Genter Julie Anne: Accounting Infrastructure Reform Bill — First ReadingText is incorporated into the Bound VolumeGenter Julie Anne: Accounting Infrastructure Reform Bill — First Reading[Sitting date: 28 January 2014. Volume:696;Page:15596. Text is incorporated into the Bound Volume.]JULIE ANNE GENTER (Green): Tēnā koe Mr Assistant Speaker. I rise to speak in the first reading debate of the Accounting Infrastructure Reform Bill. This bill as other speakers have noted makes changes to the auditing sector. On the first reading the changes seem to the Green Party to be a bit of a mixed bag. Some of the changes are good and we can support those changes but some seem to take us in a general direction of deregulation which we have some concerns about.So as the Minister of Commerce outlined there are five main changes in the bill: expanding the definition of those who can conduct audits enabling auditors to form limited liability companies introducing penalties for auditing offences requiring medium and large charities to be audited and allowing the New Zealand Institute of Chartered Accountants to merge with its Australian counterpart. We can agree strongly with the move to audit medium and large sized charities and allowing auditors to incorporate into limited liability companies is also fine. It is standard practice elsewhere and currently auditors have the ability to limit their personal liability through trusts here in New Zealand so it seems like standard practice.The fish-hook for us is that the Government is proposing to set the minimum standards for audit companies in regulations rather than putting them down in legislation. I guess it is important to realise that these standards really lie at the heart of the auditing profession and sector and the auditing sector is crucial to the healthy functioning of markets particularly in the long term. It is really important that investors have confidence and that the public have confidence that the auditors are doing their job correctly. So by leaving these standards to regulation that is set by the Minister it makes the whole process quite a bit less robust because the regulations do not come before Parliament and that means that one person or a few people in Cabinet are responsible for setting those regulations. It makes the process much more vulnerable to lobbying.The Minister set out an excellent explanation and we accept that the Government wants to do the right thing with this bill but there were a few key buzzwords in his speech and in other Government MPs’ speeches particularly “increasing efficiency”. That really should give us pause because although it is easier to say that it is better to get things done quickly and cheaply—and I am sure a lot of people would agree that it is better to get things done quickly and cheaply—sometimes that can end up costing us a whole lot more in the end. I am sure that New Zealanders sitting at home watching this debate tonight would agree with that—that sometimes taking the quicker and easier option in the short term leads to unforeseen costs in the long run.The global financial crisis really should have taught us about the importance of independent regulatory oversight broadly and generally speaking. The loss of hundreds of billions of dollars of wealth across the world did not happen because of too much regulation; it happened because of too little regulation and a cosy relationship between the finance industry and regulators and legislators in many many countries.We should remember here in New Zealand that we are a small country with a small market which makes us particularly vulnerable. We need to be very cautious. Ireland and Iceland come to mind as small countries that seemed to achieve enormous economic growth for a few years thanks to a certain level of deregulation particularly in the finance industry but that did turn out to have quite disastrous results. I appreciate that the factors leading to financial and economic calamity in Ireland and Iceland may seem quite far from a bill in New Zealand that is primarily focused on deregulating the auditing sector but I think it is worth considering.The pressure investment banks put on politicians in other countries overseas and no doubt here in New Zealand to deregulate so that they can earn bigger profits in the short term is suspiciously similar to the rhetoric that we hear from this Government all the time—cutting red tape to supposedly help the economy. I suppose there is some logic to that facile argument if one is concerned about only the short term. One of the big differences between this Government and the Green Party is that we are very focused on the long term and getting the best results for all New Zealanders and the New Zealand economy for more than just tomorrow or next year or next quarter. We are thinking about generations to come.So although we agree with some areas as I was looking through the regulatory impact statements on this bill I was really struck with the number of times officials had written that there was not any evidence to support the benefits that were justifying the changes that are laid out in this bill. One of those areas is the merger of the New Zealand Institute of Chartered Accountants with its Australian counterpart. I have spoken with the New Zealand Institute of Chartered Accountants. I accept that there might be some logic and that that is what its members want but it is worth noting that the role that the institute plays in New Zealand is quite different from the role that its counterpart plays in Australia. Australia has a direct regulation model whereas we in New Zealand have self-regulation. It is quite an unusual situation where on the one hand we have the professional body that is self-regulating and has a statutory function set out in legislation and yet on the other hand it is also operating in a kind of commercial environment as is its Australian counterpart.So this regulatory impact statement explores the different areas on the regulatory spectrum. There is no regulation self-regulation co-regulation and direct regulation. Australia actually has direct regulation whereas we are already in this light regulatory regime of self-regulation. The regulatory impact statement really outlines that there are a large number of risks that come with self-regulation and in fact with quite a few of the goals of promoting quality audits and achieving the extra benefits of aligning New Zealand’s regulation with other jurisdictions because we are an outlier in this area. Most other comparable jurisdictions have either co-regulation or direct regulation. The UK has a co-regulatory model. So New Zealand is in the situation of already being less regulatory in the audit sector than many of its trading partners in other comparable jurisdictions. The regulatory impact statement states that many of the benefits that we want like quality audits and being aligned with other jurisdictions could be achieved if we moved to one of these other models. Yet that is not what we are doing because it might cost more money in the short term.So although the Green Party accepts that there are some good proposals in this bill we will be listening very carefully—I will be listening with great interest—to submissions that we hear during the select committee process. We are simply a little bit concerned that there has not been enough evidence put forward for this move and that it is taking us away from more oversight and independent oversight—which is so critical particularly in 2014 I think—in the financial sector. And the auditing sector is absolutely crucial to the health of our financial markets in the long term. The Green Party will be listening carefully at the Commerce Committee but we will not be supporting the bill at this reading.