PREPARED BY

1. The New Zealand Institute of Chartered Accountants (‘NZICA’) welcomes the opportunity to comment on the proposed minimum standards of competence, knowledge and skills for authorised financial advisers. NZICA supports the formulation and promulgation of such a code.
2. NZICA has a century long history in regulating its members in the public interest to ensure the highest professional and ethical standards are met. Our standards, systems and processes for membership admission, ongoing professional development and, when necessary, discipline, are highly developed and effective. We provide an overview of our regulatory framework as background for the Code Committee (‘the
Committee’) (paragraphs 7–37).
3. NZICA believes that it is well placed to support and help achieve the policy goals of the proposed new financial advisers’ regime and the successful application of the Code.
NZICA welcomes the flexibility that is proposed by the new regime in the way that standards can be achieved and verified. We do however consider that further flexibility is needed to recognise the role that professional organisations play in training, assessment and quality assurance. In this regard, we see much potential for collaboration in this area.
4. NZICA recommends that:
•
given the high levels of equivalency and transferability, the Committee evaluate all NZICA membership designations (categories) for exemption relief purposes, and not just the CA designation — that is, Chartered Accountant (CA), Associate
Chartered Accountant (ACA) and Accounting Technician (AT). This will help eliminate unnecessary duplication and reduce compliance costs (paragraphs 45-
49).
•
Chartered Accountants holding Certificates of Public Practice (who face closer ongoing scrutiny by NZICA of their competence) should be considered for further exemption. They are specifically monitored against their compliance with the regulatory requirements and the Institute’s standards. Again, this will help eliminate unnecessary duplication and reduce compliance costs (paragraph 44).
•
the minimum standards of competence, knowledge and skills for foreign regulated advisers providing financial services to persons resident in New
Zealand should be the same, or reasonably equivalent, to the minimum standards that apply to New Zealand regulated advisers (paragraph 50).
•
the principle of continual flexibility be adopted whereby the Committee is able to review and amend its competency requirements if professional organisations demonstrate that their members are meeting the expected standards (paragraph
52).
•
the policy development timeline be extended so that stakeholders can more effectively and efficiently make the necessary institutional and system changes.
We note that the timeframe for good consultation with stakeholders has been inadequate (paragraphs 55-56).
•
guidance material on the definition and interpretation of the ‘necessary incident’ exemption (section 12(e) Financial Advisers Act) be provided by the Committee,
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as this exemption to the financial advisor regime is likely to cause a high level of uncertainty (paragraph 57).
5. NZICA has some concern that multiple organisations are going to be involved in the regulation process, and that this will potentially add unnecessary duplication, expense and delay. At the same time, NZICA is concerned that the ITP sector and ETITO will face a number of capability issues and struggle to secure suitably qualified trainers and assessors to ensure the provisions of the AFA services meets the demand in the short to medium term.
6. If you would like to discuss any aspect of this submission with NZICA, please contact, in the first instance, Julie Haggie – Senior Manager Specialisations (phone: 917 4861, and e-mail: julie.haggie@nzica.com
).
7. The Institute of Chartered Accountant’s members make up the majority of the accounting profession in New Zealand. NZICA has approximately 31,000 members of whom close to 6000 work overseas. NZICA’s members operate throughout the economy, participating in and advising all types of businesses, entities and individuals.
8. NZICA operates an active network of 18 branches, 15 in New Zealand and three overseas.
9. NZICA is an active member of the International Federation of Accountants (IFAC).
IFAC strives to serve the public interest through the development of standards in the areas of auditing, education, ethics, and public sector financial reporting; by advocating transparency and convergence in financial reporting; by providing best practice guidance for professional accountants employed in business; and by implementing a membership compliance program. 140 professional accountancy organisations are members of IFAC. NZICA is also an active member of the Global Accounting Alliance
(GAA). The Alliance facilitates co-operation between nine of the worlds leading professional accounting organisations, representing over 700,000 professional accountants. The Alliance works with national regulators, governments and stakeholders to promote quality accounting services, share information and collaborate on important international issues, including influencing the global regulatory environment.
