Nash Stuart: Auditor Regulation and External Reporting Bill — In Committee 
Nash Stuart: Auditor Regulation and External Reporting Bill — In Committee 
[Volume:672;Page:18297] 
STUART NASH (Labour) 
: 
 Part 2 is the guts of the Auditor Regulation and External Reporting Bill. It sets out the licences registration accreditation and role of the Financial Markets Authority. 
I will talk about a couple of points initially. They cover licences issued by accredited bodies. I have a couple of questions. If you will indulge me Mr Chair I would like to ask the Minister in the chair the Minister for Social Development and Employment to answer my questions. Clause 10 talks about licences issued by accredited bodies. If we remember Part 1 we see that part of the role of the Financial Markets Authority is to ensure that the systems of accredited bodies operate in a way that is adequate and effective. Accredited bodies are allowed to “on an application made by a natural person issue a licence to the person if the accredited body is satisfied that the person—(a) meets the prescribed minimum standards; and (b) is otherwise a fit and proper person to hold a licence.” 
I suppose one of the two questions I have is what the prescribed minimum standards are. I have looked through the bill to see whether there is a list a schedule or anything that sets out the prescribed minimum standards. This I suppose is where we got into a little bit of trouble before. We all know that auditors now have to be registered—that is clear. But Part 2 says how a natural person can get a licence. It states that they have to meet the prescribed minimum standards but I do not know what the prescribed minimum standards are. If we go through the bill we see that it talks about competency etc. but it would be good in the schedule or somewhere else just to understand what those minimum standards are. 
This is not just for me. As we know and as I mentioned about 10 minutes ago a lot of New Zealanders have lost a significant amount of money. As I alluded to briefly the chair and chief executive officer of the Financial Markets Authority both outlined and underlined the fact that their very important role was to restore the confidence of our investors in our capital markets and our investing economy. Therefore I think we all are keen to understand what those minimum standards are. No doubt they are understood by the Financial Markets Authority and no doubt they are understood by an accredited body but I think investors themselves would like to know. 
Clause 10(b) refers to “a fit and proper person to hold a licence.” This may be a little ambiguous; I am not too sure what a fit and proper person is. Of course I have in my mind what that means. It probably means that person cannot have a conviction for fraud. It may mean that person cannot have any sort of conviction. Does “fit and proper” mean a person cannot have had a conviction in the last 5 years or ever? I am not too sure. Does “fit and proper” mean they have to be able to run 10 kilometres in under 40 minutes? I suspect not. I suspect that is a different definition of “fit and proper” but maybe I am wrong. Maybe we require our auditors to be able to run 10 kilometres in 40 minutes so that when they make a mistake they can get out of there really quickly. 
That brings me to clause 11 which talks about licences issued by the Financial Markets Authority to overseas auditors. Here we are saying that accredited bodies can issue licences to New Zealand - based auditors but my impression is that only the Financial Markets Authority can issue licences to overseas auditors. That sort of makes sense. Who knows the resources of the overseas auditors? Who knows where they are applying for a licence from? Maybe they have to come to New Zealand to do it; I am not too sure. It may be that auditors based in Australia come over to New Zealand to audit large corporates; I am not too sure. I suspect that is the reason but I am not 100 percent sure. I think a lot of the investing public probably have the same questions as I do. 
The bill talks about an overseas auditor being a person who meets the prescribed minimum standards. Again I am keen to know whether the prescribed minimum standards for an overseas auditor are the same as the prescribed minimum standards for a New Zealand auditor. I assume they probably are. It is a fair enough assumption. But it would be good to know whether my assumption is correct. We all know that if we make an assumption and it is not correct then we can end up in big trouble. I suspect many of the people who invested in a lot of the organisations that lost significant amounts of money made an assumption that the people who were dealing with their money were experts when they were not. That is why I am curious to know a little bit about what minimum standards are. 
Again talking about overseas auditors clause 11(c) states “the person is required under the law or the regulatory requirements of the person’s home jurisdiction to comply with requirements for maintaining the person’s ongoing competence and that those requirements are equivalent to or as satisfactory as the requirements under section 17;”. That makes a lot of sense and I am not querying that. But if we look at clause 17 we see that it talks about ongoing competence requirements. Again I have just a couple of questions around this. I am sure the Minister can allay my concerns. I am sure that the Financial Markets Authority has a good list that says someone who is an accredited auditor in the United States of America has to meet similar or higher competency standards than an auditor in New Zealand. I am assuming that if an auditor based in Australia is a qualified auditor or a registered auditor they also have to meet the same competency standards. 
If we look at clause 17(1)(a) we see that it “requires its members to complete the competency programmes to maintain their ongoing competence;”. I have friends who are accountants and auditors and I know that members of the Institute of Chartered Accountants which I assume is different from auditors have to have ongoing training. That is fantastic because as we here know more than most the law is always changing. Accountants and auditors always need to keep in touch with the latest law so they can advise their customers and their clients accordingly. 
But if we look at clause 17(3) we see that “Any competence programme may”—I am not too sure why it does not say “must”—“require a member to do 1 or more of the following within the period or at the intervals prescribed in the programme:”. Again it makes a lot of sense and I think I understand what the Act means. But I am not sure what it means when it states: “may require … or the following within the period or at the intervals prescribed in the programme:”—and I am not sure whether that period is annually biannually or once every 5 years—“(a) pass an examination or assessment (or both): (b) complete a period of practical training: (c) complete a period of practical experience: (d) undertake a course of studies: (e) anything else that the accredited body considers appropriate.” It sounds great. I really think it will work very well and I hope it works very well but I am just not 100 percent sure in my mind what it actually means and how it will work. 
I ask members to keep in mind that I started my speech by talking about clause 11 which deals with the granting of licences to overseas auditors. I bring my question back to clause 17 and ask how the Financial Markets Authority will ensure that overseas auditors meet these competency requirements. I have no doubt that it is a lot easier to ensure that New Zealand - based auditors and New Zealand - licensed auditors meet those requirements because here there are courses all over the place. I am sure that after what has happened every licensed auditor will make doubly sure that they meet not just one but a number of these requirements because they know their reputation is on the line. 
Again we go down the list that the Financial Markets Authority can use in terms of licensing an overseas auditor. It talks about a person being “otherwise a fit and proper person to hold a licence”. I think most of us understand what that means but again I am not sure what the actual test is. It probably relates to criminal convictions and that fact that people cannot have been banned but I would not mind a bit of clarification around this clause. 
The other thing I am interested in is licences issued by the Financial Markets Authority. I am talking about clause 12 which deals with licences held under section 11. Clause 12(3) states: “Every person who fails to comply with this section”—and it is quite a long section—“commits an offence and is liable on summary conviction to a fine not exceeding $10000.” Why is the amount $10000 and not $50000? I suppose that is the question I have here. In Part 1 the fine is $50000 if a person fails to comply with clause 8 which basically means that if a person hawks himself or herself as an auditor and is not if one says one is an auditor and is not or if one markets one’s firm or company as an auditor and it is not under clause 8 one is liable to a fine of $50000. Yet if an overseas auditor or an overseas person who wants to become an auditor and audit a New Zealand company does not meet these requirements then they are liable upon summary conviction to a fine not exceeding $10000. Maybe I am reading this wrong. Maybe they will get a $50000 fine and then the $10000 fine but I am not clear on that.