The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko – has released its Audit Quality Monitoring Report for 2022/23, revealing a mixed picture of audit quality across New Zealand’s audit firms.
The report notes improvements in audit quality since previous reviews, but the FMA also highlighted that inconsistencies persist both among firms and within individual firms.
The FMA’s review, part of its three-year monitoring cycle, assesses selected audit files from listed companies and other entities reporting under the Financial Markets Conduct Act (FMC Act). The selection process includes both higher risk files and random sampling.
This year’s review, which marked a return to onsite visits following two years of remote reviews due to COVID-19, covered two large, one medium, and one small audit firm, examining a total of 19 audit files, including nine from listed entities. The report highlighted a decrease in “non-compliant” audit files to 16% in 2022/23, down from 28% in 2021/22. Despite the difficulty in making direct comparisons with previous years, this reduction is seen as a positive development by the FMA.
The FMA has identified key areas for audit firms to focus on, including testing information prepared by management, duties of an engagement quality reviewer, audit procedures for assessing going concern, risk assessment procedures, and journal entry testing.
As part of its due diligence, the FMA did not find any breaches of ethical standards during this review cycle. However, it underscored the importance of maintaining ethical standards in light of recent international incidents involving exam cheating by various “big four” firms and confidentiality breaches by PwC Australia.
Such conduct, the report suggests, not only damages the reputation of individual audit firms but also impacts the broader trust and confidence in the financial services sector. The risk of reputational damage is particularly acute in professions like auditing, where ethical standards are a cornerstone of their services.
“We are pleased to see audit firms continuously improving, with our feedback from prior reviews being incorporated into policies and procedures. With the development of new technology and the economy facing a number of risks, it is important that auditors remain alert and sceptical about the audit evidence they receive. While the improvements noted this year are welcome, we want to avoid the risk of complacency in the audit process, and its governance,” FMA head of audit, financial reporting, and climate related disclosures Jacco Moison said.
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