Call for standards director

Press, 24 September 1988, Page 40

Call for standards director

PA Wellington An authority able to direct companies to upgrade the quality of their financial statements would help restore confidence lost in the sharemarket since the crash, accounting Professor Don Trow, of Victoria University, said. Addressing the Listed Companies Association on how to attract investors back to the market, Professor Trow advocated establishment of a Financial Reporting Review Authority with power to investigate all accounting practices leading to qualified audit reports or any other unusual practice. The authority, comprising three respected accountants, would then be able to refer statements back to the companies concerned for amendment or re-issue, he said. Company directors knew there was now no “stick” to back up accounting standards, as was the case in other coun-

tries where regulatory bodies were able to reject accounts. The Society of Accountants did not have sufficient authority. Professor Trow was particularly concerned with New Zealand companies issuing their accounts with a qualified auditors’ report and then defending their actions in public. Directors would be less inclined to present substandard accounts in the first instance knowing they would be reviewed, while the authority would also provide help to auditors with particular problems. “Many auditors are in horrific situations with company directors debating the (accounts) presentation should be this or that,” Professor Trow said. This was difficult for auditors who also wanted to retain the company as a client, he added. Events since the crash had highlighted the im-

portance of accounting and proper financial analysis, with many investors more aware of the quality of earnings and the ability of a company to sustain those earnings. But more needed to be done to effectively control creative accounting, a few cases of which had brought New Zealand accounting into disrepute overseas, Professor Trow said. He had found a wariness from Australian analysts towards any accounts prepared in New Zealand. “This is most unfortunate because New Zealand accounting does not deserve an image that is less satisfactory than that found in Australia or Britian.” The responsibility for ensuring accounts gave a true and fair view of company performance lay with directors and their attitudes had to change for investor confidence to be restored, Professor Trow said.

He called on companies to support more the Society of Accountants’ standards board. Areas where improvements could be made included segment reporting and the provision of targets for the year ahead as the state-owned enterprises are required to. “I don’t see any reason why this form of accounting should not apply to organisations in the private . sector,” Professor Trow said. ,He contended many factors should indicate an improvement in company profitability and in share prices. These included the lower corporate tax rate, dividend imputation, falling inflation and interet rates and a weakening exchange rate. But, Professor Trow said, many former investors and those outside New Zealand were “genuinely frightened” to return to the sharemarket here.