10. NZICA prepares its submissions through a synthesis of member views, in house regulatory experience, research and contracted specialist advice. Member views are sought through a variety of means including an open invitation to the membership for comment on issues of interest, standing committees of volunteers, ad hoc committees and informal networks of members. NZICA’s submissions to government can be viewed at www.nzica.com
.
11. As well as preparing submissions to government on issues of importance to its members and the wider business community, NZICA:
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develops and promulgates ethical rules, professional standards and related guidance;
•
develops national financial reporting standards and contributes to the development of international financial reporting standards;
•
provides quality assurance services to members;
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•
promotes the ‘Chartered Accountant’, ‘Associate Chartered Accountant’ and
‘Accounting Technician’ brands;
•
provides strong input to the international accounting community, through IFAC and
GAA;
•
provides networking and career and practice development opportunities; and
•
provides professional education and information services to members.
12. NZICA is committed to promoting public policy that furthers the overall interests of New
Zealand. NZICA operates under a strong culture of putting public interest before member interest.
13. Broadly, NZICA regulates its members through:
•
Admissions requirements for each of the three designation — Chartered
Accountant (CA), Associate Chartered Accountant (ACA), Accounting Technician
(AT) covering three key elements: academic study, practical experience and professional competence. Additional quality assurance through a mentoring programme, assessment of training institutions and training organisations
•
required adherence to ethical and professional standards
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mandated ongoing professional development
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a requirement to hold a Certificate of Public Practice (for those members providing services to the public)
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a system of Practice Review to ensure compliance with standards
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a system of practice entity approval for members involved in public practice
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obligations to abide by professional standards
•
disciplinary procedures for reprehensible conduct and non-compliance with standards.
14. The Institute’s admissions process is geared towards producing high-calibre accounting professionals – Chartered Accountants, Associate Chartered Accountants or Accounting Technicians – who are able to add value for their employers and clients as a result of the knowledge, skills and values they have developed through a rigorous and world-class education and development programme.
15. To become a member of the Institute, a candidate must successfully complete the
Institute’s education programme, including programmes of academic study, practical experience and professional competence. NZICA has mandated entry standards for its three membership categories (designations) — CA, ACA and AT. Members in all three categories of membership have to meet the following requirements:
•
relevant technical content assessed at the minimum of a Level 5 Diploma level through to Level 7 NZQA and a four year university degree programme.
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Expectations of competence through academic study programmes are stated in
NZICA’s Statements of Learning Outcomes (SLOs).
successful completion of aspects of the Professional Competence Programme for all members (full completion for Chartered Accountants). The emphasis of this
Programme is the identification of the most relevant professional skills, at the level of competency required for entry into the membership category. The
Programme develops and assesses applicants’ competencies and attitudes, across various business contexts. It provides them with a sound professional foundation that will endure and can be built upon throughout their professional lives. [For Chartered Accountants this develops upon the technical knowledge gained from tertiary study and professional experience, building professional skills in communication, ethical behaviour, critical thinking, accessing, analysing and synthesising information, working effectively in a team and taking a leadership role, and in integrating knowledge across the accounting subdisciplines and a range of other business disciplines.]
16. NZICA annually reviews the academic schedules, and reviews the academic programmes (including consideration of staffing and resourcing) of Accredited Training
Institutions against its SLOs every five years (or less depending on need). Fourteen
Tertiary Institutions are accredited by the Institute for providing recognised academic programmes to meet the Institute's academic requirements.
17. NZICA approves employers as Approved Training Organisations (ATO) if they are capable of offering the type of work experience that fulfils the practical experience requirements for admission to the College of Chartered Accountants or College of
Associate Chartered Accountants. There are currently over 1000 ATOs. The ATO system ensures that practical experience is planned, supervised, relevant, and gained in a quality environment with high ethical and professional standards. The ATO's function is to provide an environment in which a trainee can develop the necessary skills and attributes to become a competent Chartered Accountant or Associate
Chartered Accountant.
