Tuesday 26th March 2013
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Diligent Board Member Services faces breaching listing rules after the stock exchange regulator refused an application to waive its use of an American auditor without a local licence.
NZX Regulation declined a waiver from listing rules that would let Diligent off the hook for not using an auditor with a local licence, according to a decision published on the stock exchange yesterday. Diligent replaced its chief financial officer and general counsel last week over compliance missteps.
The software maker fell afoul of legislation because Holtz Rubenstein Reminick LLP, which has audited Diligent's accounts since 2008, was not licenced in New Zealand and couldn't be registered because of its limited liability partnership status. It unsuccessfully sought an exemption from the Financial Markets Authority, though the market watchdog was willing to issue a 'no action' letter if the statements were audited by the US firm.
Diligent's inability to comply with the rules was because it overlooked Financial Reporting Act requirements, and "could have been avoided if DIL had had adequate processes in place to identify changes in New Zealand legislation that would affect its compliance obligation," NZXR said.
The New York-based firm warned it was "virtually impossible" for it to comply with listing rules for the 2012 financial statements if a waiver wasn't granted.
"It is simply impracticable to seek to appoint a new auditor that meets the technical requirements of the ARA (Auditor Regulations Act 2011) and have DIL's financial statements completed within the timeframe required by the US regulatory authorities and NZX," the decision said.
Diligent said its shareholders shouldn't bear the brunt of extra costs from appointing a new auditor, and will be harmed if the financial statements have to be delayed.
The government introduced tougher auditing requirements from July last year, having worked with industry since the collapse of Enron in 2001 sparked the dissolution of Arthur Anderson and raised concerns about the oversight of auditing processes.
The new rules got a hurry-up from the collapse of New Zealand's non-bank finance sector, where second-tier auditors were ticked off for lacking the rigour and skill to review those firms.
Diligent's auditor oversight is another embarrassment for the firm after it found it had inadvertently issued executives more options than they were entitled to, tarnishing an otherwise strong operational year.
The company's board found those missteps didn't need the financial statements to be restated.
Diligent's shares slipped 0.2 percent to $6.30 yesterday, and have gained 15 percent this year. It shrugged off a 'please explain' from the stock exchange earlier this month after the share price climbed by more than a quarter in a week on volumes that were ten times the norm.
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