Accountants put forward corporate transparency paper
The Institute of Chartered Accountants has released a discussion paper aimed at finding ways to ensure the United States' corporate scandals are not repeated here.
The document on corporate transparency outlines several options, including increasing penalties for misreporting, disclosing senior executive remuneration, and establishing an independent supervisory board to monitor compliance.
It also rejects the idea of banning accountancy firms from providing consultancy services to audit clients.
However, the green paper suggests restricting the non-audit services that firms can provide to audit clients -- and also the amount of audit work a firm can do for a client.
Securities law specialist Frank Chan, of Hesketh Henry, said the proposals potentially went further than the so-called Sarbanes-Oxley legislation enacted in the US after the big financial scandals involving the likes of Enron and WorldCom.
He said the document did much more than gloss over the issues.
On the topic of non-audit services, he wondered whether the profession would be prepared to "cut off a limb" to restore confidence.
"The proposals, if accepted, will likely see the restructuring of accounting firms as we know them. Some have already begun."
A ban on accountancy firms providing management consultancy services to audit clients has been much-discussed since the Enron scandal.
Some think it would discourage auditors from being overly dependent on key clients and producing "management friendly" audits.
The accountants' institute disagrees. In the green paper it sa id it had not found proof in international studies of audits harmed by conflicts of interest.
Submissions on the discussion paper are sought by October 16 with a final document to go to the Minister of Commerce before the end of the year.
"I would encourage all those with an interest in good corporate governance, the provision of quality information to users, and the efficient functioning of New Zealand capital markets to read the document and make a submission on it," institute president Ralph Marshall said.
Although the paper was prompted by overseas financial scandals , Mr Marshall stressed New Zealand was a completely different market.
"Our boards are more independent, we do not have corporates of the same size and complexity, we do not use share options to the same extent, and our financial reporting standards are principle rather than rules based.
"But we cannot afford to be complacent and the Institute has therefore grasped the opportunity to take the debate forward. "
He added that the solutions must offer justifiable benefits because of the costs that will ultimately fall on businesses, shareholders and taxpayers.
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