Peter Martin Economics: Lib costings debacle

Thursday, December 01, 2011

Lib costings debacle - "auditors" fined

Amateur hour all round.

The two Perth accountants who costed the Coalition’s 2010 election policies breached professional standards and will be fined, a disciplinary tribunal has ruled.

The ruling is an embarrassment to the Coalition which claimed during the campaign the costing was “as good as you could get anywhere in the country, including in Treasury." In recent months it has threatened to use private accountants once again.

Geoffrey Phillip Kid and Cyrus Patell, both of the Perth office of WHK Horwath produced a one-page report for the Coalition two days before the election which Shadow Treasurer Joe Hockey tendered as an audit, saying the pair had certified “in law that our numbers are accurate".

“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,” he told ABC radio. “I tell you it is audited. This is an audited statement.’’

In fact the document was the result of a carefully-worded agreement between the accountants and the Coalition to produce work primarily "not of an audit nature".

An audit would examine the assumptions used by the Coalition and whether they were reasonable.

Kidd and Patell’s unpublished agreement with the Coalition explicity required them to make no inquires about “the reasonableness of otherwise of the assumptions used"...

A professional conduct tribunal established by the Institute of Chartered Accountants ruled in July that Kidd and Patel were liable to face disciplinary action because their one-page report failed to contain “a statement that the procedures performed do not constitute either an audit or a review” and so failed to properly describe the limited nature of the agreed upon procedures.

Kidd and Patel appealed. The November judgement upholds the original finding stating that in view of the nature of the assignment and public interest in the matter Kidd and Patell had “a professional obligation to understand” the type of service they were providing and to comply with the applicable standards.

The initial decision that they be “severely reprimanded” was downgraded on appeal to “reprimanded”. Each will be fined $5000 and will will have to make a contribution toward the cost of the hearing and the appeal.

Treasurer Wayne Swan said yesterday the judgement was “the final nail in the coffin for the Liberals’ economic credibility”.

“It has been laid to rest at the bottom of a $70 billion budget crater. It shows exactly why Mr Hockey is so desperate to avoid independent, professional scrutiny of his budget debacle by the Treasury and now by the newly legislated Parliamentary Budget Office,” he said.

Contacted by The Age last night Mr Hockey said it was a matter between the Institute and the two accountants.

Asked whether he had been wise to refer to their work as an audit he said: “I’m not getting into it mate”.

A Treasury examination of the Coalition’s 2010 costings found errors including double counting and questionable assumptions amounting to $11 billion.

Mr Hockey said he would use the new $25 million Parliamentary Budget Office for costing his policies up until the campaign began. “After that we are looking at a range of options,” he told The Age.

“It might not be a private accounting firm, it might be a panel of eminent Australians.”

Sydney University accountancy professor Bob Walker whose complaint sparked the investigation said he was disappointed in the judgement which did not directly address the “overriding responsibility of members of the accounting profession to act in the public interest”.

Published in today's Age

The letter:

Coaltiion Costings Document August 18 2010