Burns Brendon: Auditor Regulation and External Reporting Bill — In Committee 
Burns Brendon: Auditor Regulation and External Reporting Bill — In Committee 
[Volume:672;Page:18314] 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 Part 4 of the Auditor Regulation and External Reporting Bill deals with financial reporting issues and setting standards for them under the new regime. A single case that to me underscores the importance of better financial reporting standards is that of Hanover Finance. Hanover Finance was a company that pretended to be a blue-chip company. We saw Hanover Finance advertised on our State television news programme as the company we could trust. Hanover Finance repeated that advertisement hundreds and hundreds of times. That opens up some discussion—as we have had in the Chamber earlier today—about the commercial imperatives that Television New Zealand is following. I will put aside that issue. What did that advertising mean? It meant that hundreds and thousands of New Zealanders believed that Hanover Finance was what it claimed to be: that it was a financial company we could trust. Nothing could have been further from the truth. That company which was run by Mark Hotchin and Eric Watson was taking funds and pouring them into its own speculative investments. That is why we need strong financial reporting. That is why as is provided under the bill we need strong accounting and auditing standards. Hanover Finance fleeced thousands of mum and dad investors who believed the hype and the advertising and did not have anybody they could turn to to say to them that they should not believe what was being said. That is why we need strong audits and financial reporting and standards to underpin the operations of financial markets in this country. Hanover Finance is just one of 20-plus examples of finance companies and others that in the last 3 years alone have gone from— 
Stuart Nash 
: Sixty-nine. 
BRENDON BURNS 
: I am thinking of the bigger ones. My learned colleague Stuart Nash informs me it was 69 but I am thinking of some of the bigger companies of which there were 20-plus that have gone belly up and taken with them the life-savings of thousands of New Zealanders. Many of those New Zealanders were not well off. Many of them were putting in their life-savings and retirement savings thinking they might get an extra couple of percent. They paid an awful price for that investment because they were never given the financial probity they deserved. 
We see under Part 4 a change in respect of who is responsible for the standards. Currently we see them effectively divided between the New Zealand Institute of Chartered Accountants and the Accounting Standards Review Board. What this part of the bill is doing is establishing a new entity the External Reporting Board which commences operations in July this year. The board will have no more than nine members and no fewer than four members. Those members will be drawn from the financial accounting and auditing professions and are to be appointed by the Minister of Commerce. I certainly have confidence in the current Minister Simon Power that appropriate appointments will be made to the body. 
The importance of the appointments is that the board is then charged with acting independently and not at the behest of any appointing Minister. That is how it must be. We cannot have any sense of such a board having any connection with or any requirement to reflect anything other than the absolute truth and probity of the situation. The board will be preparing and issuing financial reporting standards issuing auditing and assurance standards and developing a whole series of guidelines and strategies in order to give a framework for the board’s overall direction. That is a great thing to see. The importance I attach to this is that the investment community needs to know that when financial market offers are being made there is some reasonable capacity to believe they are worth the money that is being invested. 
New Zealand has been a bit out of line with some other parts of the world. We have had a self-regulatory model. It has not worked. It is no longer acceptable. As I mentioned earlier I have just spent a couple of days in the company of auditors and others involved in financial oversight. Australia has a tighter model now. We have to be in line with that model and with the European Union. That is why we are seeing the bill coming through and we are seeing under this part of the bill the establishment of the new board. The board will be independent and will have the responsibility for ensuring that there is a proper set of reporting standards. It is good legislation to see coming through. 
The question was put that the amendments set out on Supplementary Order Paper 239 in the name of the Hon Simon Power to Part 4 be agreed to. 
Amendments agreed to. 
Part 4 as amended agreed to.