Published 22 April 2012
The NZ Institute of Accountants’ disciplinary tribunal censured 2 Auckland members, Peter McNoe & Robert Innes-Jones, on 16 April for breaching the institute’s code of ethics in their audit work.
Both men had their certificate of public practice suspended for 2 years, can’t undertake audits of securities issuers for 5 years and were ordered to pay costs & expenses ($284,965 for Mr McNoe and $319,965 for Mr Innes-Jones). The tribunal findings are still in the appeal period.
Mr McNoe resigned in June 2011 as a director of accountancy firm BDO Auckland Ltd. Mr Innes-Jones resigned as a director of BDO Auckland and BDO NZ Ltd in April 2008.
Mr McNoe pleaded guilty to 5 charges and another was withdrawn. He signed an audit opinion on the financial statements of Capital + Merchant Finance Ltd for the March 2007 year which asserted that they complied with generally accepted accounting practice when they ought to have disclosed a series of points:
the put option held by Capital + Merchant Investments Ltd pursuant to a deed of covenant & subordination between Fortress Credit Corp (Australia) (II) Pty Ltd, Capital + Merchant Investments and Capital + Merchant Finance, and/orCapital + Merchant Group Ltd’s guarantee of the Fortress facility to Capital + Merchant Investments, and/orthe participatory interest in mortgage advances retained by Capital + Merchant Finance being subordinated to the Capital + Merchant Investments participatory interest, and/orthe existence or nature of the restriction on the advance to Numeria Leasing Ltd, and/orinformation from which it was possible to identify & evaluate exceptional risks of operating as a result of the transactions with Capital + Merchant Investments & Diversified Mortgage Trust, and/orthe impact of the transactions with Capital + Merchant Investments & Diversified Mortgage Trust on the financial report had it been prepared using NZ IFRS; and/orMr McNoe failed to consider & assess loan transaction documents which subordinated Capital + Merchant advances behind those of Capital + Merchant Investments & Diversified Mortgage Trust.
On the second charge, he failed to comply with auditing standards which require audits to be planned & performed with an attitude of professional scepticism, so did not adequately assess the $8.6 million carrying value of goodwill in the group financial statements, and the associated carrying value of the investment in Numeria Leasing of $8.3 million in the parent financial statements, arising from a related-party transaction the day before balance date, whereby Capital + Merchant bought Numeria Leasing – an entity with negative tangible assets – from a related party.
On the third & fourth charges, he failed to obtain or document sufficient appropriate audit evidence to support his conclusions that the loans from related parties were recoverable, and/or $180.2 million of mortgages & loans were recoverable.
The fifth charge related to the Beneficial Finance Ltd for the March 2008 year, and Mr McNoe’s failure to obtain sufficient appropriate audit evidence to support his conclusion that the industry-standard percentages applied in calculating the provision for bad & doubtful debts were appropriate & justified, and/or that bad-debt recoveries should be offset against the provision calculated in accordance with industry standards.
Mr Innes-Jones pleaded guilty to 3 charges and 3 other charges were withdrawn. He signed an audit opinion which asserted that Blue Chip Financial Solutions Ltd’s financial statements for the December 2006 year complied with generally accepted accounting practice, when they failed to correctly recognise a liability arising from Blue Chip’s exposure to rental guarantees provided to investors.
On the same audit, he didn’t qualify his opinion that there was a limitation on the scope of his examination because he’d failed to obtain sufficient appropriate audit evidence to support his conclusion that the $42.5 million of aggregated deposits paid on investment property were recoverable.
Mr Innes-Jones also breached standards in the Beneficial audit, failing to obtain sufficient appropriate audit evidence to support his conclusions that $2.89 million should be deducted from the provision for doubtful debts calculated in accordance with industry standards; and or the classification of past due loans was accurately reported by the client’s accounting systems, and/or the disclosures in note 17 of the financial statement of impaired &/or past due assets were materially correct.
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Attribution: Tribunal decision, story written by Bob Dey for the Bob Dey Property Report.