FMA Publishes Refreshed Audit Quality Monitoring Report

The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko – has found audit quality of FMC reporting entities remains strong in New Zealand, however, some inconsistencies in execution are holding back the ability to produce stronger evidence and support for audit opinions.

The FMA’s Audit Quality Monitoring Report for 2023/24, released today, reviewed nine of the 12 registered audit firms in New Zealand and 19 audit files, 10 of which were of listed entities. It was the first time the FMA has reviewed most audit firms in the same year. Audit firms were previously reviewed every two to three years.

The change enables the FMA to provide more timely feedback and to compare practices over the same time period for most audit firms. The change also allows the FMA to do more effective thematic reviews across industries and audit firms.

The review identified five non-compliant files, two higher than the previous year. The total number of findings was 26 compared to 28 the previous year. The non-compliance rate of 26% is below the international compliance rate of 32%.

This year’s focus was on the implementation of two new audit and assurance standards:

• Professional and Ethical Standard 3: Quality management for firms that perform audits or reviews of financial statements, or other assurance or related services engagements
• Identifying and assessing the risks of material misstatement

FMA Head of Audit, Financial Reporting, and Climate Related Disclosures, Jacco Moison, said: “We are pleased to see that audit firms have successfully transitioned to the new standard and found limited areas that require improvement. Next year our focus will be on whether firms have appropriately designed and performed procedures and testing for the effectiveness of their quality management systems.”

The review also focussed on the following areas where the FMA identified common or more significant findings, to ensure they are a focus for firms during their audits:

• Risks of fraud and the entities going concern assessment
• Accounting estimates, including the use of experts
• Revenue recognition and the use of service organisations.

“It is important to have these topics front of mind throughout the audit process, as they are fundamental for promoting the integrity of financial statements and the quality, expertise, and integrity of the audit profession. We also want auditors to focus on ensuring they have a good understanding of both the business they are auditing and the risks they assess as part of the audit. We encourage auditors to continue to focus on these areas so that audits are consistently executed at a high standard,” Mr Moison said.

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