Review of NZ Accounting Scene for 2003

The year started off with the Report on Corporate Transparency being overdue. Ralph Marshall, the 2002 president had acknowledged that the NZ accounting scene in the 1980s had a wild west image and one might have expected some analysis on what caused this and what had or needed to be done about it. But when the final report, under a new title, came out in May there was not a mention of scandals or what had happened in the 1980s. According to the report there is nowhere in the world where there is a ban on external auditors accepting other work from the business which they audit and New Zealand should not be the first. The report had errors in the small number of tables and footnotes which it contained, and was anticlimactic. It was forwarded to the Minister of Commerce who referred it to the Securities Commission.

Then in May, Elizabeth Hickey of 1990 Bank of New Zealand infamy, got appointed as Director of Education of the London based International Accounting Standards Committee (or Board). This seems to be a private organization controlled by the major international accounting firms but its standards seem to get international recognition and are being adopted by New Zealand authorities who are following Australia in doing so. Ms Hickey becomes one of the multitude of New Zealand accountants to get high sounding international appointments in an apparent effort to pull NZ and particularly its big 4 firms out of the bad reputation mire. This Director of Education is a new position and it is doubtful if it was advertised. Ms Hickey’s first duty seemed to be to recruit an assistant for herself. She has dominated the accounting standard regime in New Zealand since her faked mistakes to give the BNZ an unqualified audit report in 1990 and no doubt will resume her roll from over there as local sovereignty is relinquished.

The good news seemed to be that Ms Hickey’s appointment seemed to get low key recognition in many quarters including the Chartered Accountants journal where she was just referred to as an Institute member. It was largely ignored by the news media except Yahoo.

Players in the 1990 BNZ saga emerged in force in 2002. The president of the Institute of Chartered Accountants of New Zealand for the year was Mr Pat Waite, a BNZ executive in 1990. He kept a low profile. There was public reaction when the 1990 BNZ managing director Lindsay Pyne re-emerged to become a director of Telecom New Zealand despite protests at and before the company’s annual meeting. The matter brought to light other connections between Telecom and the BNZ of the early 90s such as the Telecom CEO having been a BNZ employee. Hopefully there is the beginnings of a groundswell there which will see players in, and supporters of, the 1990 event vanquished and the return of accounting justice. A Peter Jackson movie might then ensue.

In December a Bank of New Zealand museum was opened in Wellington. It would seem that Mr Pyne did not attend although three immediately prior managing directors did so. It is unclear whether the original signed copies of the 1990 annual account and audit report are on display. In time they will be the highlight for those with a sense of the becarb.

The year saw the low key resignation of Diana Pryde after a significant tenure as the Institute’s CEO. When she was appointed it was claimed that the appointment reflected maturity on behalf of the Society (as it then was) in that she was a women and was not a member as such. Later the Institute proclaimed membership of it to be the pre-eminent business qualification which did not sit well with Ms Pryde’s position. Although it tried to draw a distinction between administration, where Ms Pryde was in charge, and accounting issues where a member took charge, the Institute seemed to get Ms Pryde to troubleshoot accounting issues so as to capitalise on tolerances which might be accorded her as a woman. The new CEO is Maori which might provide similar advantages.

Then we have the disciplinary hearing and decision in respect to actions of Kenneth Fergus of Ernst and Young. Actually there seemed to be two disciplinary hearings going on, a most exceptional circumstance. When the system was set up these hearings were supposed to be open to the public on the “justice seen to be done” principle. While it seems unfair that a business should have its affairs made public because it happened to have a suspected bad accountant or auditor, in the Fergus case the business (or “client” ) involved, PPCS, clearly had its fingers in the pie and deserved no such consideration. Nevertheless the Tribunal closed the hearing to the public and made very little detail available, saying it would not assist fishing expeditions. This makes something of a mockery of the system. The case revolved around the non-disclosure of a bank guarantee, given to help finance the “secret” purchase of shares in a rival company. Exactly what Mr Fergus’s excuse was for not detecting and pursuing the matter is unclear. If he new about the secret purchase it should have been of considerable interest and make him keen to see that no rules were broken in keeping the secret. His E&Y partners would surely also be interested and keen to advise him. The Tribunal found that it was just a mistake. It also found that even if he fully knew the situation he had no obligation to qualify his audit reports because of a false “no bank guarantees” statement contained in PPCS’s annual accounts, which is most disturbing. Just what does the Tribunal consider to be important. It said that nobody could deduce that PPCS was buying into another company because of the existence of a bank guarantee which might be so, but it is also wrong that someone who highly suspects that such buying is going on should have his or her suspicions discounted of extinguished because of the absence of bank guarantees in the audited accounts. The requirement to disclose bank guarantees might not have been there for that purpose but it is there for whatever reason and should be able to be relied upon for whatever purpose. Far to much protection of senior Institute members is going on.

Such was the year in this Peyton Place.