The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko - has published its latest Audit Quality Monitoring Report which provides a snapshot of its monitoring of audit firms.
The 2024/25 report provides information for directors and auditors to assist with driving and maintaining improvements in audit quality, highlighting areas of strength as well as those areas where additional focus and improvement is needed.
FMA Head of Audit, Financial Reporting, and Climate Related Disclosures, Jacco Moison, said: "This report is intended to be constructive, and to support continuous improvement, not to penalise. Non-compliance does not necessarily mean financial statements were incorrect."
"The focus for this year's reviews was on whether firms appropriately designed and performed procedures to test the effectiveness of their quality management systems as well as how they comply with auditing and assurance standards for the number of audit files reviewed."
The report highlighted some key considerations for audit firms, to further enhance the quality of audits in New Zealand, with three main findings.
- Auditors did not always obtain sufficient evidence to verify the accuracy and completeness of related party disclosures in financial statements.
- Although firms successfully implemented the new Professional and Ethical Standard 3 (PES 3) that require the firms to have good systems of quality control, the operational effectiveness of their quality management systems needs improvement.
- Variable remuneration for CEOs and senior managers (e.g. performance-based bonuses) can create incentives or pressures that increases the risk of management override of controls and fraud. Auditors should enhance documentation on how they assess and respond to these risks.
The report also provides insights into the early observations on mandatory assurance reports for climate statements and FMA's oversight on overseas licensed auditors and registered audit firms.
"High-quality audits play a critical role in enhancing investor confidence," said Mr Moison.
"They provide assurance that a company's financial statements are free from material misstatement and can be relied upon for making informed investment decisions. This trust is foundational to the integrity and efficiency of capital markets."
The FMA's Audit Quality Monitoring Report for 2024/25 reviewed 6 of the 12 registered audit firms in New Zealand and 14 audit files, 8 of which were of listed entities. It was the second time the FMA has reviewed most audit firms in the same year. Until last year, audit firms were previously reviewed every two to three years. Some resourcing constraints and the focus on our larger bank audits limited the number of firms reviewed this year. Most of the audit firms will be subject to a review in the upcoming year.
Download the 2025 Audit Quality Monitoring Report [PDF 3.3MB]
