NZICA 'reactive' to FMA compliance, 'aggressive' in marketing, court hears

Monday 13th July 2015

The New Zealand Institute of Chartered Accountants was "reactive" and less engaged than its newt rival, CPA Australia, in the process of ensuring it met new legislative requirements for auditors, former Financial Markets Authority chief executive Sean Hughes told the Wellington High Court in the defamation case brought against NZICA by CPA Australia.

NZICA was exempt from gaining formal approvals from the FMA under the Auditors Regulation Act 2011, but the FMA encouraged NZICA to make a "shadow application" to ensure it was compliant, said Hughes, who gave evidence before Justice Robert Dobson, via video-link from Sydney as a witness for CPA Australia.

The FMA saw that as creating a useful benchmark, he said. In response, NZICA sought a copy of the documentation underpinning CPA Australia's already granted application. Initially refused by the FMA on confidentiality grounds, NZICA then applied for the document under the Official Information Act and obtained it.

“CPA had a more positive and openly engaged approach to the FMA” during the application process, Hughes said. In contrast, NZICA’s shadow application was “reactive”.

“This is supported by the fact it made a request for CPA’s application," said Hughes.

The court also heard about NZICA's "Project Ambush" from its then director of marketing, Ian McDougall, under cross-examination by CPA Australia’s legal counsel, Alan Galbraith QC. McDougall was responsible for the project, which ran the marketing campaign espousing the benefits of NZICA's standing, in part by criticising CPA Australia's relative standing.

"The nature of the market was intensively competitive and both parties were entitled to be aggressive in the way they approached their marketing," McDougall said.

NZICA had effectively held a statutory monopoly in New Zealand until 2012 when the newly established FMA accredited CPA Australia for auditing work, under the incoming act, putting it on a more equal footing with NZICA. CPA Australia claims NZICA defamed it and breached the Fair Trading Act in statements in flyers, advertisements and in speeches given by Patterson at industry events, which included comparisons and misrepresentations of issues such as potential earnings, numbers of accountants, global reach and educational standards.

CPA Australia is seeking a declaration of defamation and $50,000 for breaches to the Fair Trading Act.

Hughes denied NZICA claims in earlier testimony that FMA had “hastily” accredited CPA Australia, saying the accounting body was encouraged to apply early and that he had no records of NZICA formally expressing concerns to the FMA over the accreditation of its rival. He understood at the time there had been comments by NZICA about CPA Australia’s accreditation, but considered they were “competitive opinions.”

Hughes also contested NZICA chief executive Kristen Patterson's testimony that NZICA was concerned the FMA, then recently created, was under-resourced and under-staffed, since NZICA would have been aware the FMA had seconded professionals who were also members of NZICA to ensure resources were adequate.

NZICA’s legal counsel, Bruce Gray, asked Hughes whether there was any basis on which FMA could monitor CPA Australia, given CPA hadn't licensed any auditors in the period. Hughes said the FMA’s intention in the first period after CPA Australia gained accreditation was oversight of the body’s framework and it was able to do this, even if it hadn’t licensed any auditors or audit bodies.

The court also heard from Stephen Harrison, chief executive of the Global Accounting Alliance, to which NZICA belongs and which it argues makes it the more prestigious accounting body because CPA Australia is not a member.

Harrison said CPA Australia has never applied to join the GAA and couldn’t, as NZICA already represented New Zealand’s membership.

The trial is continuing.

BusinessDesk.co.nz

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