Auditors need to come out of the shadows and explain the value they add: FMA

Tuesday 21st May 2019

Financial Markets Authority chief executive Rob Everett wants the audit profession to explain how it adds value to investors, who are largely sceptical of their benefit.

The market watchdog commissioned Buzz Channel to survey retail and institutional investors, directors and audit and risk committee members, executives and auditors to gauge how the audit profession is viewed. The findings showed a lack of faith and trust in the profession and questioned the quality of audits in New Zealand, with investors the wariest group.

Some 56 percent of investors said they trusted the sector to act with ethics and integrity, and just 48 percent thought the quality of audits was of a high standard. That lagged behind 68 percent of directors who trusted the profession and 57 percent who thought the quality was high.

Neither group tended to think they got good value from auditors, with only 19 percent of investors and 39 percent of directors saying audits gave good value for the fees paid.

Everett said there's a real challenge for auditors in explaining the value of their profession, and suggested executives and directors don't understand what audit standards require and what they don't.

"The profession needs to come out of the shadows and explain what it does and why that adds value," Everett said.

That could include fronting up to investors at annual meetings to explain what their audit reports mean, he said.

The FMA doesn't want New Zealand's audit profession to face similar issues to those in the UK, where Britain's Competition and Markets Authority has recommended major reform to deal with competition issues, or in Australia.

In New Zealand, 180 NZX-listed firms paid $179.3 million in audit fees in 2017, and 163 had paid $157.9 million in the 2018 financial year-to-date, NZX data show. PwC has the biggest share with 52 audits in the latest year, followed by KPMG with 35, Deloitte on 22 and Ernst & Young on 20.

Investors in the survey cited a lack of competition among audit firms, given the dominance of the big four and the relatively small pool of firms available. Companies said the experience of auditors was an important factor when selecting a firm.

Investors also had some concerns that non-audit services undertaken by an auditor could be a conflict. Managers and directors noted the potential conflict and often had internal policies around prohibited services, the report said.

The survey was of 357 people in total, made up of 193 individual retail investors, 10 professional investors, 56 directors, 36 managers and 62 auditors.

(BusinessDesk)

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