FMA stresses directors' role in ensuring audit quality
Nov. 23 (BusinessDesk) - The Financial Markets Authority says the quality of audits in New Zealand is improving, although it wants more engagement from the business community.
In its audit quality monitoring report, released today, the regulator reviewed 27 audit files from seven registered audit firms. It said the majority of audit firms have successfully implemented plans to address findings from previous reviews, but it is still seeing inconsistencies in the quality of individual audits.
The review found that 20 percent of firms had fully addressed the findings since the previous review, 63 percent had shown improvement by implementing changes but those weren't fully effective across all reviewed files, and 17 percent had shown no improvements.
"We're a little bit happy, in a qualified way", said director of capital markets Garth Stanish. "We've only had this regime in place for five years, which makes it reasonably immature in international terms, and we have definitely seen an improvement in terms of the systems, the policies, the procedures."
This review is the first time the FMA has included explicit guidance to directors about how they can improve audit quality, something Stanish said is vital.
"We think it's important for the wider community to recognise that ultimately it is the responsibility of the directors to ensure the accuracy of the financial statements. Auditors are there to provide independent assurance to the maximum degree possible, but there does seem to be a consistent pattern with bad quality audits that there has been very poor quality information given to the auditor at the outset - rubbish in, rubbish out," he said.
The report focusses on five key areas to improve audit quality: auditor independence, internal review of audit quality, use and documentation of professional scepticism, audit of revenue, and executing key audit procedures. Insufficient or inaccurate auditing of revenue accounted for 33 percent of failed audit files in the year, the same proportion as failing to execute key audit procedures.