Curran Clare: Auditor Regulation and External Reporting Bill — Second Reading 
Curran Clare: Auditor Regulation and External Reporting Bill — Second Reading 
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CLARE CURRAN (Labour—Dunedin South) 
: 
 Much as it is a great honour to speak in front of you Mr Assistant Speaker Roy in the House today I was looking forward to the opportunity to add my congratulations to the new Assistant Speaker Ross Robertson. I will hold those congratulations because I have a particularly important message to pass on to him in his role as the new Assistant Speaker. 
The ASSISTANT SPEAKER (Eric Roy) 
: Don’t feel constrained! 
CLARE CURRAN 
: I would like to put on record that it is an honour to speak before all of the Speakers in this House today and I am looking forward to speaking before the new Assistant Speaker as well. 
In speaking to the Auditor Regulation and External Reporting Bill in its second reading I say that there is one thing about the Commerce Committee: we do a pretty good job we have robust discussions we thrash through the issues and ultimately I believe we are all committed to good law. 
The bill is supported by Labour and one of the core reasons why it is supported by Labour is that it is part of that important financial markets reform process that was begun under the previous Labour Government. I need to put that on the record because although it is important also to acknowledge the good work being done by Minister Power in this area in relation to the whole package of financial reforms those reforms really do flow from the important work that was done under the Labour Government and largely under the auspices of the previous Minister of Commerce the Hon Lianne Dalziel who happens to be the chair of the Commerce Committee. I think the point is that ultimately we are seeing a commitment on both sides of the House to good law being made in this area. 
As my colleague David Parker pointed out Labour does however retain some concerns about the bill and about the way in which this package of bills is being introduced. I will touch on one of those matters in a minute which has been mentioned by both of the previous speakers—that is the limitations on liability. I also endorse what my colleague David Parker said about the systemic issues of the complexity of financial accounting issues which emerge right throughout these reforms. They underline these reforms and underline some of the reasons for the need for the reforms. The areas are so complex and so dense that the ordinary person out there particularly an investor has great difficulty in understanding them. 
The issues about financial literacy—and this has been brought to the attention of the Minister on a number of occasions—are critical. They need to be addressed but they are not being addressed by this Government as we see it. 
The bill strengthens the regulation of practitioners who carry out audits of issuers reconstitutes the Accounting Standards Review Board as the External Reporting Board and requires the Institute of Chartered Accountants to regulate auditors as a specialist profession rather than as chartered accountants. Minister Tolley in her speech pointed out that the bill really is about the registration of auditing firms and that it will really strengthen the regulatory and legislative remedies for that whole area. 
We support the bill ultimately because we want to see confidence restored to New Zealand’s financial markets. The bill has been through a wide consultation period. There were a number of submissions to the select committee and I will touch quickly on a couple of areas about liability. 
Initially I will talk about the liability of partners issue. In the select committee process we touched on two areas and they are covered in the commentary on the bill. Under the bill as introduced all partners of an audit firm would be liable if a firm breached the relevant restriction. The amendment proposed by the select committee meant that a partner would commit an offence only if the relevant breach took place with his or her authority permission or consent if he or she could reasonably have known that the breach was going to be committed and failed to take all reasonable steps to prevent it. Under clause 8(5) of the bill as introduced every partner of an audit firm would have been committing an offence if the firm breached the relevant restriction. The select committee considered that larger firms particularly would be disproportionately sanctioned by such a provision. That is why that change was brought in during the select committee consideration. 
The second issue was about limitations on liability. Both David Parker and my colleague on the select committee Sam Lotu-Iiga have referred to that issue. We considered carefully whether the bill should be expanded to introduce measures to limit auditors’ liability but we recommended no amendments to that effect. That was ultimately because our conclusion was and the advice provided to us stated that we had no scope for that under the bill. However the commentary on the bill refers to the issue because we recognised that some form of liability limitation would harmonise the New Zealand system with international practice. We asked the officials for quite comprehensive advice on the issue. We considered it quite carefully in light of jurisdictions that have adopted alternative liability systems and some of the approaches that have been adopted elsewhere. I know that the relevant Minister Simon Power is not in the House but I am keen for a response from him about his views if he has any. 
I will quickly touch on the alternative approaches that have been adopted elsewhere. There are four of them. The first approach is incorporation. In many jurisdictions companies and/or limited liability partnerships are able to carry out audits and those limited liability partnerships are an alternative corporate business vehicle that give the benefits of limited liability but allow their members the flexibility to organise their internal structure as a traditional partnership. The second approach is proportionate liability—that is the court determines liability among the negligent parties according to their share of the blame. That approach includes allowing the courts to have regard to the comparative responsibility of any wrongdoer who is not a party to the proceedings. The third approach is liability caps which provide for the amount of liability to be capped at a multiple of the fee and/or a fixed dollar amount in relation to any one course of action. The fourth is contractual restrictions on liability. Under that approach the auditor or the preparer may contractually agree to a restriction in liability. 
We looked at a number of jurisdictions including Australia the United Kingdom Singapore and Hong Kong where auditor liability reform has been considered and still is being considered internationally. Some jurisdictions such as Australia have settled policies and laws and we would do well to look carefully at them. That is why the select committee considered harmonisation. Other jurisdictions such as the United Kingdom have implemented reforms and are now evaluating their performance. Still others such as Singapore and Hong Kong are identifying issues with their current regimes and are still beginning to consider possible reforms. In the commentary on the bill we stated that although we concluded that such an amendment would be outside the scope of the bill we asked to see this issue addressed in the broader review of securities law. The previous speaker from across the House Sam Lotu-Iiga referred to that issue. In particular the select committee believed that consideration should be given to amending the Securities Act and replacing auditors’ current exposure to joint and several liability with alternative systems such as proportionate liability or capped liability. Thank you.