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It has come to our attention that the Institute of Chartered Accountants of New Zealand, in the June addition of its Journal, is again singing the praises of Elizabeth M Hickey. This is because of this so-called accountant has been apparently been appointed "Director of Technical Activities" of the private organisation, self-named the International Accounting Standards Board, which the Institute, Accounting Standards Review Board, and the NZ Securities Commission have got themselves mixed up with.

The matter is very serious since Ms Hickey does not deserve her freedom let alone the tributes. We herewith set out set out a more objective appraisal of Ms Hickey's achievements in contrast to those given by the IASB and ICANZ.

Ms Hickey will have received her accounting training in the late 1970s and early 1980s. By 1988 she would have known well that the only acceptable method for apportioning the income of zero coupon bonds, between accounting periods in which they were on issue, was the Yield to Maturity (YTM) method. In 1988 the IRD (NZ taxation authority) required that the YTM method be used in calculating income for taxation purposes. In doing so the IRD stated that it was by then well established that the YTM method was a requirement for financial reporting to the public.

In 1990, as Senior Technical Officer for auditors Ernst and Young, Ms Hickey was "utilised" by the firm in the audit of the annual accounts to 31.3.90 of the Bank of New Zealand. Records of the Bank indicate that this utilisation was in part because of an arrangement employed by the Bank whereby it had made zero coupon bonds look like an insurance policy covering any defaults on advances of the Bank. The maturity proceeds of the bonds were treated as claim proceeds and contributed to profits in any year to the extent that the Bank decided to make a "claim". Ms Hickey has said that she was not surprised to have found that the Bank was employing such an arrangement at that time, but she did not cite any other similar arrangement which she had come across or anything in her training which suggested that such arrangements might be acceptable. Her lack of surprise is likely to have come from colleagues and other accountants expressing their surprise and concern, such as a former auditor Mr P U Macaulay who claimed to be extremely apprehensive when he heard of the arrangement and to have not previously encountered a transaction of that kind.

Ms Hickey's response to the arrangement as Auditor was to use invalid arguments to allow about half the $55m profit overstatement arising from the arrangement and then allow the portion not allowed to be offset by invalid "discoveries" of profit understatement so as to imply that no qualification of the Audit Report was necessary.

Although at the time she stated that the profit from the arrangements which she had disallowed to be "unacceptable on a matching basis" she later told an enquirey of the Securities Commission that it was a treatment which she came up with reflecting her view of accounting for the transaction in terms of its substance but there were arguments that could be made for treating the arrangement as the bank had done. Clearly she was trying to have it both ways.

A second large package of zero coupon bonds was held by the Bank in 1990. These bonds also were an investment (asset) but they were associated with borrowing of the bank by way of perpetual notes which carried a variable interest rate. The Bank included income on these bonds of $32m in its accounts whereas the correct amount using the YTM method was about $10m. In her audit Ms Hickey observed that the (by then rejected) Straight Line method had been used but said she accepted that because it was not possible to apply the YTM method with a variable interest rate. The explanation was that she had mistakenly confused interest rates applying to the bonds with that applying to the notes. But any academic such as Ms Hickey would be curious to know how the Bank managed to apply the Straight Line method when a variable interest rate was involved and the investigation into this would have uncovered her mistake. And anyway just because YTM would not work would be no reason to accept the straight line method. Again the mistake is not credible.

The May 1993 report of the Securities Commission rejected unreservedly the validity of the departures from YTD for both parcels of zero coupon bonds having regard to the standards of the time, but somehow also incidentally found no evidence of improper conduct on behalf of the Bank or its auditors among others , or a conspiracy among them. The auditors involved and the bank management just happened to all independently hold views supporting the arrangements, in contrast to what the Commission members would have believed in the same situation, the findings would suggest. The report did not discuss how many inappropriate actions there would have to be, before the Commission would recognise at least some evidence of improper conduct. Nobody else has their clarity of thought it would seem to claim. Furthermore it did not declare that Ms Hickey was one of its nine members during the time of its investigation and reporting. The report is available at this address- http://www.sec-com.govt.nz/publications/documents/report-of-enquiry-into-certain-arrangements-entered%20into-by%20bnz-march-1988.pdf

The Institute of Chartered Accountants of NZ has not seen fit to put this Hickey tribute on its web-site. Only its members are suitable for such brainwashing, it has decided.

Only a very few countries have so far seen fit to adopt the accounting standards propagated by the privately owned International Accounting Standards Board, and given its appointment of Director of Technical Activities it is easy to understand why. Ms Hickey has been influencing the countries accounting standards for way to long regardless of her credentials and this continuation must be brought to a halt.

Another matter of note is that the Auditor General has been auditing the granting of taxi driver licences, having regard for police records of applicants. No doubt the job has to be done but this work does not utilise the financial skills of the Auditor General. He seems to audit very little of anything financial these days, delegating most everything to the big accounting firms to play with. He does not seem to find any anomalies himself, and only gets involved at the request of the Government when something crops up. We also have the new phenomenon of investigation by parliamentary committee which tends to fudge things. With an election due its time to ask for more accountability in the accounting field.

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