18. The Institute has introduced a mentoring scheme to enhance the practical experience component of its admissions policy. Mentoring is designed to help trainees gain high quality, relevant practical experience, by working with experienced members of the accounting profession who are able to add value to the trainee during the period of practical experience by offering knowledge, wisdom and experience. Mentors are best placed to verify to the Institute that a trainee has gained practical experience suitable for admission.
19. NZICA, through its Professional Standards Board (PSB), develops ethical and professional standards that all members must comply with. These are based on internationally accepted best practice, and in some cases are more onerous than international requirements. They include NZICA’s Code of Ethics. NZICA’s ethical and professional standards can be viewed at: http://www.nzica.com/AM/Template.cfm?Section=Ethical_Professional_Standards .
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20. NZICA is committed to supporting members to maintain their competence and knowledge. Continuing professional development (CPD) helps members keep up to date, providing them with the valuable knowledge, skills and competitive advantage that is essential to succeed in today's business environment.
21. NZICA requires that members undertake a minimum annual level of CPD up to 20 hours depending on the member’s designation, comprising both structured and unstructured activities.
22. From July 2010 members will need to undertake a minimum of four hours of ethics training every five years.
23. Members are required to maintain detailed records of their CPD activities (and from 1
July 2010 be able to verify their attendance if requested). NZICA may require members to produce CPD logs at any time as an indicator that they have satisfied their ongoing membership requirements. NZICA conducts an annual audit of a percentage of members to check CPD compliance.
24. All members offering services to the public (including auditors) are required to hold a
Certificate of Public Practice (CPP). A member of the college of Chartered
Accountants who has been a CA for at least two years may apply for a CPP. Offering accounting services to the public includes preparation of financial information, assurance engagements, taxation and insolvency.
25. The requirements for obtaining a CPP include confirmation that the member has completed 2 years acceptable practical experience while they have been a CA and that this experience relates to the services intended to be provided to the public. The acceptable practical experience is verified by an approved CPP holder, including verification that the necessary skill has been demonstrated to an appropriate level.
This acceptable practical experience is in addition to, and at a level senior to, the experience required to gain membership to the College of Chartered Accountants. No member can be issued with a CPP unless they have first been a member of the CA
College.
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26. A member who successfully completes requirements for a CPP will then be subject to ongoing regulation, including a triennial review by the NZICA Practice Review Unit.
27. To ensure members are complying with professional, technical and ethical standards,
NZICA operates a system of practice review for members in public practice who offer accounting services to the public. Members are reviewed on a three yearly cycle, unless more frequent or immediate visits are warranted.
28. Reviewers assess compliance with auditing standards, financial reporting standards, appropriate legal frameworks and quality requirements, along with ethical matters – for
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This requires 4 years tertiary education, 1 year’s general practical experience, 2 years specified practical experience, completion of two professional competency examinations.
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example, independence. All reviewers receive appropriate initial and ongoing training and all practice review files are subject to peer review for accuracy and consistency.
29. Oversight of the practice review function is undertaken by the Practice Review Board
(PRB). This Board comprises a mix of members in public practice who understand public practice issues (and includes three members from the Big Four firms, two members from medium sized firms, and two members that are sole practitioners).
Members who have breached NZICA rules and ethics are referred to the PRB which may impose sanctions in accordance with NZICA’s rules.
30. Where a member is assessed as not achieving a satisfactory level of compliance with professional, ethical and technical standards, the member can be subjected to a further review; can be restricted from offering services unless further training is undertaken or a mentor is appointed; or can be referred to NZICA’s Professional
Conduct Committee (PCC) for disciplinary action.
