Curran Clare: Auditor Regulation Bill Financial Reporting Amendment Bill — Third Readings 
Text is incorporated into the Bound Volume 
Curran Clare: Auditor Regulation Bill Financial Reporting Amendment Bill — Third Readings 
[Sitting date: 11 May 2011. Volume:672;Page:18623. Text is incorporated into the Bound Volume.] 
CLARE CURRAN (Labour—Dunedin South) 
: 
 I am pleased to speak in the final readings of the Financial Reporting Amendment Bill and the Auditor Regulation Bill. I have spoken a number of times in the House on this particular issue. There are several issues quite dear to my heart that I will touch on.  
The first issue is the widespread collapse of major finance companies in New Zealand which has badly eroded the confidence of investors in the financial sector. I do not think any of us disagree that that has happened. These two bills will go a long way to ensure that investors have faith in the markets and the businesses they invest in. Labour supports these bills as the bills continue the work of the previous Labour Government. I put that on the record again. Improving the regulatory environment in the financial sector—improving the regulatory environment in any sector—is quite important and we are seeing the regulatory environment eroded across many sectors at the moment. 
It is also important to put on the record and remember that the Capital Market Development Taskforce which advised the Government to create the new Financial Markets Authority was established under the previous Labour Government. It was established by the previous Minister of Commerce the Hon Lianne Dalziel and I put that on the record as well. It is a shame the Government has ignored the work of the officials on the establishment board for the Financial Markets Authority with only one of those officials being appointed to the current board.  
This legislation reconstitutes the Accounting Standards Review Board as the External Reporting Board with that body setting all standards relating to financial reporting and assurance services. It also requires the Institute of Chartered Accountants to regulate auditors as specialist professionals rather than as general chartered accountants. That provision recognises that the role of auditors is crucial in ensuring confidence in financial markets and makes sure that auditors are held to a high standard and have the skills to competently do their jobs. It is essential that that happens if we are to avoid the disasters that struck mum and dad investors during the collapse of Hanover Finance Bridgecorp and numerous other finance companies.  
Further the Financial Markets Authority will be given oversight of auditors to ensure that they are capable of carrying out a large issuer audit. Self-regulation by the Institute of Chartered Accountants was found to be failing in that area. By ensuring that we have an independent regulatory body for auditors we are bringing our regulation up to international standards. The new Financial Markets Authority—a new and as I have said several times in this House as yet untested authority—will be able to prescribe standards for the licensing of auditors and the registration of audit firms and will be able to promote the principles relating to the quality and integrity of New Zealand auditors. Without that oversight New Zealand auditors would not be able to practise in Australia the European Union and other jurisdictions.  
To be clear these bills will apply only to major audits of large companies or issuers of securities; it is important to acknowledge that. It will not impact on small and medium sized companies or not-for-profits. I think there has been a little bit of misunderstanding around that issue during some of the discussion in the House and it is important to put that on the record as well. It is important because we do not want to increase compliance costs for small businesses in tough economic times but we do want to make sure that big businesses and those issuing securities are being honest and upfront with investors.  
The Commerce Committee thoroughly scrutinised the Auditor Regulation and External Reporting Bill. We believe that the changes made will ensure more effective and fair laws. The requirement that both individual auditors and firms be licensed and registered respectively recognises that both the firm and the individual auditor need to meet high-quality auditing standards. Also under the original bill all partners of an audit firm would be liable for a breach of regulation. That provision has been adjusted so that only partners who were aware of the breach and did not act to prevent it would be committing an offence. There was quite a lot of discussion about that during the Committee stage and it is a fair adjustment that avoids punishing innocent parties.  
There is no escaping that this is complex and detailed legislation. I know that my colleague the Hon David Parker has talked about that several times. That complexity comes at a cost to the auditors who face compliance costs and to the average investor who has to wade through reams of information simply to understand a basic balance sheet. This legislation is about restoring confidence in financial markets and bringing them into line with international standards.  
I will touch on another important point that is lacking in this legislation which was also raised in the Committee of the whole House and that is financial literacy. Although I am not ignoring the good work this legislation does in ensuring that there is that important confidence in financial markets it will be undermined if there is no strategy from the Government to ensure that financial literacy is a priority for every New Zealander. I heard what was said during the Committee stage and we need both sides of the transaction to be fully informed about financial literacy.  
Jo Goodhew 
: It happened tonight. There was an announcement tonight you’ll be pleased to hear. 
CLARE CURRAN 
: My apologies for not hearing the previous speaker Hekia Parata if that issue was mentioned. The important work done by the Capital Market Development Taskforce set up under the previous Government by the Hon Lianne Dalziel identified financial literacy as a key issue. A lot of work was put in under the previous Government in relation to that issue and that work has largely sat on the table and has not been acted upon. I touch on that because it has been raised so many times in the House as an issue we are going backwards on. A number of issues were raised in a report produced by the task force particularly on financial literacy that could form an important part of the Government’s strategy going forward. I hope the Government will actually do that.  
The task force identified financial literacy as a key issue and identified that New Zealand’s capital markets are small relative to the size of its economy when compared with other OECD economies. New Zealanders’ savings practices which included the limited extent of direct investment in capital market products might suggest that New Zealanders have a limited understanding of these products. The effectiveness of disclosure by issuers also depends in part on investors’ financial literacy. The task force at that time was interested in looking at the current state of financial literacy in New Zealand and the ways it could be improved.  
The task force identified that financial literacy could be improved by more strongly promoting it in schools as part of the curriculum or by making it mandatory. The task force looked at a process of how it could make that happen. It also looked at financial education outside schools which could be stepped up in a number of ways if additional funding was available for more frequent marketing campaigns. I think we have seen the importance of this issue during the investigations the Commerce Committee has done with the truth-in-advertising issue and the way that people in the community can be sucked in by prominent celebrity figures fronting for organisations that turn out to be crooked. It also looked at a campaign that could be run purely on investing and how to invest properly. I hope the Government will look at this.  
Although Labour supports these bills we know that many other issues need to be addressed around them.