Promotion of Accounting Reform as the most effective Pathway to a Fairer Safer and more Prosperous Society. Comment and Support from all quarters is Sought to straighten out NZ's problem 

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June 2004 Edition----to page back through Previous Editions click here

A month has been skipped so its time for a bumper edition. There are certainly plenty of happenings out there in the world of shady and corrupt accounting. Happenings which make a much less fair and prosperous place to live than what it should be.

But perhaps the news is not all bad. Lindsay Pyne has resigned from the board of Telecom New Zealand. He certainly never deserved to be there given that he was a signatory to the infamous 1990 Bank of New Zealand accounts. Perhaps opposition to his appointment was growing. Major Telecom shareholders were apparently not acquainted with Mr Pyne's background at the time they gave their proxies for last October's annual meeting when he was appointed. Then again perhaps Mr Pyne has reformed and is now too prim and proper for the rest of the somewhat slippery Telecom board.

Brian Gaynor of the NZ Herald has suggested that Mr Pyne was given a "hospital pass" at the BNZ. This is a rugby analogy suggesting that he could do nothing but go down in a tackle (do what he was told?) possibly hurting himself (as he did). The inference was that he was acting under duress. Something needs to be done if this was the case. But professionals need to face up to this sort of thing. Threats are not an excuse. The chairman of Telecom, Rod Dean has said that the Fay Richwhite principals have been forced to go overseas by certain factions. Unfortunately he seems to think that they are good guys and that should not happen.

Either way the short lived appointment has generated publicity of the 1990 BNZ scandal. Hopefully some of it can now rub off onto some of the accounting professionals involved and send them packing from their top jobs. Bad accounting cannot be allowed to pay. Top of the list should be Elizabeth Hickey who, despite her top knowledge, feigned two "unfortunate mistakes" in the auditing to pave the way for a clean bill of health for the 1990 accounts. She commands the Director of Education position with the International Accounting Standards Board, Committee, or Foundation in London. Her extradition is overdue.

This site has only just found out that Peter Garty, the other auditor involved in the 1990 deceit, is currently a top echelon Telecom employee namely Group Financial Controller. Apparently he has been so since 1998. In 1990 Mr Garty invented numerous invalid items of profit understatement to offset $27m of overstatement declared by Ms Hickey in the firm's audit notes. So say the notes anyway. They were aware of at least $71m of overstatement but officially overlooked the rest probably because $27m was all that they could realistically invent offsets for. Mr Garty went on to demonstrate that Under and Over offsets were a normal part of his auditing in the 1991 BNZ audit when he listed 16 items of understatement and overstatement, all neatly canceling out to just $1m over. In 1992 he utilised the procedure again but this time he put in not just items involving the 1992 year but big items from past years as well. It was the only way that he could get the net balance down near zero so that he was not obliged to take action, no doubt. The "Summary of Audit differences" was treated as a big magic melting pot for audit problems. These matters were referred to the NZ Society of Accountants in 1993 but the Society's only action was to instigate costly compulsory education course attendance effectively sacking low paid conscientious accountants who felt that they had to attend the courses or resign. It has played into the hands of high paid wayward accountants such as Mr Garty.

Telecom NZ has also been in the news last month for offering better toll call rates to new customers than to its long established customers so exploiting the latter's extreme loyalty, and for back tracking on its offer of unlimited text messages for $10 a month. Also an "independent" commissioner reaffirmed Telecom's monopoly over the long established "local loop", it being one of the few companies world wide to hold such a privilege. The shares of this company make up a large portion of all stock tradable on the New Zealand Stock Exchange. Hence the apparent health of the company has a large bearing on the apparent health of the NZ commercial scene. The extending of liberties to Telecom thus tends to be one of the ways for the Government to massage the economy. Unfortunately this tends to extend to accounting liberties which might be why Mr Pyne and Mr Garty came to be appointed not to mention Ms Gattung the Telecom CEO who worked under Mr Pyne as Marketing Manager at the BNZ.

This site referred before to the annual accounts of Telecom for the year to June 2001 when the profit included $245m of dividends from an associate company which was insolvent at year end. This came to light in an article published here. To explain a little, associated companies are those in which the company that is reporting holds a large shareholding but not a controlling one. The profit declared includes the relevant proportion of the associated company's profit or loss but does not include any dividend received from the associated company. This "consolidated profit" gives the most up to date impression of the company's overall fortunes. However if the associate company is insolvent the consolidation method is no longer appropriate since shareholders are only liable for their subscribed capital and having lost that they need not bear further losses or share in the gains of the associate. In this Telecom case the associate company went insolvent and paid a large dividend. The suspicion is that the dividend was a distribution of profits earned by the associate in previous years. These profits will have already formed part of Telecom's declared profits by way of consolidation and so would have been declared twice. Apparently the relevant accounting standard did not provide for this eventuality but this is no excuse for reporting these profits a second time nor for the auditors allowing it to happen. Mr Garty is likely to have been to the forfront in putting this one across and Ms Hickey as the standards "expert" and gatekeeper is likely to have left the standard incomplete for exploitation. manner. She is setting herself up in London so that she can continue such operations.

It would seem that the BNZ scandal brigade had virtually all transfered to Telecom but the exit has begun.

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Case studies of ICANZ coverups

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 The scandalous Audit Cert of the 1990 BNZ annual accounts - Take a Look from Here And then learn about the Securities Commission here who reported on the affair. We also background the role of the Institute of Chartered Accountants of NZ in ignoring the affair. It might go back 10 years but many players still maintain high office, collectivly protecting themselves at the expense of others. 
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