Curran Clare: Auditor Regulation and External Reporting Bill — In Committee 
Curran Clare: Auditor Regulation and External Reporting Bill — In Committee 
[Volume:672;Page:18300] 
CLARE CURRAN (Labour—Dunedin South) 
: 
 I rise to take a call on the Auditor Regulation and External Reporting Bill and in particular Part 2 “Licences registration accreditation and role of FMA”. With regard to the issue of licensing firms versus licensing individuals this bill proposes the licensing of individuals rather than firms. Clause 10 states that only a person who meets the prescribed minimum standards and is otherwise a fit and proper person to hold a licence will be issued with a licence by an accredited body. 
I want to refer to some of the submissions received by the Commerce Committee. The New Zealand Institute of Chartered Accountants considered that the primary focus of the licensing regime should be on firms rather than individuals. It recommended that the bill be amended “to provide for the firms to be licensed with nominated individuals being identified by the firms for evaluation by and registration with accredited bodies …”. The institute noted that that approach was adopted in the United Kingdom. It considered that licensing firms reflected how auditors presently operate in the central role that a firm’s systems and processes play in audit quality and its preferred model was that the licensed firm would be engaged to do an audit and would select which of its registered auditors would conduct the audit. 
There was discussion about whether the changes should be made to reflect the major role that the firm’s policies and procedures play in promoting audit quality but it was noted that the system appearing in the Companies Act 2006 in the UK was not fully consistent with the New Zealand Institute of Chartered Accountants’ preference for firm licensing as an alternative to individual licensing. The UK system licensed individuals and allowed firms to issue licensed audits provided that the majority of partners in that firm were licensed auditors and that the firm was under the control of licensed auditors which is essentially I think the guts of the system we have ended up with. 
The second issue that I would like to touch on again as I did in an earlier speech on this bill is the limitations on liability. We considered quite seriously whether this bill should be expanded to introduce measures to limit auditors’ liability but we could not recommend amendments to that effect because the advice given to us at the select committee was that there was no scope for it under the bill. However the commentary on the bill refers to this issue because we recognise that some form of liability limitation would harmonise—and that is an important issue—the New Zealand system with international practice. It is my understanding that this is generally the intent of this legislation and accompanying legislation to do with the establishment of the Financial Markets Authority. It is about harmonising New Zealand’s legislation with international law and international practice. We spent a lot of time on this issue and we asked for a lot of advice on international practice. We considered it very carefully in light of the jurisdictions that have adopted alternative liability systems and some of the approaches that have been adopted elsewhere. 
I note again that there has not been any response from the Minister of Commerce on where this might be going and what might be happening next in this space. In my previous speech on financial literacy I said that it would be useful if the Minister could give us a response.