Changes made to proposed regulations for auditors

The new regulatory regime for auditors is a step closer after Parliament's commerce committee reported back on the Auditor Regulation and External Reporting Bill.

The bill establishes a new licensing regime for major audits, such as the audits of banks, insurance companies, and companies listed on the stock exchange. It will not impact on audits of small and medium-size companies and non-profit entities.

The bill strengthens auditor regulation by consolidating all accounting and auditing standards-setting into a reconstituted Accounting Standards Review Board, to be called the External Reporting Board (XRB).

It also requires the Institute of Chartered Accountants (NZICA) to license auditors and the Financial Markets Authority to oversee the NZICA and be responsible for quality reviews.

“This bill is an integral part of the government’s reform programme to restore investor confidence in our financial markets and to strengthen investor protection,” Commerce Minister Simon Power said.

“I welcome the committee’s recommendation that auditing firms be registered, because it recognises that audit quality is not just about an individual auditor’s skills, knowledge, and experience but is also about their firm’s systems and processes.”

To date, chartered accountants holding a certificate of public practice have been able to carry out audits as long as they believe they are competent to do so and no audit-related restrictions have been placed on them.

“The registrar of companies identified that audit failure was a contributing factor in the collapse of finance companies, so it’s important we introduce independent oversight.”

The committee has also recommended removing a clause from the bill that would have made it an offence for auditors to not comply with auditing standards.

“I agree that this provision is not needed, because the Crimes Act applies to serious offending such as fraud and deception.

“Once the bill is enacted, New Zealand will have an effective auditor oversight regime that is consistent with international standards.”

Subject to the legislation being enacted, the XRB will begin operating on July 1, while the auditor regulation provisions will come into force once the NZICA and the FMA have established new regulatory systems.