Wake-up call for NZ in Enron audit scandal

By IRENE CHAPPLE

Fallout from the Enron and Arthur Andersen scandal in the United States could shake up accounting practices in New Zealand.

The country's corporate watchdog, the Securities Commission, says it is keeping a close eye on events overseas.

A senior partner in Andersen's Houston office was fired this week after destroying documents related to an audit of the energy giant.

More heads are on the block as an investigation into the world's largest corporate collapse continues.

At issue is the clout of large corporate clients over accounting firms, and the separation of auditing and consulting functions.

Securities Commission chairwoman Jane Diplock said there was a solid case for international accounting standards to be clearer.

A company which used the same accountancy firm to do its auditing and consulting work should give "complete disclosure" to its investors.

"The accountancy firms would strenuously argue that they could separate such issues with Chinese walls," said Ms Diplock.

"But it is not a closed-book debate. The issue is a live one."

It had been highlighted by high-profile corporate collapses such as HIH Insurance in Australia and by the Enron scandal.

Ms Diplock said the commission was following the Enron investigation closely and would watch "how it all shakes out in court".

If changes were made through the International Accounting Standards Board, New Zealand would need to comply.

"There has clearly got to be international cooperation, as many of the accountancy firms are international, as are their clients."

The commission was also keeping tabs on Australia, where the Government was considering a report on auditing practice by Professor Ian Ramsay of Melbourne University who recommended strengthening auditors' independence.

Ms Diplock said New Zealand law should be consistent with Australia's, but "we won't be leading the way with legislation". Any change would take time, although it was impossible to say how long.

Commerce Minister Paul Swain agreed that legislation was not a top priority.

But conflict of interest in accountancy practice was an issue, he said, and the Government was monitoring international discussion.

The president of the Institute of Chartered Accountants, Ralph Marshall, said institute members would not face conflict-of-interest issues when taking on consulting work provided they complied with the institute's code of ethics.

He said large accounting firms also had their own internal processes to ensure independence was maintained.

The issue, he said, was the size of fees received from any one client.

"A firm should not rely on one big client. It must be in a position where it can walk away from a job if it feels that to take it would compromise its independence."

No client should bring in more than 5 per cent of a firm's fee base.

Peer reviews of accountants holding public practice certificates are held every five years.

Last year, 50 accountants were revisited after some parts of their practice were found faulty.

The institute received 164 complaints against members and four accountants were struck off for fraud.

The institute was not aware of any being struck off for conflict-of- interest issues.