The Financial Markets Authority’s annual Audit Quality Monitoring Report builds on previous reports expressing concerns of auditor independence and exercising professional scepticism in audits.
Whilst most auditors involved in the FMA’s three-year review were shown to be broadly improving, they also continue to apply standards inconsistently.
Issues from previous years continue to arise. The FMA highlighted concerns about auditor independence, related party transactions and the way auditors reviewed disclosures of accounting estimates.
The regulator also noted some cases of accounting estimates, auditors did not sufficiently challenge methods or assumptions used by third-party experts to estimate a company’s financial outlook.
Auditing standards require auditors to obtain sufficient evidence regarding the accuracy and completeness of disclosure of related parties and related party transactions in the financial statements.
“There was little evidence of professional scepticism being applied when reviewing these types of transactions and, in particular, little challenging of management assertions that the transaction has been made at arm's length,” the report said.
The FMA also says it continues to raise issues with independence, having referred twice to the disciplinary body of New Zealand Institute of Chartered Accountants (NZICA), one independence breach investigation has been concluded, while on matter is under consideration.
Other areas requiring attention included company directors’ fulfilling their responsibilities in the context of the audit, auditors’ response to fraud risk, and the auditing of credit unions.
The FMA has tools for investors and directors which stress the importance and benefits of good quality auditing for financial reporting.