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Unauditable election returns

  • October 23rd, 2008

 Yesterday the NZ Institute of Chartered Accountants circulated a warning to its members to steer clear of the statutorily required filing of election returns of expenses required under the Electoral Finance Act.

I can’t think of any such blunt warning from any professional body in New Zealand in my working lifetime. Here it is:

"…. only those members experienced in audit work should contemplate accepting such appointments and all relevant auditing standards should be applied, as appropriate.  Irrespective of the competence issue, there is a further issue to consider if you are approached to accept appointment.  As noted below, it is highly likely that the result of the “audit” will be a disclaimer of opinion.  In this situation a member must consider how appropriate it is, applying the Fundamental Principles in the Code of Ethics, to accept an appointment to “audit” subject matter information that is inherently unauditable.  Indeed AS-702 states that when the proposed terms of an audit engagement include a limitation on the scope of the auditor’s work such that the auditor believes the need to express a disclaimer exists, the auditor should normally not accept such a limited engagement, unless required to do so by statute.
There will be some members who are already auditors of electoral parties or ‘third parties’ (eg certain trade unions) and so will not have the option of declining the engagements under the Electoral Finance Act.  Of immediate concern is the audit report required on election expenses.  The return is due to be filed with the Electoral Commission within 50 working days after the declaration of the outcome of the election.  In it, the auditor is required to:
§         State the position shown by the return in respect of the requirement that the party’s total election expenses not exceed the relevant maximum amount specified in the Act; and
§         State whether, in the auditor’s opinion the position stated is correct; OR state that the auditor has been unable to form an opinion as to whether the position is correct.
We believe that auditors will have little choice but to state that they have been unable to form the required opinion (ie disclaim any opinion) for the following reasons:
§         There is currently significant uncertainty surrounding what constitutes an election advertisement. 
§         The risk surrounding completeness.  It is difficult to envisage any situation where the auditor would be able to perform audit procedures to give assurance that all expenses have been recorded in the returns – how to establish how many advertisements exist and then how to conclude that all expenses associated with each advertisement are included (particularly where some materials or space has been provided at no charge).
§         Difficulties in establishing the commercial value of materials or advertising space provided free of charge.
§         Difficulties in the apportionment of election expenses of election activity between individual candidates and the party as a whole.
§         It is possible that public funds may have been used for electioneering (as the Auditor-General determined to have happened after the 2005 general election).  No auditor reporting under the Electoral Financing Act will be able to obtain assurance that public funds have not been used in advertisements intended to persuade a voter to favour a candidate or party in an election unless they audit the Parliamentary Services.
We note that a disclaimer will most likely be the appropriate form of opinion even in situations where the party or third party involved has implemented strict controls and done everything possible to ensure that the return is as accurate as possible.
Clearly this is an unfortunate situation and could have negative connotations.  Those reading the report may misinterpret the opinion (or lack of an opinion).  This is of particular concern given the highly politically sensitive nature of the information contained in the returns and the possibility of high media attention.  The Institute has formally raised this with the Electoral Commission and are attempting to meet with the Chief Executive to discuss this further with her."


It is a disgrace to New Zealand democracy, that our audit standards body is saying that an election law is so defective that a prudent auditor should refuse to get into the position where they might have to give an opinion on how it is applied.

What a hurdle the law is to challengers to the political establishment wanting to make sure they do not render themselves liable to huge fines or imprisonment. Even if they could afford professional advice, the professionals are saying many of the questions are inherently unknowable. Establishment insiders of course have party structures and systems to form a consensus on what risks are being run.

Every party and every candidate must find some poor sod to give that sign-off opinion if they are to participate in our democracy. Belatedly the accountants are saying – find someone silly, but not us.


  • peterquixote
  • October 23rd, 2008
  • 6:39 pm

thanks Stephen for your post,.
why don’t you people just hire PQ to get rid of helengrand.

  • Tauhei Notts
  • October 24th, 2008
  • 11:04 am

What becomes interesting here is that an auditor under Electoral law must have the same qualifications as an auditor under the Securities Act. So no longer will some retired beancounter be able to audit some mate who stood for parliament. The auditor must have a certificate of public practice, and not be practising in the manner of a corporate entity. Look in the yellow pages and notice how almost all chartered accountants practise as a limited liability company. The number of auditors available to the pollies, outside of the huge fee gouging multi nationals, will be minuscule.

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