NZ auditors still struggling to meet standards

See also: Auditors' 'professional scepticism' called into question

The country's auditors are still struggling to meet minimum accounting standards, with less than a fifth reviewed by the Financial Markets Authority characterised as “good” and the rest needing to improve.

Of the 38 audit files the FMA reviewed in the 12 months ended June 30, 18 % were seen as “good” and needing limited improvements, better than the 5% of 56 files a year earlier, though mostly in line with the 15% of the first report in 2013.

Some 37% of audits required improvements, compared to 59% a year earlier, and a further 45% needed significant improvement, more than the 36% in 2014.

The FMA report says the files selected tended to be more complex and risky than the norm, and would show up different results from a neutral sample.

It says the introduction of the regime "has had a positive impact on audit quality."

The government introduced stricter oversight of the auditors after the failure of the finance company sector last decade spurred a report slating the auditing of those lenders as lacking "the rigour and analytical depth one would expect for entities managing substantial public investments."

That led to a renewed appetite for work that had been underway since 2001 to end self-regulation. This came when US electricity trader Enron collapsed leading to the dissolution of accounting firm Arthur Andersen and sparking concerns about the oversight of auditing processes.

The FMA report says there are concerns around non-audit services provided by audit firms and how they manage threats to their independence.

It also says monitoring of audit quality can be improved, greater professional scepticism can be applied, and they can better assess external valuations.

The report found a lack of documentation around identifying fraud risks, and the FMA "continues to observe audit deficiencies in which auditors do not perform sufficient auditing procedures for revenue and management override risk."

The regulator's second cycle of the review will be on ensuring auditors have effectively put in place remediation plans. The 2015/16 year will focus on risks posed to investors by reporting entities that don't comply.

The FMA is also preparing for the start of a new accounting standard requiring auditor's reports to provide key audit matters, explaining why they were judged the most significant, and how they were addressed in the audit.

The market watchdog will also bring in-house audit quality reviews once its contract with the New Zealand Institute of Chartered Accounts, now part of the Chartered Accountants of New Zealand and Australia, ends in June next year.

"This decision will ensure we are aligned with international audit regulators and is not a reflection on NZICA's performance of quality reviews," the FMA said.

(BusinessDesk)