Well the Securities Commission has reported on the Feltex Fiasco. A one page report compared to a 379 page one for the 1988 BNZ arrangements. The result is just the same. Nobody intentionally did any wrong in both cases according to them. The only difference is that the Commission doesn't tell a thing about what is going on these days. It is obvious that the vendors of Feltex just set the projected 2005 income to what they thought would yield the most subscription revenue. They "decided" that they should realistically achieve a 1% increase in market share for the year because that gave the projected income that they wanted. The "auditors", Ernst and Young said they could not express an opinion as to whether the projected profit would be achieved because "actual results are likely to be different from the [forecast and] projected financial information since anticipated events frequently do not occur as expected and the variation could be material"(2nd last para of their report). Who on earth doesn't know that. Why did E&Y not say that the vendors had complete freedom to set the projections and assumptions to whatever they thought the public would believe, and were unlikely to suffer any adverse consequences if they were wildly wrong, so the projected profit should be ignored? But E&Y like to go exactly by the book to retain the big accounts and could not care a stuff about the many modest investors that they were reporting to. It is the auditor's function to see that as few people as possible are mislead.
Mr MacDonald seems most determined to emphasise the export drop to push his cause which seems mainly to involve less welfare without any stated limit. He would seem to wish to have NZ's poor as destitute as those in the USA such as those who got washed out of the Mississippi delta flood plain and no-one wanted to assist. Every last dollar to his overseas principals seems to be his motto, as long as he is not doing too badly himself and one suspects he will see that his apparent Press Council mates are looked after.
As the Dominion Post claimed, Mr MacDonald appears not to have any qualms about the Dominion Post's statement in support of his views that "the countries exports per capita are almost half that of Australia and 2 1/2 times less than that of the United States". He had not advised the newspaper of the "error" according to it. If Mr MacDonald and his staff had been away and not seen the article on the day one would think that he would state this when the matter came to his attention as it has done. But apparently he has not done so. Either he thinks the ""error"" was a windfall in support of his argument which he is entitled to, or he has been a party to the "error" all along. Traditionally when such people make speeches they also write a newspaper report of it that a paper can just drop into an edition if so inclined.
The major newspaper groups which finance and probably choose the Press Council members also determinedly will not say anything against the Ernst and Young auditors. These so-called accountants gave an unqualified audit report for the 1990 Bank of New Zealand annual accounts knowing full well that the $100m profit did not exist and resulted from long discredited and outlawed practices. There have been many opportunities for the press to spell out this evil but not a squeak comes from them.
The reaction of Mr Easton parallels in a modest way that of Professor Don Trow when he went on television on 23 May 1993 to say, probably for the first time by almost anybody, that the NZ Accounting Profession was in a terrible state because it has virtually no rules. The pronouncement came following the release of the report on certain Bank of New Zealand arrangements which included the accuracy of the Banks 1990 profit. It was a way of convincing the public that bold deceit by big business was not involved, they were just doing their best not having any rules to go by was the argument. Unlike the USA the New Zealand Society of Accountants couched its standards in terms of principles that had to be complied with rather than rules. There followed a decade in which the merits of rules based verses principle based standards were debated, eventually coming out firmly on the side of standards which of stated principles. In the meantime the Society had become defunct and the Institute had formed which was not prepared to consider any wrongdoing in the days of the Society. Many leading firms and accountants were implicated in the BNZ matter and without support from the news-media and politicians, who had been bought, no-one was ousted from profession for these misdeeds or even looked like being so.
The principles violated in the 1990 BNZ accounts were very clear. It had been well established that income from long term bonds, especially low and zero coupon bonds, had to be allocated by the Yield to Maturity method. The Ernst and Young auditors were well aware of this and also well aware that the Bank had effective ownership of two huge parcels of zero coupon bonds, and they studied the banks 1990 treatment of them both, saw that the YTM method was not applied and took no action. The other principle was substance over form. One cannot get out of requirements for zero coupon bonds by naming them as something else and giving then a nominal appearance of something else. That is common sense that the public is well aware of but these people claim to be experts and say it isn't necessary so.
And so the rot continues with the accounting profession allowing the country to be milked of funds by overseas faster than it can produce.
