FMA publishes 2017 Audit Quality Report/directors’ guide

Media release
MR No. 2017 – 51
23 November 2017 

The FMA’s 2017 Audit Quality Report shows that since the FMA began these reviews in 2013, all audit firms now have systems and policies in place to deliver high-quality audits. However, inconsistencies remain in the quality of some individual audits.

Audit quality is critical to efficient and transparent markets and informed investor decision-making. The purpose of the FMA’s monitoring is to ensure firms meet the minimum standards and encourage the industry to go beyond threshold compliance.

For this year’s report, the FMA reviewed 7 registered firms and 27 audit files. The FMA uses a risk-based, targeted approach in selecting audit files, which means we focus on entities where audit failure would have a significant impact on the New Zealand capital markets as a whole.

The review also focuses on businesses with complex audit or accounting issues where it is more difficult to ensure investors are receiving appropriate disclosure.

The review found firms had made improvements in areas highlighted for attention during previous reviews, showing initiatives implemented by firms are working. However, it is taking time to fully implement policies and to see this applied consistently across all audits.

Auditor Independence

Our reviews concluded there has been improvements in firms’ assessment of independence however the FMA continues to see non-compliance in this area. Since 2013 the FMA has referred three auditors to their disciplinary body for breaching independence requirements, amongst other non-compliance issues.

If the FMA continues to see non-compliance on the issue of auditor independence we will increase enforcement and seek further clarification on what is considered acceptable under New Zealand Professional and Ethical Standards.

The FMA is also continuing to find issues in some audits where an insufficient level of professional scepticism is being applied.

Garth Stanish, FMA Director of Capital Markets said, “Audit firms need to look at why audit quality can vary significantly, even when the same policies and procedures are being applied. Where significant matters have been raised in our reviews, they should be performing detailed analysis to understand why.”

Director’s Guide

To complement the Audit Quality Report, the FMA is publishing a director’s guide to audit quality. This sets out the responsibilities for directors and their role in ensuring quality audits.

The FMA wants directors to play a more active role in auditor independence and to ensure they have a better understanding of the impact of the non-audit services their auditors are providing.

Mr Stanish said, “This director’s guide sets out key areas for directors to consider, including their role in selecting an audit firm, auditor independence and factors around fees. We strongly encourage directors to read and consider the guidance.”

Contact:
Edwin Mitson
Ph: 021 702 036
[email protected]