31. NZICA recognises that the context in which a member practices can impact upon their independence and accountability. To ensure that member CPP holders are able to offer accounting services to the public to the standards that NZICA requires, NZICA operates an ‘Approved Practice Entity’ scheme. Chartered Accountancy firms seeking to offer accounting services to the public must seek permission from NZICA for approved entity status. To be an approved entity:
(a) Control at the ownership level must lie at all times with qualifying principals holding a CPP.
(b) Governance of the practice entity below the ownership level must be exercised at all times by qualifying principals holding a CPP
(c) Non-member principals of a practice entity must be approved by NZICA.
32. NZICA is required under its Act to have a Professional Conduct Committee (PCC), a
Disciplinary Tribunal and an Appeals Council. All complaints received against NZICA members are initially investigated by the PCC, unless they are frivolous, vexatious or of an insufficient nature. The PCC may refer a complaint to the Disciplinary Tribunal.
The PCC presents its case against the member concerned through its legal advisor.
Such cases are heard in public, unless the Disciplinary Tribunal orders otherwise.
33. A number of actions can be taken by the PCC in disciplining a member, including the imposition of fines, public censure, a ban on undertaking specific types of accountancy work and, ultimately, strike off (expelled from NZICA colleges). It is important to note that being struck off does not prevent that person from continuing to practice as an accountant. The person may continue to offering accounting services to the public in the unregulated sector of the accountancy profession. However, they will no longer be members of the NZICA nor be subject to its review and disciplinary procedures.
34. In recent years approximately 20% of complaints received by the Professional Conduct
Committee are a result of complaints lodged by NZICA’s Practice Review Board.
Approximately 40% of the referrals by the Professional Conduct Committee to the
Disciplinary Tribunal relate to Practice Review Board complaints.
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35. The Appeals Council may, following an appeal hearing, vary or reverse a decision of the Disciplinary Tribunal.
36. NZICA’s disciplinary and professional conduct system is regarded as highly effective.
A recent independent review of the system (initiated by NZICA) by David Goddard QC concluded:
‘The combination of highly effective systems and highly qualified and experienced participants delivers a professional conduct system that is at the upper end of the spectrum of effectiveness and efficiency when measured against other professional conduct systems with which I am familiar’.
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37. Recommendations made by the Goddard review for improvements to NZICA’s disciplinary and professional conduct system are currently being implemented.
2
David Goddard, NZICA Professional Conduct Review’, 22 August 2008, p. 21, paragraph 6.5
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38. NZICA supports the Committee’s proposal that persons who are not members of a professional organisation or who have not gained any relevant qualifications must complete all of the minimum standards. These people potentially pose the greatest risk to the public.
39. NZICA considers that there is insufficient recognition of the role that professional organisations, and NZICA in particular, play in quality assurance, training and assessment. NZICA can verify its claims of the quality and integrity of its members because: a. it has rules, policies and procedures to restrict entry to those who do not meet its standards b. it has rules, policies and procedures to sanction/remove those who do not meet it standards; and c. it has policies and structures to build and improve the quality of applicants’ and member’s competencies and knowledge.
40. The Code Committee has asked if the proposed minimum standards for competence, knowledge and skills are appropriate and what they should be. For members offering accounting services to the public, NZICA places higher competency expectations - via its academic requirements (degree level minimum), professional competency requirements, professional standards, review and disciplinary processes - than that proposed by the Code Committee for financial advisers offering financial advisory services. NZICA does not allow members other than Chartered Accountants holding a Certificate of Public Practice to offer accounting services to the public.
41. The proposals in the consultation paper are therefore incompatible with NZICA’s current policy on members providing accounting services to the public.
42. NZICA acknowledges the concerns of some that setting a higher standard may result in an undersupply as people opt out of offering financial advisory services.
Nevertheless, the implication that ‘no financial advice is worse than poor financial advice’ does not sit well with the Institute.
