Hanover Finance Auditors: A Critical Examination

The collapse of Hanover Finance in 2008, and its subsequent bailout and restructuring, remains a highly controversial chapter in New Zealand’s financial history. A key aspect of the controversy centers on the role and responsibility of the auditors involved with Hanover during its rapid growth and ultimate downfall.

Prior to its collapse, Hanover Finance’s primary auditors were Deloitte. They were responsible for auditing the company’s financial statements, providing assurance that those statements presented a true and fair view of Hanover’s financial position and performance. This included evaluating the company’s loan book, assessing the adequacy of its loan loss provisions, and ensuring compliance with relevant accounting standards and regulations.

Following Hanover’s collapse, questions were immediately raised about the quality and independence of the audit work performed by Deloitte. Critics argued that the auditors failed to adequately identify and address the growing risks associated with Hanover’s lending practices, particularly its exposure to the property market. Specifically, concerns were voiced regarding the valuation of properties used as security for loans, the adequacy of loan loss provisioning given the deteriorating economic climate, and the overall sustainability of Hanover’s business model.

One of the major criticisms levied against Deloitte was its continued issuance of unqualified audit opinions on Hanover’s financial statements, even as the company’s financial situation deteriorated significantly. An unqualified opinion suggests that the financial statements fairly present the company’s financial position in all material respects. Critics argue that Deloitte should have raised more serious concerns about Hanover’s financial health and issued a qualified opinion, or even a disclaimer of opinion, if they believed that the financial statements did not provide a true and fair view.

Subsequent investigations and legal proceedings explored the actions of Deloitte in detail. These investigations often focused on whether the auditors had sufficient evidence to support their audit opinions, whether they exercised appropriate professional skepticism, and whether they adequately considered the risks facing Hanover Finance. The investigations were hampered by the complexity of financial instruments and the difficulty of predicting future economic conditions.

The case of Hanover Finance and its auditors underscores the crucial role that auditors play in maintaining the integrity of financial markets. Auditors are expected to act as independent gatekeepers, providing an objective assessment of a company’s financial performance and ensuring that investors and other stakeholders have access to reliable information. When auditors fail to meet these expectations, it can have serious consequences for investors, employees, and the wider economy.

Ultimately, the fallout from the Hanover Finance saga highlighted the importance of strong auditing standards, robust regulatory oversight, and a culture of accountability within the auditing profession. The case served as a cautionary tale, prompting reforms aimed at strengthening the independence and effectiveness of auditors, and preventing similar failures in the future. While the details of Hanover’s collapse and the auditor’s role remain debated, it is clear the case left a lasting impact on the financial landscape of New Zealand.