FMA reports on audit quality standards

Media release
MR No. 2015 – 54
30 November 2015

The number of audit firms in New Zealand performing at a good standard is on the rise; however a large proportion of firms still need to make further improvements to the quality of their audits.

The Financial Markets Authority’s (FMA) Audit Quality Annual Review for the year 1 July 2014 - 30 June 2015, released today, shows that of the sample files selected almost 18% of audits performed by registered audit firms during the period were completed to a good standard and complied with the Auditing Standards[1]. This is up from 5% of firms last year.

The report shows gradual improvements since the FMA started monitoring auditors in 2012, with a higher proportion of firms complying with the Auditing Standards. Nearly 37% of the audit files reviewed met the minimum requirements of the Auditing Standards, compared with 27% in 2013.

Forty five percent of files review failed to meet the minimum requirements of the standards; however these files were selected according to a risk assessment and contained particularly complex auditing and accounting matters. Therefore this result is not representative of all the 1,700 Financial Market Conduct Act audits completed in the reporting year.

The particular areas of improvement for firms are:

• applying professional scepticism and asking the right questions in the audit process
• use of and reliance on experts
• how an auditor addresses the risk of fraud
• how the level of materiality is set.

The regulatory regime for auditors has been in place since 2012 and these New Zealand results are consistent with other international regulators at the equivalent early stage of regulation.

The FMA’s director of markets oversight, Garth Stanish, said this year’s findings reflect the biggest overall improvement in the quality of audits since the FMA started monitoring audit quality three years ago.

“This year’s results show that audit firms are moving in the right direction and the quality review regime has had a positive impact on audit quality.  We expect to see continuing improvements as firms fully understand our expectations and embed new systems, policies and procedures,” he said.

Mr Stanish said the FMA has seen some audit firms make improvements to the way audits are conducted, but these haven’t always resulted in improvements on individual audit files.

“We strongly encourage directors, managers and audit committees to take a more active role in improving their own systems, processes and policies and where an auditor reports areas for improvement; they need to be taken seriously,” he said.

“One of the FMA’s strategic priorities is to ensure investors have access to resources that help them make better-informed financial decisions and audited financial documents are a key part of this.”

Under the Auditor Regulation Act 2011 the FMA is required to review the systems, policies and procedures of audit firms. Over the last three years the FMA has completed a full cycle of quality reviews of the whole industry.

The full report can be found here.

ENDS

Contact:
Shae Skellern
021 847 192
09 300 0465
[email protected]