43. NZICA is pleased to see recognition by the Committee that Chartered Accountants are likely to exhibit competencies, or can demonstrate close equivalence/transferability of competencies in some of the standard sets. This will eliminate unnecessary duplication, reduce compliance costs and provide relief for many of our members.
44. NZICA submits that the Committee consider the CPP category, for additional exemption. This group of members faces most scrutiny of its competencies by NZICA, and are already required to comply with, and reviewed against NZICA professional standards including Professional Standard 1 (PS1) on Quality Control, Professional
Standard 2 (PS2) on Client Monies, and the Financial Advisory Engagement Standard.
45. Two of NZICA’s membership designations (ACA and AT) have not been considered by the Committee for any exemption relief purposes. NZICA strongly recommends on grounds of reasonableness and fairness that the Committee evaluate all three membership designations (categories).
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46. NZICA’s lowest academic entry requirement, for the Accounting Technician (AT) membership, sits at Level 5-6 of the NZQA framework. In addition all members have to show evidence of specified practical experience working under a mentor and professional competence through the Foundations Programme.
47. NZICA has yet to decide whether members of colleges other than the CA (CPP) should be providing financial advisory services to the public. Putting that aside, according to the competencies set out in the consultation document, members of all three NZICA colleges have sufficient transferable knowledge and skills to be entitled to
(varying levels of) exemption.
48. To assist the Committee, NZICA has mapped the unit standards against its preadmission academic requirements and its competency and professional programmes course content. This mapping is attached for your reference (Appendix 1).
49. Based on this mapping exercise, Table 1 sets out NZICA’s recommendations for further exemption relief for NZICA members across all membership designations.
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Table 1
NZICA
Membership designation
Code Committee
Proposals
To complete:
Standard Sets B & D and unit standards
25650, 25651, 25652
To be exempted:
- Standard Set A (3 unit standards)
- One unit standard in
C (25653)
To complete:
Standard Sets B & D and unit standards
25650, 25651, 25652
To be exempted:
No exemptions proposed
NZICA recommendations
To complete:
- Standard Sets B & D
To be exempted:
- Standard Set A
- All of Standard Set C
To complete:
- Standard Sets B & D
To be exempted:
- Standard Set A (3 unit standards)
- One unit standard in
Standard Set C
(25653)
To complete:
National Certificate in
Financial Services
To be exempted:
- Standard Set A
- All of Standard Set C
To complete:
- Standard Sets B & D
To be exempted:
- Standard Set A
- All of Standard Set C
NZICA Reasoning
CPP holders face a much closer level of scrutiny of their competencies through NZICA’s triennial practice review process. Within this process they are assessed against their compliance with
NZICA’s Professional Standards, three of which are particularly relevant: PS1 (Quality Control),
PS2 (Client Monies) and the Financial Advisory
Engagement Standard.
CPP holders will also have to complete the
Foundations programme (or equivalent) which teaches and assesses knowledge of professional standards and ethical behaviour and requirements of legislation.
NZICA proposes a training and assessment process which will ensure that CA members have gained competency to the level of the Code
Committee requirements and the Financial
Advisory Engagement Standard.
Provisional CAs also complete the NZICA
Foundations Programme which teaches and assesses knowledge of professional standards and ethical behaviour and requirements of legislation.
NZICA proposes a training and assessment process which will ensure that ACA members have gained competency to the level of the Code
Committee requirements and the Financial
Advisory Engagement Standard. Provisional
ACAs must also complete the Foundations
Programme. This teaches and assesses knowledge of professional standards and ethical behaviour and requirements of legislation.
To complete:
National Certificate in
Financial Services
To complete:
Standard Sets A
(except for 25642), B,
C (except for Unit
25653) and D.
To be exempted:
No exemptions proposed
To be exempted:
Unit Standard 25642
(from standard Set A) and Unit standard
25653 (from Standard
Set C)
The Diploma in Business includes more than one comparable and transferable element in its core component in relation to economic theory and markets which would justify exemption from
25642.
