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Screenshot of a breaking news alert e-mail from Q2 2017
New Zealand’s Financial Markets Authority (FMA) has just announced that it has released its 2016 Audit Quality Report reflects that improvements continue to be made in audit quality. The report shows the sector is increasingly aligned with the expectations of the FMA and international auditing standards and global best practice. However, it also notes that files reviewed still show that further improvement is necessary.
The FMA is required under the Auditor Regulation Act 2011 to review the systems, policies and procedures of audit firms and to publish a report on the reviews annually.
The FMA conducts audit quality reviews in three-year cycles, the first of which was completed in 2015. The 2016 Audit Quality Monitoring report, the first report in the second three-year cycle, shows that the firms reviewed made improvements in 79% of the areas that the FMA had highlighted as needing improvement during the first review cycle.
The 2016 report discusses findings from 12 audit firms, all of which were also reviewed in the first cycle. Overall, the FMA findings reflect the relative maturity of the sector in coming to terms with the regulator and the global trend in improvement noted by international audit supervisors (for example, in the Survey of Inspection Findings by the International Forum of Independent Audit Regulators – IFIAR).
However, firms still have some work to do to ensure that the changes they have made are fully implemented and consistently applied across all individual audit files. The report includes suggestions about how both audit firms and directors can contribute to higher quality audits.
The FMA reviews a risk-based selection of audit files, said Garth Stanish, Director of Capital Markets:
The files we chose were inherently more difficult and complex because this is where investors are most reliant on audit firms to provide assurance that financial statements are free from material misstatements.
The FMA identified these key areas for improvement:
- Internal reviews of audit quality control
- Independence – especially where a firm is providing non-assurance services
- Greater focus on audit evidence and detailed documentation
- Auditor’s responsibility relating to fraud
Audit quality is critical to efficient and transparent markets and informed investor decision-making, so the purpose of the monitoring is to ensure firms meet the minimum standards and encourage the industry to go further than threshold compliance.
Audit quality is a cornerstone of good governance and ultimately boards and management are responsible for ensuring their companies are properly audited and that they have sufficient processes and systems in place to enable auditors to deliver good quality work. We have provided some key take-outs for directors to enable them to establish best practice in their auditing process.