Nash Stuart: Auditor Regulation Bill Financial Reporting Amendment Bill — Third Readings 
Text is incorporated into the Bound Volume 
Nash Stuart: Auditor Regulation Bill Financial Reporting Amendment Bill — Third Readings 
[Sitting date: 11 May 2011. Volume:672;Page:18630. Text is incorporated into the Bound Volume.] 
STUART NASH (Labour) 
: 
 It is interesting to listen to National members speak on the Auditor Regulation Bill and the Financial Reporting Amendment Bill because they herald them as major legislation yet they cannot even speak for 10 minutes on them. I am not sure whether that shows their lack of knowledge in relation to the details of the bills or their lack of enthusiasm for the bills. But whatever it is I think it is quite poor form.  
I stand in support of these two bills because they do most important work in restoring the confidence of New Zealanders in our financial markets and our capital markets. But before I continue if Mr Deputy Speaker may indulge me I would like to correct or comment on something a member said recently. I think Sandra Goudie may have given out some Budget secrets a week too early. When she was speaking on the last bill that we debated she thanked the dairy industry because it provided all the money. She thanked the people in the industry for all their hard work and all the money because she said they paid for our health education and social welfare systems. Those people paid out $26 million in tax last year so I am wondering whether the budgets for health social welfare and education will be slashed to $26 million. 
Mr DEPUTY SPEAKER 
: We are on the third reading. 
STUART NASH 
: I digress.  
I thank the Hon Simon Power the Minister of Commerce who brought this legislation to the House. It is very good legislation; he is a very hard-working Minister. In fact I think it was Simon Bridges who told the House that Mr Power has been responsible for over 40 percent of the bills brought before the House—40 percent of the bills brought before this House. Simon Power is certainly a hard-working Minister. I suspect that is the reason that he has decided to resign. He is sick to death of carrying National. Having said that Mr Power’s plan for getting the country out of its problems is to sell State assets. He is the man who has been put out with a policy to sell State assets. I wonder whether that is a bit of a poisoned chalice. 
Mr DEPUTY SPEAKER 
: I brought it to the attention of the member earlier that this is a third reading speech. Speakers can comment only on what is in the legislation. I refer the member to  
Speakers’ Rulings 
; there are a number of rulings on page 117. I ask the member to come back to the content of the bill. 
STUART NASH 
: As I was saying Simon Power the hard-working Minister has done a good job of continuing the work that the Hon Lianne Dalziel started and heralded through the Commerce Committee.  
Specifically the Auditor Regulation Bill recognises that the audits of companies that manage public investments or that otherwise obtain large amounts of money from the public must be performed by registered members of the auditing profession. A very good question is why the regulation of auditors needs to be reformed. It is a very good question. The answer is that 69 finance companies have gone broke since the global financial crisis. I understand that that has taken out about $6 billion of savings from good hard-working New Zealanders. These are people who wanted to retire or who put money away for their grandchildren’s education and it was ripped out. What has happened has made financial reporting hugely important to investors.  
My colleague David Parker talked earlier about the need for investors to have confidence in the professionals who are charged with ensuring that these documents meet the required standard. As Mr Clendon mentioned in his short 10-minute speech we cannot legislate against incompetence but I would say and it is my contention that when investors are making an investment decision incompetence is not one of the variables that they should have to take it into account when assessing risk. In fact what happened is that in a lot of the 69 finance companies that failed incompetent people were undertaking to provide professional advice. That is one of the reasons why those companies fell over.  
I do not want to taint every single auditor. There were a lot of good auditors out there. In fact there are a lot of very good auditors. They welcome this bill. They welcome this bill because it removes a lot of those sorts of charlatans from the profession. The bill gets rid of people who call themselves professionals but who act in everything but a professional way.  
Hon Clayton Cosgrove 
: A bit ironic. 
STUART NASH 
: Yes. New Zealand’s self-regulatory model was no longer within the range of acceptable auditor regulation systems. New Zealand needed to change in order for auditors to obtain the right to practise in Australia and other jurisdictions such as the European Union. My colleague David Parker elaborated on that so I will not go into too much detail.  
The actual purpose of an audit is to provide assurance to investors regulators and other market participants that a set of financial statements is free from material error. That is quite an important consideration because business decisions will need to be made on the basis of financial statements. So it is important that audit firms have a very strong reputation. I do not think that is doubted by anyone. In the last 6 months the disciplinary tribunal of the Institute of Chartered Accountants of New Zealand has made orders against four members who between them led five failed finance company audits. The tribunal found that those audits were not carried out in accordance with the institute’s ethical professional and auditing standards. It is those sorts of people whom this bill will weed out because the penalty for breaching this legislation is $50000. For overseas auditors registered in New Zealand the penalty is $10000. We discussed the penalty in the Committee stage. It sends a very strong message that every single member of this House recognises that there needed to be a change. This legislation provides that change. It provides that the licensing of auditors will be carried out by the Institute of Chartered Accountants and by any other professional accounting body that may be accredited by the Financial Markets Authority. The Financial Markets Authority will set a minimum licensing standard to oversee the professional accounting bodies and will be responsible for practice reviews.  
What is the Financial Markets Authority? It is a newly constructed market regulator for New Zealand’s financial markets. It is pretty much what the title says it is. It officially started on 1 May this year so it is very new. The Financial Markets Authority performs the regulatory functions currently undertaken by the Securities Commission— 
Peseta Sam Lotu-Iiga 
: Not currently. 
STUART NASH 
: —previously; I am sorry Mr Lotu-Iiga—and some of those undertaken by the Government Actuary and the Companies Office. The Financial Markets Authority Act established the Financial Markets Authority which Labour supported of course; in fact I think every member in this House supported it. The Financial Markets Authority has powers functions and duties that its predecessors did not have including for example the power to exercise an investor’s right to take civil action against a financial market participant the ability to prevent products from being structured so as to avoid their being supervised by the Financial Markets Authority and enhanced warning powers. It is not the ambulance at the bottom of the cliff. It is at the top of the cliff; it is the overview. If anything looks wrong if anything does not look right the Financial Markets Authority can step in at any point in time and say it requires a change to be made it needs to see what is going on or it needs to audit a practice. It is a very powerful body and again as my colleague David Parker alluded to Labour hopes that it exercises the powers that it has been granted in a prudent manner.  
I will wrap up by saying the reform represents another important part of this Parliament’s ongoing work programme to restore investor confidence in our financial sector in our capital markets. It includes other things like for example the review of securities law started under Lianne Dalziel. The Commerce Committee chaired very ably by Lianne Dalziel recommended a number of amendments to improve and strengthen the legislation. We went through those in the Committee stage. In fact this is quite unusual legislation because we are now passing two bills whereas in the Committee stage the provisions were merged into one bill. Because the two bills are very similar in nature they are being read as one. This is very important legislation. I think it will go a considerable way towards restoring the confidence of the New Zealand public in our capital markets and financial sector. That is one of the main reasons why I support this legislation. Thank you very much.