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A few months back we reported that David Jackson, then an audit partner of Ernst and Young, appeared to be in the queue to eventually serve a year as president of the Institute of Chartered Accountants of New Zealand. We claimed that given the firm Mr Jackson was associated with this progressive promotion should not happen and set ourselves a goal of bringing it to a halt. However in the past few months Mr Jackson would seem to have reinvented himself. He has apparently severed his partnership ties with E&Y , set himself up as a sole public practitioner, and gained himself a place as a member of the NZ Securities Commission. This now puts us in the situation of having to face the question "can a tiger really lose its spots".

We do not know how long Mr Jackson has been with E&Y but given the grey patches on his beard it has possibly been quite a quite a while, and dating back to 1990 when E&Y were supposed to have put together their infamous Bank of New Zealand annual accounts audit work papers, or 1993 when they were obliged to present and explain these papers.

Especially if that is the case it is likely that Mr Jackson has been subject to Fagan like lessons in his more formative years and perhaps now cannot escape from them. Based upon those work papers and the background to them, one can envisage instruction along these lines:

" Watch, David, while we show you how to throw an unqualified audit report. Those Fay Richwhite chaps are looking set to dominate every boardroom in the country. We have got to show them that we make very satisfactory auditors, or we are finished. Its a matter of acting dumb here, feigning an "unfortunate" mistake there, going halfway towards rejecting a scam here, and inventing stories which might seem plausible to the rather uninitiated to create a series of items to offset the rejected bit. Are you getting the picture? We have got lots of things going for us. Our access to litigation capital keeps critics at bay. And if any investigating authority comes along we are sure to have a partner hidden inside it somewhere to help steer things. You should soon get over the conscience thing. Would you like to help us dream up an explanation David? Perhaps we could see a need for a change in an accounting policy. That sometimes incidentally results in certain ongoing expenses not being charged against revenue for the year. Here is a great accounting principle that you might not have learned getting your M.Com - there's safety in numbers......."

Well perhaps there would not be any words like that, but all the same sorts of thing would be said by way of insinuation.

We conclude that it has taken Mr Jackson far to long to wake up to the den he found himself in, and now that he has left the partnership he does not appear to have spoken out against it. Possibly his break away is just a facade and he still represents the interests of the big partnership. He is not suitable material for the boards of either the Securities Commission or any credible organisation of accountants.

We would like to explore further the matter of New Zealand adopting the accounting principles of International Accounting Standards Board touched upon last month. This board might sound very official and widely representative but one must not jump to such conclusion. The possibility is that it is all an elaborate plot to keep Elizabeth Hickey effectively in charge of what standards NZ has which seems to have been going on since her BNZ audit day or days.

The decision to switch to IASB standards was based upon a report by Keitha Dunstan of a swept up Victoria University of Wellington research entity. Ms Dunstan is a member of the Securities Commission and was probably on it along with Elizabeth Hickey when the report was written in 2002. The report says that the IASB has 14 members from nine different countries. It said the board was independent but did not go into who the members were to try and prove that. It said that Australia and the European Union were about to adopt the standards in their entirety. Well Australia made it, perhaps to lead NZ in, but Europe seems to have got lost along the way. Seems rather like a phony suicide pact where someone says "we are all jumping, why don't yous two go first?".

To be fair, the IASB does not allow debt defeasance, the gimmick used by Transpower to keep half a billion of both assets and liability off the tabulated portion of its Statement of Financial Position. But one can't help feeling that Ms Hickey could be about to change this so it and perhaps other little gems will remain available to exploiters.

While browsing over the Securities Commission site we come across a recent speech by Cathy Quinn a Commission member. It covers the familiar theme of all the big corporate scandals happening in the US and the Commission working to stop it happening in NZ by way of a framework and active encouragement of good governance based on nine principles they have picked out. Some mention of them perhaps having teeth but not too much. We hope the legal teachers who copped it have survived OK. Boredom can have lasting effects. Despite references to the importance of independence and auditors these tools appear to have been downgraded somewhat by the Commission's promotion of Audit Committees of corporate boards. These committees seem to be allowed to effectively appoint the auditors (that used to be the shareholder's job) and to monitor where the external auditor is applying his/her/its attention. If by asking or observing the auditor it can be established that a certain ledger is going to be left alone then perhaps that is the one to charge the private luxury yacht up to. One wonders whether the commission is really getting a grip on the issues.

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