Foss Craig: Accounting Infrastructure Reform Bill — First ReadingText is incorporated into the Bound VolumeFoss Craig: Accounting Infrastructure Reform Bill — First Reading[Sitting date: 28 January 2014. Volume:696;Page:15591. Text is incorporated into the Bound Volume.]Hon CRAIG FOSS (Minister of Commerce): I moveThat the Accounting Infrastructure Reform Bill be now read a first time. I nominate the Commerce Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by 30 May 2014.The Accounting Infrastructure Reform Bill will enable the accounting and audit industry to be more efficient and effective. The bill will continue to progress a raft of important changes which began with the passing of the Financial Markets Conduct Act 2013 and the Financial Reporting Act 2013. These Acts contribute to the Government’s Business Growth Agenda by promoting fair transparent and efficient financial markets. The Financial Markets Conduct Act ensures financial markets are fairer. It regulates how financial products are offered promoted issued and sold. This supports confident and informed market participants. The Financial Reporting Act improves transparency. It has reformed reporting obligations by removing the requirement for smaller companies to produce complex financial statements. It allows shareholders of small and medium sized companies to decide whether the company must prepare financial statements enabling companies to better direct resources where the need is greatest: growing their business.The Accounting Infrastructure Reform Bill will improve efficiency. It will realign the structure of the audit and accounting industry so that participants are able to quickly adapt to an evolving environment. A more competitive and efficient accounting market will ensure better business practice and advice for New Zealand firms while a robust audit industry provides improved assurance for users of financial statements building confidence in our financial markets. Together these pieces of legislation will encourage the confident and informed participation of businesses investors and consumers in our financial markets. This supports the capital market initiatives of the Government’s Business Growth Agenda.This bill will enable the accounting and audit industry to be more efficient and effective through five key amendments: firstly to amend the rules of who may perform statutory audits. The bill refines the rules on who may perform non-financial markets conduct statutory audits. Financial markets conduct audits are those audits required by the Financial Markets Conduct Act. There is a separate auditor regulation regime already in place for the auditors of the financial markets conduct entities. It is designed to support increasing public interest in those audits and to raise investor confidence. Under that regime auditors are licensed by professional bodies that have been accredited by the Financial Markets Authority. This Accounting Infrastructure Reform Bill addresses non-financial markets conduct audits. It recognises that accredited professional bodies have undergone rigorous checks under that regime and have strong systems and processes in place for all of their members. The bill will allow accredited bodies to authorise their members to perform non-financial markets conduct statutory audits. In the same vein the bill will amend the few remaining public Acts that specify that a chartered accountant must perform a statutory audit. This will ensure that the qualification requirements for all non-financial markets conduct audits are consistent across all public statutes.The second change is to replace references to a chartered accountant in a range of statutes with the term “qualified statutory accountant” where the context is for a statutory accountancy function other than audit. This new term encompasses both chartered accountants and members of other accredited bodies. This change will enable more people to perform statutory accountancy functions providing a wider choice ofprofessional bodies. The third change reduces restrictions on legal form for audit firms. It allows New Zealand audit firms to incorporate as a company and allows incorporated overseas audit firms to operate in New Zealand if they meet certain requirements. The ban on incorporation is outdated and no longer serves a useful purpose.The fourth change introduces a requirement for independent assurance of financial statements for medium sized and large charities. Charitable entities with a total operating expenditure of $1 million or more over the two preceding accounting periods are large and will need to have their financial statements audited by a qualified auditor. Charities that are not large but have a total operating expenditure of $500000 or more over the two preceding accounting periods will need to have their financial statements audited or reviewed. The fifth change is to allow the New Zealand Institute of Chartered Accountants or NZICA more freedom in how to structure itself. The members of the institute have voted to join with the Australian chartered accountants in a new trans-Tasman professional body. However this cannot be given effect to with the New Zealand Institute of Chartered Accountants Act 1996 in its current form.There is one issue that I am sure the select committee will pay attention to which is that the Registrar of Companies has the power to approve overseas professional accounting bodies whose members can then conduct non-financial markets conduct statutory audits in New Zealand if they are eligible to do so in their home State. The registrar can also directly approve individual auditors. This issue is closely related to the bill and has been raised with me by several professional accounting bodies during the drafting of the bill. I expect that these accounting bodies may repeat their concerns in submissions on the bill. I agree with them that it could be an issue and I look forward to the select committee’s consideration of the bill.There are two potential weaknesses in the system. First the registrar has been given no criteria to apply in considering applications. Second there is no ongoing check that professional bodies and auditors are still up to the approval standard. I recognise that audit is a highly skilled and specialist profession and I wish to ensure that clients and users of financial statements can have confidence that overseas auditors meet the same high standards as those based in New Zealand.To conclude a more competitive and efficient accounting market will contribute to the Business Growth Agenda by providing better business advice for New Zealand firms and building confidence in financial markets through better assurance to investors. The New Zealand Institute of Chartered Accountants and the Institute of Chartered Accountants Australia merger will contribute to the single economic market initiative with Australia by supporting a seamless trans-Tasman business environment. Thank you.