FMA says ANZ NZ should have disclosed the sale of an Auckland house to the wife of its former CEO David Hisco as a related party transaction, questions role of auditor KPMG

FMA says ANZ NZ should have disclosed the sale of an Auckland house to the wife of its former CEO David Hisco as a related party transaction, questions role of auditor KPMG
David Hisco by Jacky Carpenter.

The Financial Markets Authority (FMA) says the sale of an Auckland house to the wife of its ex-CEO David Hisco should have been disclosed as a related party transaction by ANZ New Zealand in its 2017 financial statements.

The FMA says it's continuing to engage with ANZ and will require the bank to issue a corrective statement on its 2017 financial statements. Additionally the FMA says it's talking to the NZ Institute of Chartered Accountants about it considering whether to assess auditor KPMG's procedures "in determining the disclosures in the audited 2017 financial statements."

For its part ANZ says no specific related party disclosure was made in its audited 2017 financial statements, as the $6.9 million property sale by an ANZ controlled company to "a related party of ANZ New Zealand's Chief Executive Officer at that time" was not considered by ANZ or KPMG to be material to an understanding of ANZ’s financial performance and financial position.

"ANZ disagrees with the FMA’s finding as it considers the transaction not to be material information on the basis that this disclosure could not influence the economic decisions of the users of financial statements," the bank says.

"ANZ New Zealand and its Board takes financial reporting obligations very seriously and acknowledge that the FMA has reached a different conclusion to that reached by ANZ New Zealand and its external auditor as to the disclosure of the transaction." 

"ANZ New Zealand welcomes this opportunity to gain further clarity on the FMA's expectations regarding the disclosure of related party transactions, and as a result of this matter will consider the impact on its internal financial reporting processes and continue to enhance those processes, where necessary," ANZ says.

KPMG declined to comment.

On June 17 ANZ announced Hisco was leaving the bank, allegedly by mutual agreement, after his expensing to the bank of chauffeur driven cars for personal use and wine storage dating back nine years had come to light. 

Subsequently a series of stories by journalist Kate MacNamara for Stuff detailed Hisco's broader expenses over his tenure, details of the house purchase by Hisco's wife from ANZ, with the house apparently having a maintenance bill of more than $100,000 a year, topped off by suggestions ANZ staff tried to blow the whistle on Hisco's expenses as long ago as 2014.

Since Hisco's departure Antonia Watson, ANZ's managing director for retail and business banking, has stepped in as acting CEO. At a press conference announcing Hisco's departure ANZ chairman John Key endorsed Watson as Hisco's permanent successor. However Watson was a director of Arawata Assets, the ANZ controlled company that sold the house to Hisco's wife at the time of sale, which may dent her prospects.

FMA decides against going to court

In comments attributed to its CEO Rob Everett, the FMA told interest.co.nz the regulator had decided not to take ANZ to court.

“We consider that ANZ has breached its financial reporting obligations, contained within the Financial Markets Conduct Act. ANZ disputes this so this matter would need to be tested in the court. We did require ANZ to make a corrective statement, which they have now done. Given the nature of the alleged breach is already in the public domain, we don’t consider pursuing court action to be a proportionate response or use of public money. Accordingly, we will not be pursuing any court action," Everett said.

Here's the FMA's full statement.

The FMA said today it has completed its inquiry into disclosure by ANZ of the sale of the property at 269 St Heliers Bay Road by Arawata Assets Limited to Deborah Veronica Walsh (the wife of former CEO, David Hisco) and has determined that ANZ New Zealand Group should have disclosed this as a related party transaction in its 2017 financial statements.

The FMA determination is primarily based on the nature of the transaction which, in our view, makes this disclosure material for the financial reporting purposes.

ANZ disagrees with the FMA’s finding as it considers the transaction not to be material information on the basis that this disclosure could not influence the economic decisions of the users of financial statements.

In terms of the valuations, the FMA has not assessed the appropriateness of the sale price as this is the matter for other agencies to consider.

The FMA has informed the Reserve Bank of New Zealand of its determination, reflecting the RBNZ’s role in banking supervision, and as part of the joint focus on conduct and culture. The Australian Securities and Investments Commission (ASIC), as the primary regulator of ANZ’s parent company, has also been informed.

