the New Zealand and Australian ways that this operates.Five particular law changes are included in this bill to reduce restrictions on the legal form for audit firms to provide that charities assurance which I know that my colleague Mr Nash has reservations about. There was quite a degree of consideration around the changes to charities audits in the bill. The bill requires charities over a certain size to have their financial statements assured by a qualified auditor. Many charities of the large size already obtain assurance and these provisions make that compulsory. What is actually happening is that it is being made compulsory and ensuring that the quality of the assurance of those charities of that size are brought about by requiring them to be performed by a qualified auditor using the correct audit standards.The third thing it does is that it means that members of accredited bodies perform statutory audits. From my perspective one of the most significant parts of this bill is that members of accredited professional bodies be allowed to perform most statutory audits if they are recognised by their professional body to be qualified to do so. I think what that does is bring about that efficiency.The only rider to that is that there is an exemption. There is an exemption on religious grounds which is most unusual. We do not see that in most legislation—or any legislation in my experience—that has come before the House. As to how that will actually play out and what the implications of that are especially given that we are talking about auditing an auditing function which is a position of great trust I am yet to be fully convinced that the legislation is actually going to provide the protections that are necessary to those bodies being audited and to the general public having confidence in the system. I am not saying that we should not do it; I am just expressing some unease still around that.Fourthly in respect of qualified accountants performing statutory accounting roles references to “chartered accountant” in various Acts will be replaced with “qualified accountant” where the context relates to specifying who can perform those accounting-related statutory roles in order to include the qualified members of the accredited bodies.Then there were the changes to the New Zealand Institute of Chartered Accountants Act 1996 which are necessary to ensure that agreement to join the Institute of Chartered Accountants in Australia in a combined new trans-Tasman institute. I suppose in relation to that it makes sense and there is no doubt about that. There was wide agreement—not complete agreement.STUART NASH (Labour—Napier):I am going to make only a very short speech. I have just a couple of quick questions on this and they are around the commencement. Obviously you have your stock standard lines that through the Governor-General by Order in Council the bill will become an Act. I am slightly curious so maybe the Minister of Commerce can help me out on this one and I was not on the Commerce Committee so I am not privy to this and maybe one of my colleagues who was will help me. Clause 2(2) actually says: “To the extent that it has not previously been brought into force under subsection (1) the rest of this Act comes into force on 1 April 2017.” I am not too sure but are there some parts of this bill that actually are not going to be brought into force for another 2½ years? That would seem like a long time for a bill that professes a level of transparency that is required which I think this bill brings by and large. I have outlined some of my concerns around the charities provisions and my colleague Clare Curran has talked about those. I still have slight concerns to be honest.Clare Curran: I’m sure we can continue the discussion.STUART NASH: Well I do have some slight concerns that if you have an operation between $0.5 million and $1 million you do not have to get your accounts fully audited though they can be reviewed. The Minister talked about the difference between being reviewed and being audited. I appreciate that and I thank the Minister for his input on that. But are there any parts of the Act that actually are not going to be enforced for another 2½ years? I get the date. Obviously 1 April is the beginning of the financial year for 2017 but it is a long time I think you will agree between this Act coming into force and parts of this Act not being law for 2½ years.I wonder whether there is a reason behind this. There often are when you get these sorts of Acts because there are processes that are already in place that need to go through to their conclusion. Obviously there is no point in having retrospective legislation even though this is not technically retrospective. If there is already a process in place or things need to run their course then I understand that. I must admit that 2½ years does seem quite a long time but there may be something in here that I am unsure of or I do not know about and therefore the Minister or maybe even Miss Curran could enlighten me on that. It is quite a long time.The other thing also is that it is slightly unusual where it says in clause 2(1) that “…1 or more orders may be made bringing different provisions into force on different dates.” I am just wondering again whether this is maybe because of a submission that was put in during the select committee process and for whatever reason it was deemed that this would not hit the books straight away but that it would be sort of drip-fed in. That might have been because this is about consolidating a lot of the practices that occur in New Zealand and Australia. Am I right there Miss Curran? There may be reasons behind this and no doubt there are perfectly good reasons.We all agree on this. This is a good bill which I think will bring a level of transparency. I think that some of the clauses may be open to jurisprudence as we go forward. As mentioned I have real concerns when the Registrar of Companies has the ability to allow an auditor who has been struck off to continue to practise under certain circumstances. We did talk about this and I did allude to this but I am curious to know whether there are any parts of the Act in particular that are not going to come into play for another 2½ years. That is my only question.Clause 1 agreed to.Clause 2 agreed to.The Committee divided the bill into the Auditor Regulation Amendment Bill the Charities Amendment Bill (No 3) the Financial Reporting Amendment Bill and the New Zealand Institute of Chartered Accountants Amendment Billpursuant to Supplementary Order Paper 470.Bill to be reported with amendment presently.