As well as Mr MacDonalds campaign we have this group called the New Zealand Institute. It has put out a report wanting the country to develop structures in terms of outward foreign investment and base management of large multinational companies which is typical of the rich countries of the world. The naive idea floated (the people who floated it are not na´ve, probably just unscrupulous) is that if we develop the structures of these countries we will in time be rich like them, although little could be further from the truth. These structures are symptoms of being rich and not the cause. There has got to be some stable and rather unique and patented attractant on which such investment and large companies are based, and no amount of investing and forming large companies will establish such an attractant. We have one large company in Fonterra, but that does not count in this (NZ) Institute's books because it is not listed and the hence the members cannot use their expertise to drain or milk it by subterfuge. That could be changing though with a special Fonterra float. We have seen Air New Zealand, The Warehouse and Telecom burned by the billions as we pursue this stupid policy of trying to establish foreign investment and large companies. This New Zealand Institute members no doubt have associate parties on the other side of the ditch which are lapping up the funds. Why Mr Tindall who has copped so much remains a member of it is a mystery. The NZI report gives no attention at all to financial corruption. Among its 32 person membership is one Jonathon Ross of the law firm Bell Gully. This firm is listed as the sole legal advisors to the offer of fully paid shares in Feltex Ltd dated 5 May 2004. Their website claims that independent assessors rank Mr Ross as a world expert in securatisation. As such he no doubt advised the promoters of the Feltex Carpets offer that its "realistic" projection of EBITA profit for the 2005 year of $43,258,000 was legally rigorous.
The NZ Institute membership includes two officials of Deutsche Bank and two of Microsoft Corporation. They might have NZ connections but no doubt are obliged to act in the interests of their organisations which will be basically to coax the NZ public into emptying their pockets and handing all over to those organisations.
Some of the Feltex victims appear fighting fit and may be about to take action against the promoters of the offer they subscribed to. But they need to involve the wider community and not leave it to the courts. Elizabeth Hickey was a member of the Securities Commission in 1993 when that commission found that she had made mistakes and misjudgements in allowing the BNZ to overstate its profit by over $50m without audit qualification, and yet the commission found no improper conduct on her part. How many mistakes and misjudgements would be necessary before the Commission might have started to suspect that they were deliberate?, one wonders. It is no doubt hard to voice such suspicions when the suspect is sitting at the table. David Jackson was probably a partner of Ernst and Young in 2004 when the firm audited the May 2004 prospectus of the Feltex Carpets offer and is a current member of the Securities Commission. He may have done that auditing as far as the public knows. This needs to be rectified immediately.
The Dominion Post has tackled the Feltex IPO on 19 August. It pointed out that it was the Mums and Dads that got burned by this one. The message that because the money went to vendors who were exiting, and not to any extent into the company coffers, investors should have known to give it a miss. This is what the experts did. It pointed out that the ACC had taken a 3%+ shareholding though, something that we had not caught up on. The implication was that this was consistent with the experts not investing, but we believe that there is more to it than that. It seems like the Credit Suisse has some sort of hold over ACC such that the Corpoation is obliged to have a piece of whatever junk the broker might be putting up. National mail shares are the other known case.
The Dominion Post is taking the view it is not practical to fairly assess the value of a company which is being floated. We say nonsense. It does not mention the auditors. What it thinks the auditors are there for is anyone's guess. Just to gain a nice fee perhaps. The Feltex situation is rather like house renovators who buy a house, straighten it out a put it back on the market. The assumption is that the house is fully fit to live in. If that turns out not to be the case it can be established by investigation whether the work was substandard or there has been misrepresentation of its condition and the owner can claim. But with companies and investments the investigators are far too reluctant to act. Their obligation to do so has got to be brought home to them.
We don't intend to become a Dominion Post reviewer but the next article that day takes the cake. We have nothing against fantasy but that should be in the Indulgence section or wherever. This piece was written by a Victoria University professor. It was about his assigning an annual economic growth per capita ranking and a macro-economic ranking to the tenure period of each and every New Zealand prime minister. For what purpose? A time graph showed very high macro-economic instability during periods of world war, world depression, oil shocks etc and the analysis seemed to assume that the prime minister of the day was accountable for them. Or perhaps this was their valid excuse with respect to their growth record, it didn't seem to say. No consideration seemed to given to time lags between policy changes and outcomes. Michael Savage got the best rating on growth, Jenny Shipley had the most stable conditions for her year or so and the incumbent PM did not too badly on 4th and 6th. A good bit of propaganda for the Labour party but what is an economist wrapped up in that nonsense for. He did not even explain his criteria.