The New Zealand Financial Markets Authority (FMA) published its Audit Quality Monitoring Report 2026, finding audit quality generally good but recurring weaknesses in audit execution, evidence and scrutiny of management assumptions. Reviews covering July 1, 2025, to June 30, 2026, assessed four of 20 audit files across eight registered firms as noncompliant, a rate of 20% compared with 36% in 2024/25. The changing mix of firms and audits, selected partly on risk and partly at random, limits comparisons between years. A noncompliant rating does not necessarily mean the financial statements require restatement. Audits involving investments in managed investment schemes showed inconsistent evidence supporting valuations, particularly for holdings in schemes not traded in active markets. Investment manager confirmations ordinarily do not provide sufficient valuation evidence on their own. Auditors should assess whether service organisation control reports cover relevant controls and periods, and perform additional procedures where evidence is insufficient. Reliance on cloud accounting platforms also requires evidence that the information is reliable. Engagement quality reviews showed weaknesses in timing, scope and documentation. In three of the four noncompliant files, an effective review should have identified the deficiencies. Reviewers should evaluate significant judgements at appropriate stages throughout the audit and before the auditor’s report is issued. Most firms had established the key elements of quality management systems, but many could not demonstrate that controls operated effectively. Priorities include evidence of effective monitoring, remediation addressing underlying causes and effective independence controls. Firms using artificial intelligence are expected to assess tool inputs and outputs on individual audits and safeguard client confidentiality. Responsibility for audit quality remains with engagement teams and firm leadership. Future quality management reviews will focus on whistleblower procedures and independence, including how firms monitor personal relationships with clients and prospective clients when tendering for work.
New Zealand Financial Markets Authority finds recurring audit weaknesses, with 20% of reviewed files noncompliant
The New Zealand Financial Markets Authority’s 2026 audit monitoring report assessed four of 20 files across eight firms as noncompliant, down from 36% to 20%, although changes in the sample limit comparisons between years. Recurring deficiencies involved audit evidence, scrutiny of management assumptions and engagement quality reviews, with inconsistent support for valuations of investments in managed investment schemes. Firms are expected to demonstrate that quality controls work in practice and validate artificial intelligence inputs and outputs, while future reviews will examine whistleblower procedures and independence.