In addition AT all members of NZICA must study and pass the Foundations Course prior to admission which teaches and assesses knowledge of professional standards and ethical behaviour and requirements of legislation (25653)
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50. In regard to question eight of the consultation document, the minimum standards of competence, knowledge and skills for foreign regulated advisers providing financial services to persons resident in New Zealand should be the same, or reasonably equivalent, to the minimum standards that apply to New Zealand regulated advisers.
Lower standards for foreign-regulated adviser could encourage rorting of the system and expose the public to unnecessary risk.
51. NZICA is currently examining how best to support its members to achieve and maintain their competency as registered and authorised financial advisers. This will necessarily have an impact on NZICA’s policies, rules, resource investment, support mechanisms and professional development.
52. NZICA strongly recommends the Committee adopt the principle of continual flexibility.
We believe the Committee should be able to review and amend its competency requirements if professional organisations are able to implement training and assessment schemes that can assure the Commission that their members are meeting the expected competencies.
53. Importantly, accreditation and monitoring processes built around competency expectations need to be proportionate to the actual level of competency required to manage risk to the public, and should meet principles such as ease of access, costeffectiveness and flexibility.
54. NZICA has some concern that multiple organisations are going to be involved in the regulation process, and that this will potentially add unnecessary duplication, expense and delay. At the same time, NZICA is concerned that the ITP sector and ETITO will face a number of capability issues and struggle to secure suitably qualified trainers and assessors to ensure that the provision of AFA services meets the demand in the short to medium term.
55. The timeframe for consultation on the draft competencies has been short, and while the extension is appreciated, it still gives less time than NZICA would prefer to be able to comprehensively consider the implications of the proposed standard for its members and to fully consult with affected, interested and informed parties. This is unsatisfactory.
56. NZICA wishes to ensure that its members are best supported to demonstrate their competencies and continue to meet market demand for financial advisory services without unnecessary disruption. While NZICA will attempt to move swiftly to achieve positive outcomes for both its members and the public, there is a need to consider the implications for its professional development and member services programmes for
2010-12, and also advise members of what they will need to be doing in 2010 to comply with the new framework. NZICA therefore recommends that the Code
Committee consider extending the policy development process in order that stakeholders can better make the necessary institutional and system changes. This we
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believe will lead to improved compliance with the proposed new regime, and at least cost.
57. One of the main issues that NZICA has to consider is the general ‘necessary incident’ exemption applying to Chartered Accountants (section 12(e), Financial Advisers Act).
As definitions of what comprises financial advice are developed and refined, one consequence is that activities that NZICA believed would be encompassed within the necessary incident exclusion may be considered as providing financial advice and therefore requiring registration/authorisation. NZICA is concerned that, with this inherent uncertainty, many members may choose not to seek financial adviser status and will therefore refrain from providing advice that they are quite competent to provide. This situation would reduce public access to financial advice and
(unnecessarily in many instances) increase the cost of the advice that they receive.
The provision of guidance material from the regulator on this matter will help reduce such uncertainty in the interpretation of necessary incident.
58. We have referred in our submission to a number of documents and programmes for which we can provide copies or more information should you wish. The documents or information about the programmes are available on NZICA’s website:
•
Professional Standard 1 (PS1) – Quality Control
•
Professional Standard 2 (PS2) – Client Monies
•
Financial Advisory Engagement Standard (FAES)
•
Code of Ethics
•
Statements of Learning Outcomes (SLOs) for the academic requirements for admission to the College of Chartered Accountants
•
Statements of Learning Outcomes (SLOs) for the academic requirements for admission to the Associate College of Chartered Accountants
•
Accounting Technician Requirements
•
Foundations Programme
•
Professional Competency Programme
•
Admissions Programmes for AT, ACA and CA
•
List of Accredited Tertiary Institutions
•
Information on Approved Training Organisations
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