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October 2005 Edition ---- to page back through Previous Editions click here

High-flyers. We note that the Institute of Chartered Accountants of New Zealand has launched a new web site for aspiring accountants called High Flyers. Wow, how exciting!. It is an ICANZ initiative but we can't resist the temptation to gate crash these high flyer celebrations and tell the story as we know it of some truly high flying NZ accountants, everyone a heavyweight. We have chosen for your ecstatic enjoyment, accounts of the lofty exploits of: wait for it: tra la la: Jeff Chapman, Elizabeth Hickey, Craig Norgate, and Allan Hawkins.

Jeff Chapman Mr Chapman by his efforts rose to be NZ's Auditor General, probably the country's top full time accounting position. He was relatively long serving in that position and while holding it at least twice became President of the New Zealand Society of Accountants for a one year term. This allowed him to be a real jet-setter and attend accounting conventions around the world. Long flights tend to go higher. Mr Chapman frequently got advances of funds to finance the travel, high flying or otherwise, from whoever he was representing. The general idea with such advances is that one keeps evidence of the expenses one is entitled to and then pays the rest back after the journey. Probably because of activities closely related to high flying which add to the glamour of it, Mr Chapman eventually found that he could not manage the repayments. For a while he might have had the exhilaration of flying by the seat of his pants. Then came the nose dive. The Court of Appeal said 18 months. Then the ICANZ claimed $8,700 for their parallel proceedings. Not a very friendly gesture from the high-flyers admiration club. They tend to forget themselves sometimes. But for the high flyer the guess is that it is just a case of : pick oneself up, dust oneself off, and start all over again. This story no doubt will whet the appetite of career seekers who no doubt will be making a beeline to the high-flyer site. But wait, there is more incentive to come.

Elizabeth Hickey Ms Hickey got a good education and became a partner of the accounting firm Ernst and Young where by 1990 she had become Senior Technical Partner. A good steady climb no doubt but it was from here that her career was about to take off. On or about May she took off to Wellington, her firm having decided to "utilise" her in that year's Bank of New Zealand audit and in particular the Bank's insurance policy scam which partners would have known about for the previous 2 years. The Bank was varying the income allocation from two large parcels of zero coupon bonds, one of which was this so-called insurance, to report a profit of $100m when th actual profit was close to zero. As a result the BNZ shares were overpriced for some time and so buyers of the shares were virtually stolen from. Ms Hickey was well aware that the Yield to Maturity method was standard method for allocating income from such bonds. She might have taken her car but we suspect that she flew high over Mt Taranaki for her rendezvous with the BNZ audit notes. Her authoritive note for each of the bond parcels will go down as all time classics and should soon be required to be learned by rote by all accounting students.

"Because the bad debt provision against which the insurance claims are being netted will not accrue further interest over the period until the claims are paid, I have accepted an accounting treatment that does not involve recognition of interest on the deferred settlement of the insurance claims."(hence a $28m overstatement)

and

Because the interest rate is a floating one based on LIBOR, it is not possible to calculate the reduction in the perpetual capital notes on a yield to maturity basis. Accordingly the Banks adopted straight line method is accepted. (hence a $22m overstatement)

Following these pronouncements, devoid of any concern with the effect on the reported profit, Ms Hickey was soon to chair the Financial Reporting Standards Board for a lengthy term. In June 1992 she became a member of the NZ Securities Commission before it produced its major report on the 1990 BNZ reported profit in May 1993. She held that position for 11 years. She represented New Zealand at G4+1 accounting standards conferences around the world including Queenstown until the grouping was abandoned. She also served on the boards of several state corporations. Few accountants have flown higher. At the heigh she is flying it is hard to get shot down, but perhaps not impossible as Garry Powers found. After a time at the helm of the Accounting Standards Review Board (a board set up in response to the 1990 BNZ reported profit) Ms Hickey took off to London to become Director of Technical Activities at the International Accounting Standards Board to whom New Zealand delegated care of its accounting standards at about the same time. The life of this high flyer sure is breathtaking.

