Power speeds up accounting, auditing standards legislation for new monitor

Monday 22nd March 2010

Commerce Minister Simon Power has announced he will fast-track legislation to bring in a new monitor for accounting and auditing standards.

Following on from Cabinet papers last year, Power said he will speed up the process to consolidate responsibilities for setting accounting and auditing standards within a new agency called the External Reporting Board. The new entity will replace the Accounting Standards Review Board next year, and will take on the statutory responsibilities from the New Zealand Institute of Chartered Accountants, he said.

“The split of functions between the ASRB and the institute makes coordinated service delivery more complicated,” Power said in a statement. “There is also an international consensus that standards-setting should be seen to be independent of the interests of the profession.”

The NZICA has been working with the government to develop a new auditing regime since 2001, when the collapse of Enron resulted in the dissolution of accounting firm Arthur Andersen and sparked concerns about the oversight of auditing processes.

This has been back in the spotlight in recent weeks with Ernst & Young under scrutiny over its role in Lehman Brothers after a report into the lender’s collapse claimed the auditor ignored warnings about unorthodox accounting practices.

NZICA chief executive Terry McLaughlin said the change will bring New Zealand into line with “international best practice” as the current arrangements were not sustainable in the long-term.

“NZICA will produce good practice guidelines for the many smaller entities that will no longer need to follow the financial reporting standards to assist them to provide useful financial reports,” McLaughlin said in a statement.

The NZICA will continue to regulate auditors as a specialist profession rather than as chartered accountants, and the new entity will monitor and report on how the institute does so.

Last year, Power cited a damning report by Companies’ Registrar Neville Harris into the failure of the finance sector as one reason why tougher regulation was needed, and he has been already beefed up requirements for trustees and financial service providers as the industry brings in professional requirements.

The new auditing regime is expected to cost about $400,000 to set up, with annual ongoing costs of some $700,000 per year, according to the cabinet paper, though the Ministry of Economic Development and Accounting Standards Review Boards discussion documents on accounting standards did not put a cost on that side of the equation.

The legislation is expected to be passed later this year, and will be enacted in 2011.

Businesswire.co.nz

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