The FMA has engaged with NZICA as the front line regulator for auditors, for it to consider whether to assess the auditor’s procedures in determining the disclosures in the audited 2017 financial statements.

The FMA is continuing to engage with ANZ and will require it to issue a corrective statement relating to the 2017 financial statements. The FMA expects ANZ to review its internal financial reporting in light of this issue.

And here's ANZ's statement.

In 2017, the ANZ New Zealand group entered into an agreement to dispose of a residential property to a related party of ANZ New Zealand's Chief Executive Officer at that time. The sale price of $6.9m was determined following a process to ascertain the value of the property with reference to external, independent valuations.

The application of the accounting standards on related party disclosures requires judgements to be made on what information is quantitatively or qualitatively material to be included in the financial statements, including consideration of whether disclosure of a transaction could influence economic decisions that relevant users make on the basis of the financial statements.

No specific related party disclosure was made in ANZ New Zealand's audited 2017 financial statements, as the sale of the property was not considered by ANZ New Zealand and its external auditor to be material to an understanding of ANZ New Zealand’s financial performance and financial position.

Based on its enquiry into this specific matter, the FMA has informed ANZ New Zealand that it takes the view that the related party transaction was material for financial reporting purposes, and therefore it should have been disclosed in ANZ New Zealand’s financial statements for the year ended 30 September 2017. The FMA and ANZ have agreed that ANZ will issue this statement to help clarify the position.

ANZ disagrees with the FMA’s finding as it considers the transaction not to be material information on the basis that this disclosure could not influence the economic decisions of the users of financial statements.

ANZ New Zealand and its Board takes financial reporting obligations very seriously and acknowledge that the FMA has reached a different conclusion to that reached by ANZ New Zealand and its external auditor as to the disclosure of the transaction. 

ANZ New Zealand welcomes this opportunity to gain further clarity on the FMA's expectations regarding the disclosure of related party transactions, and as a result of this matter will consider the impact on its internal financial reporting processes and continue to enhance those processes, where necessary.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I own a lot of shares in the ANZ. I don’t mind them ripping off the public but I not happy when they ripping off the share holders. NIMBY please

28
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Am I missing something here? No one cares whether some esoteric reporting rule was breached regarding materiality. What really matter is that it has been established ANZ sold an asset $4m below fair value to its then CEO and no tax was paid on this benefit. This is a matter for Te Tari Taake, $1.33m in unpaid tax + interest + penalty's. Let's call it $2m for him and then sue ANZ for tax evasion. What do the FMA actually do all day?

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Hmmm, wonder how many average benefit frauds that $1.33 million is equivalent to.

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Now that its been determined as material, it means the Serious Fraud Office can have a look.

Tax evasion was more than enough to get going without this

Exactly! So where are all the big sharp government incisors, IRD,SFO,SC, et al, that would get a grip on the neck of the like of you and I and shake us to death for a slip on a tax return? This is a calculated, conceited and cynical rorting of the system by fat cats with Maserati lawyers.

It is reminiscent in fact of the sad case of Sth Canterbury Finance whereby a hotel in Auckland somehow ended up being owned by the brother in law of the Timaru lawyer on the board!

FMA are not unlike all government agencies; stacked with yes minister personel, that take ownership of nothing.

This is a festering sore that is not going away any time soon, with Sam Stubbs on the case. Politicians will eventually have to deal with this, as it moves closer to election time; and so the bloody should.

Keys association with Hisco and his private beach house sale implicates him in all this, and I'd bet my house he knew about the dodgy sale. Its quite handy he reinstated Dames & Knights (for himself); especially when we all know they are get out of jail free cards.

oh yeah .. what a lovely system we have!!!

mr key, how many houses have you sold to your wife???

18
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The high altitude hierarchy, the exclusive inner circle , of our business and government leaders behave as if they are gods on Mt Olympus. We the public are just mortals, plebs & disposables to do their bidding and provide their privileges. Different rules for different players. It sucks!

15
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Or rather: "Mr Key, tell us more about the flag referendum!"
Gotta put the really important topics in the spotlight after all.

11
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.. a flag depicting a steaming hot latte and the outline of a young lady's pony tails.... hmmm ... I like it !

