In November 2015 I wrote that An Audit Report In New Zealand Is Probably Worthless.
So I asked the FMA to answer a number of questions regarding their review of New Zealand audit reports,
- Are there any fines or penalties for those audit firms failing to meet the standards?
- Is there any thought to repealing that part of the regulations that requires audit reports until investors can have some faith in their quality? As it stands they are misleading at best.
- Can you release the names of those companies whose reports met the minimum standards and those that didn't?
- Can you release the names of the audit firms who prepared reports that didn't meet the minimum required standards and those who did?
- Why was it deemed necessary to word the press release in generally favourable light when the figures are so appallingly bad?
- Are the companies who's reports failed to meet the minimum standards made aware of that fact?
And I doubt you can answer this but
- If the answer to 6 is yes Do you know if any of the companies who have paid for substandard reports got a refund from their auditors?
The response from Merran Keil the Senior Solicitor at New Zealand's Financial Markets Authority follows. I read the whole answer as "I can't tell you". It's about what I expected, but remember it's not the FMAs fault NZ Audit reports are generally pretty dreadful. They just reviewed them.
"Dear Mr Parkinson
- Thank you for your enquiry about our Audit Quality Annual Report.
- You have raised a number of issues that we will answer in a general way however, we do not as a matter of policy and law comment publicly on whether we are investigating individual matters. Please note though that we have recorded the concerns you have reported to us.
- We have considered your requests for specific information and have decided to withhold the auditor and company information you have requested under section 9(2)(ba) of the Official information Act 1982 (OIA), as the information is subject to an obligation of confidence which an auditor has been compelled, or could be compelled, to give to us under the Auditor Regulation Act and the Financial Markets Authority Act 2011 (FMA Act). Your request is also declined under that section in order to protect confidential information supplied by auditors where making the information available to you would be likely to prejudice the supply of similar information or information from the same source, and it is in the public interest that such information should continue to be supplied in the future.
- When considering what is in the public interest in this case, we have also taken into account that the FMA Act recognises the importance of retaining confidentiality in the information obtained by FMA, and section 59 of the FMA Act prevents disclosing information obtained under any financial markets legislation.
- By way of general comment, we advise that there are no criminal penalties for those audit firms that fail to meet the minimum standards. The FMA may have civil remedies in respect of auditors we believe have failed to meet standards, for example by making a formal complaint to the accredited body, who may take its own disciplinary action, or to bring certain civil action against the registered audit firm if the FMA believes losses can be attributed to the licensed auditor’s breach of standards. As far as we are aware there are no plans at this stage by parliament to review the legislation and regulations in respect of auditing standards.
- We believe our report gives a correct and balanced view of the current state of auditing standards by registered audit firms in New Zealand and we are pleased to have seen a 13% improvement in the number of FMC audit files meeting the required standard this year. This level of improvement is consistent with other international regulators at the equivalent early stage of regulation. From the sample of audit files chosen by the FMA, 45% did not meet the required standard. However, this isn’t an accurate representation of the entire audit population in New Zealand. Our selection was based on the more complex and higher risk audits that each individual audit firm performs. We believe, if we selected a random sample, the number of non-compliant audit files would most probably be lower than the reported 45%.
- It is important to point out that if an FMC audit doesn’t meet the required standards, this doesn’t necessarily mean that the financial statements are misleading and that an investor cannot rely on these. It means that more audit evidence was required by the licensed auditor before an opinion was issued. We do not as a matter of practise advise a reporting entity of its auditor’s failure to meet standards unless there is a public interest in doing so.
- You have a right, by way of complaint under section 28(3) of the OIA to the Ombudsman, to seek an investigation and review of our decision to withhold information under the OIA.
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