Nash Stuart: Accounting Infrastructure Reform Bill — In CommitteeText is incorporated into the Bound VolumeNash Stuart: Accounting Infrastructure Reform Bill — In Committee[Sitting date: 28 October 2014. Volume:701;Page:313. Text is incorporated into the Bound Volume.]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.