There’s also the future of two Perth-based accountants, the reputation of the Institute of Chartered Accountants, the public position of at least one high-profile academic institution, and the future of the entire auditing industry and the consultants who hang off it lending the name of auditors to unaudited and unverified political documents.
Let’s go back 10 days or so before the election when Opposition Leader Tony Abbott started hinting he might not submit his policies for costing by Treasury and Finance in accordance with the Charter of Budget Honesty but might instead have them ‘‘independently and authoritatively costed by a third party’’.
We now know the third party was the Perth office of a chain of independently owned accounting firms that had been quietly working with the Coalition since mid-June, back when Kevin Rudd was prime minister.
WHK Horwath specialises in small and mid-size companies— in the words on its website, those ‘‘on a path of growth’’. As far as is known, it had no experience of modelling economy-wide tax and spending changes, the sort of work done with distinction by Australia’s Treasury and several private firms comprised of former Treasury staff in Canberra.
What it was asked to do was murky at the time and has become more murky since...
Shadow treasurer Joe Hockey believed he had had an audit. ‘‘ We have the fifth-biggest accounting firm in Australia auditing our books and certifying in law that our numbers are accurate,’’ he told ABC TV the morning after the numbers were released. ‘‘ They have certified our numbers, based on all the information we have provided them. They have legal obligations and legal risks.’’
On ABC radio he added: ‘‘ You know what? If the fifth-biggest accounting firm in Australia signs off on our numbers, it is a brave person to start saying there are accounting tricks. I tell you, it is audited. This is an audited statement.’’
That night, opposition finance spokesman Andrew Robb drew the Perth office of WHK Horwath even more tightly in the world of legal responsibility, saying its work was better than Treasury’s because, ‘‘if they make a mistake with the auditing of accounts for companies or prospectuses or mislead, they are at risk of being punished and going to jail, not Treasury’’.
But on the face of it, there seemed to be a difference between what the opposition claimed it was getting and what it actually got. Geoff Kidd and Cyrus Patell had signed a onepage letter merely saying that they had reviewed the Coalition’s costing estimates and that ‘‘based on the assumptions provided’’, they were satisfied they had been accurately prepared and could be funded from the 2010-11 budget.
In other words, it appears that the principals added up the figures rather than checked their accuracy. And there the matter might have rested.
But in an interview with The Age the day after his one-page letter was released, Kidd seemed to add to the ambiguity by passing up the opportunity to confirm whether the work was or was not an audit as Hockey said.
‘‘I’m not responsible for what Mr Hockey says, our report stands alone,’’ was the closest Kidd came to suggesting that his paymaster had been stretching the truth.
After a complaint from Sydney University accountancy professor Bob Walker, the Institute of Chartered Accountants began an investigation.
Its code of ethics requires members to ‘‘make clients, employers or other users of their services aware of limitations inherent in the services’’.
The standard on the compilation of financial reports suggests the inclusion of an explicit statement in reports that ‘‘no audit or review has been performed and accordingly no assurance is expressed’’. WHK Howarth has declined to comment in relation to the investigation.
After the election, Robb drew the firm in tighter, telling the ABC it had ‘‘looked at the veracity of our assumptions’’.
Now that Treasury and Finance are also looking at the veracity of the assumptions (as part of the deal with the independents), the firm looks to have been unwittingly exposed to analysis not contemplated when it took on the assignment.
The plan was that no one outside of WHK Horwath and the Coalition would see the assumptions.
Which is odd when you think about it, because if the Treasury couldn’t see the assumptions and the electorate couldn’t see the assumptions, how could the first be expected to form a view as to whether it could implement the policies and how could the second forma view on whether it should vote for them?
None of this was meant to matter. After the election the policies and the assumptions behind the costings were to be old news, shredded if the Coalition lost, and superseded by events (most probably the discovery of a ‘‘black hole’’) if the Coalition won.
The University of Canberra is exposed to scrutiny as well. Its National Centre for Economic Modelling apparently also modelled some of the more tricky Coalition costings, or at least that’s what Robb says. The centre itself has provided no details and released no documents, not even a Horwath-style one-page letter. Like Horwath, it has allowed its name and reputation to be used by the Coalition without releasing work that would make it accountable.
Published in today's Age
UPDATE: "We never spoke to the Coalition" - NATSEM
Statement from the Institute of Chartered Accountants in Australia
26 August 2010
The Institute of Chartered Accountants in Australia (the Institute) has received a complaint about a matter that involves publicly raised allegations regarding the conduct of two members with accountancy firm, WHK Horwath, Perth.
The Institute has commenced an investigation which involves an opportunity for the members to respond to the allegations.
Professional Conduct Process
As a professional organisation, membership of the Institute is based on meeting the highest standards of professional conduct and performance. The Institute treats matters that bring the profession into disrepute very seriously.
Issues arising from members’ conduct are investigated under the Institute’s By-laws and relevant cases are referred to the Professional Conduct Tribunal for determination.
Based on legal advice, specific commentary cannot be provided while matters are considered for investigation or for the duration of any subsequent Tribunal hearings. All information relating to complaints lodged with the Institute and produced during the investigation process is confidential.
To ensure the privilege of professional membership is upheld the Professional Conduct Tribunal has the power to impose sanctions on individual members who act inappropriately.
The ultimate sanction that can be imposed is exclusion from membership and withdrawal of the right to use the Chartered Accountants designation. Other sanctions include suspension, reprimand, fines or the requirement to undertake additional professional training.
For further information about the Institute's disciplinary process please visit http://www.charteredaccountants.com.au/A116936841
Auditing Standard 804
Section .02: In an engagement to audit prospective financial information, the auditor should obtain sufficient appropriate audit evidence as to whether:
. management's best-estimate assumptions on which the prospective financial information is based are reasonable for the preparation of the prospective financial information;
. the prospective financial information is properly prepared on the basis of the assumptions;
. the prospective financial information is properly presented and all material assumptions are adequately disclosed, including a clear indication as to whether they are best-estimate assumptions or hypothetical assumptions; and
. the prospective financial information is prepared on a consistent basis with historical financial reports, using appropriate accounting principles.
APES 110 Code of Ethics for Professional Accountants
Section 130.6: Where appropriate, a Member should make Clients, employers or other users of their services aware of limitations inherent in the services to avoid the misinterpretation of an expression of opinion as an assertion of fact.
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