Craig Norgate Mr Norgate was brought up in the dairy industry, and about 1994 became Young Accountant of the Year, primarily it is said for his part in the takeover of Moa-nui milk company by Kiwi Co-operative Daries, the major Taranaki dairy company of which he had become the CEO. This was exceptional high flying. And he has gone a very long way onward and upward from there. About 1996 a Kiwi takeover (officially merger) of Tui Milk Products of the Manawatu and Wairarapa areas was mooted. The press sensed fireworks, probably based upon Mr Norgate's earlier operations and by and large that is what they got. In the takeover stakes if you can claim to have a better payout you get more farmer suppliers, hence better plant utilisation and the claim is verified, if at a later date. Also with a higher payout you can charge milk suppliers in the company being taken over a "retention" levy on their payout and use this retention to boost the reported payout to be in a stronger position for the next merger. High flying accountants tend to be propaganda experts rather than elucidators of financial information. No-one would like it any other way would they? A required 75% of Tui shareholders first failed to approve a merger on the terms offered but Mr Norgate and his team got another vote scheduled and commissioned a report from Ernst and Young on relevant financial considerations to help the shareholders reconsider. Mr Norgate is said to have done a degree of editing of this report. The report employed present value analysis to come up with a difference between merge and non-merge models of "89cents per kg milksolids for the years 1996 to 2015". The report assumed dairy farmer speak for its definition of a kg of milk solids. It is not just one kilogram of milk with liquid taken out of it. It is one such kilogram supplied each and every year indefinitely (in this case the calculations went to 2015), ie a new kilogram every year. Not all dairy farmers and their advisors will use or recognise dairy farmer speak, and if they thought that there was a possibility of getting an extra 89cents for each and every kg mass of milksolids they no doubt would play it safe by voting for the merger. On top of this an E&Y strategic calculation mistake meant that this margin was about 25% overstated. Even the High Court appeared to be fooled over this use of language. In paragraph 226 of its judgement in HedleyvKiwi dated 21 Dec 2001 it referred to 90cents per kilogram of milk as a benefit of the merger to Tui shareholders. And the possibility of Tui increasing its payout by quitting its domestic milk market operations seemed not to be mentioned in the E&Y report. At that time Mr Norgate was alert to rationalisation of the domestic milk market, and had made arrangements with Mainland Products in anticipation of the Tui merger. His relationship with the then owners of Mainland continue in his current association with the fast growing (by merger) Wrightson farm servicing company of which he is deputy chairman. Mr Norgate's interest in domestic milk operation seemed to diminish from then on however because he did not seem to have a handle on the domestic operations of South Pacific Distributors which bought some 7,000 tonnes of product from Kiwi Dairies from 1997 to 2001. It turned out that this company was a sham enabling Kiwi to export product without required Dairy Board approval. The incident was dubbed powdergate and it happened right under Mr Norgate's nose. If it was gunpowder which had ignited Mr Norgate might have been a much higher flyer still. Mr Norgate flew on to serve a term as CEO of the country's largest company, Fonterra, which would have enabled him to amass some capital for his new role. It would seem that this CEO term was a way of avoiding fireworks at the merger which created Fonterra and there was no natural successor to Mr Norgate when he departed. What a flyer!

Allan Hawkins Mr Hawkins is a great high flyer accountant which he demonstrated in the 1980s with the success of the Equiticorp financial services empire which he founded and chaired. It was one of the country's largest investment companies (so high a flyer was he) that in the Government's asset sale program it was earmarked to purchase the company New Zealand Steel. The sale finally took place the day of a major part of the 1987 stock market crash, Mr Hawkins was something of a highflying acrobat in that he somehow managed to get Equiticorp to pay for NZ Steel twice, once to the Goverment and once to himself and associates (for the very best of reasons no doubt). Equiticorp went into receivership soon after and the receiver made the Government pay back its proceeds because it knew or should have known that something fishy (or perhaps avian) was going on from the terms of the sale. Mr Hawkins then run into some turbulence but he is now back in the corporate sector with prices rising. Cynotech, his new flying machine was oversubscribed. Once a highflyer, always a highflyer!

Highfliers - don't you just lovem!

Postscript We now realize the web site is called Fly Higher not High Flyer. We have done a bit of a spoonerism there. But if young people continually seek to fly higher, inevitably some will become high flyers, so the difference is not all that great.

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