Rip a few brass plaques of a grave or two, and sell them to stem the urges that go with drug addiction - get caught, and go to prison for 2 years.
Rip off innumerable customers and shareholders for the untold amounts and - get your entitlement paid in full and have a good rest of your life.
There's something wrong with The System, as we all know....

"The FMA said it had not assessed the appropriateness of the sale price.

In a statement, ANZ said the sale price to Walsh was determined following a process to ascertain the value of the property with reference to external, independent valuations."

Who was the valuer please an can we have a copy?

May be the same valuers who value houses higher for customers to get higher amount of loan from the bank ?

The mortgage broker's brother.

"ANZ disagrees with the FMA’s finding as it considers the transaction not to be material information on the basis that this disclosure could not influence the economic decisions of the users of financial statements," the bank says..hmmm leaving out a related party "dodgey sale" would not affect economic decisions? I am now wondering what else they left out?

That is lawyer talk, obviously. Gobbledygook if you like. If it is the Auckland firm of lawyers I believe it is, then that is par for the course.

Who cares whether they disagree. Friggin well suck it up. Not a good look going on the defensive like that.

..when did we last hear of an auditor actually finding something? I wish when they came to our outfit they would put up a site where staff could anonymously feed in - nahhh can't do that, might hear something!!

Is this the start of the exposing of bank auditors and RBNZ for omissions in auditing/regulating ?
In this case, the Auditors should have been also held responsible for the financial aspects of the transaction, i.e selling under fair value, resulting in a considerable financial advantage to an executive, at the cost of shareholders and customers.
Hope the trend continues.

ANZ Chairman... nothing to see here, move along (smiling)

Bet ASIC will take earlier/better action on this than our own RBNZ.
Hope the KPMG auditors were given good parties in the 'House' as thanksgiving ?
David 'Fiasco' must be having the last laugh.
Key must be livid now and may resign soon ?

The FMA don't have the staff or Board to take on ANZ.

From what I've heard about ANZ as an organisation, it has excessive processes and bureaucracy to the point where it's like the film Brazil. I suppose all sorts of things get lost in the noise. ANZ just seems to have been coasting along on its market share, especially since the National Bank purchase.....now all the chickens are coming home to roost. Good luck with your BS11 changes ANZ, as you're going to need a LOT of luck from what I also hear.

If it is material in the eyes of the FMA, then it should be very material in the eyes of the IRD.
What is the bet that the IRD will ignore it. Decent fair rules do not apply to the super rich in this country. Aided and accepted by this Labour government.

Aided and accepted by this Labour government? Just Labour or are you saying National (Jonkey) are above board here?

Off course National would promote enriching the super wealthy. That is their principal objective. One just doesn't expect that from Labour, or am I just hopelessly naive?

lock him up

lock him up !!!lock him up !!!lock him up !!!lock him up !!!lock him up !!!lock him up !!!lock him up !!!lock him up !!!lock him up !!!lock him up !!!

And her

11
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I think we finally found a cause to unite the entire Interest community.

It would be nice if the whole country is united on this...

"The FMA says..." The FMA says a lot of things, a lot of the time it's nonsense and thankfully doesn't get acted upon. It's going to take someone with deep pockets to take the FMA to court for the FMA to have it's wings clipped. We saw something similar with ASIC in Australia recently.
I know for a lot of people, myself included, $1m it's a lot of money but for ANZ it's insignificant. If people are alleging fraud or tax evasion then file a complaint with the SFO and/or IRD.

I gather from your comments you dont think this is tax evasion?

haw haw .....

As a beane when you work with large numbers that leave out the zeros, a $4 doesn't look as bad as $4,000,000. Auditors use the doctrine of materiality and of course whether they will be used again if they do find something. Same with the rating agencies always looking at materiality and lining their pockets. Should be hauled over the coals for gross use of shareholders money...........By the way while I'm hear whats happened with the splitting up of the $100,000 donation of the Botany electorate money.

Of course ANZ sees nothing wrong with what they did. Most thieves in the financial systems let themselves do it because they believe -if I am doing it, it's ok. The word entitled comes to mind.
Also. It's time the IRD got their eyes off their fancy new screens and started to beat the feet. Like go doorknock ANZ and the Hiscos and just ask the first tricky question, which will inevitably lead to several tricky questions and then...........!!#**#!