This document summarizes assurance requirements for different types of entities in New Zealand. It outlines that statutory audit requirements exist for most companies, issuers, public entities, retirement villages, industrial and provident societies, and some other entities. For entities without statutory requirements, the founding documents or reasons for obtaining funding may require assurance. Only chartered accountants with a Certificate of Public Practice can perform statutory audits, while other assurance work has fewer restrictions. Overall, the appropriate assurance engagement depends on legal structure and requirements.

1. 42 FEBRUARY 2013
BUSINESS
O
ne of the first things you need to do if you are
approached to conduct an assurance engagement
over a set of financial statements is to establish the
legal form of the entity, understand which laws apply
and identify if there are any statutory requirements.
If assurance is not mandated by law, then you have
to ask yourself and the client why they are requesting assurance.
FOR-PROFIT ENTITIES
The default position under section 196(1)(b) of the Companies Act
1993 is that all New Zealand companies are required to have an audit.
In practice though, many companies can pass a unanimous
shareholder resolution not to appoint an auditor. If this is the case
such a resolution must occur annually. However, there are certain
companies that cannot pass such a resolution and are always required
to have their financial statements audited. These are issuers, public
entities and those companies required to file financial statements with
the Companies Office.
Filing requirements are covered by section 19 of the Financial
Reporting Act 1993. In addition to issuers, this applies to overseas
companies, subsidiaries of companies incorporated overseas, and
those that are large and have greater than 25% voting rights held by:
• a company incorporated outside New Zealand
• a subsidiary of a company incorporated outside New Zealand
• a natural person not ordinarily resident in New Zealand.
There are some exemptions to this though in section 19(2) of the
Financial Reporting Act 1993.
Partnerships, limited partnerships, trading trusts and sole traders
have no statutory assurance requirements.
PUBLIC BENEFIT ENTITIES
The regulatory framework for public benefit entities (PBEs) can
be complex. They may operate under a variety of legal structures,
such as a company limited by guarantee, a trust, an incorporated
or unincorporated society, Royal Charter or pursuant to legislation
enacted specifically to establish the entity.
Assurance – who needs it
and who can provide it?
NZICA’s Technical Services Team receives a lot of queries
about the assurance requirements for a variety of different
entities and who is able to conduct such engagements.
BY ZOWIE MURRAY CA
There is no statutory requirement for
registered charities, incorporated societies,
unincorporated societies or charitable trusts
to have any form of assurance engagement.
Retirement villages fall under the definition
of an issuer, therefore are subject to the
Financial Reporting Act 1993, and thus need
to have their financial statements audited.
Industrial and provident societies, Maori
trust boards and gaming machine societies
also have a statutory audit requirement.
Friendly societies that have greater than
$50k aggregate receipts and payments, or
total assets greater than $50k are required
by section 62(1) and (2) of the Friendly
Societies and Credit Unions Act 1982 to
have an audit. It is similar for credit unions,
which are covered by the same Act as
friendly societies, except the threshold for
audit is lower in section 122(1) and (2) at
just $20k aggregate receipts and payments
or $20k total assets.
Maori entities that are incorporated under
the Te Ture Whenua Maori Act 1993 are
required to have their financial statements
audited if gross revenue is greater than $25k.
If gross revenue is $25k or less then the
shareholders can pass a special resolution
that the accounts should be audited, this is
covered in section 277(1) and (1A).
Under section 132(2) of the Unit Titles Act
2010,bodycorporatescanhavetheirfinancial
statements audited, reviewed or subjected to
“specific verification procedures”. We would
liken this to an agreed-upon-procedures
engagement. An agreed-upon-procedures
engagement does not result in the issuing

2. 43FEBRUARY 2013
of an assurance opinion, it concludes with
a report on factual findings. However the
body corporate members still have the power
to pass a special resolution, under section
132(8) of the Act, not to have any of these
engagements undertaken.
OTHER REASONS FOR ASSURANCE
It is common for the founding documents
of not-for-profits (NFPs) to require the
annual financial statements of the entity to
be audited. In many cases these documents
were set up from a standard legal template,
prior to the existence of the codified auditing
standards, and have not been updated since.
A change to the founding documents would
be necessary in order to avoid an audit in this
case. This can usually be achieved through
a member vote at the next annual general
meeting (AGM).
One of the main reasons NFPs in New
Zealand need an audit is in order to
obtain funding, ie grants of various kinds.
Unfortunately, this sometimes appears to
be nothing more than a box-ticking exercise
for the funder, as many frequently accept
financial statements accompanied by a
modified audit report and go on to approve
the funding without further enquiry.
This is seen as a significant issue by many
of NZICA’s member firms, especially those
in rural communities. Members still find
themselves carrying out honorary or low fee
audits for such entities to enable them to get
the grant funding they need. However these
audits are not done in compliance with the
International Standards on Auditing (New
Zealand) (ISAs [NZ]) and the members
therefore find themselves in trouble with
NZICA.
WHO CAN AUDIT?
To find out who can carry out the audit
you should look to law or regulation in the
first instance, then to the entity’s founding
documents, as these may prescribe the
minimum requirement of the qualifications
of the assurance practitioner.
Where there is a statutory assurance
requirement the engagement can only be
conducted by a member of NZICA’s College
of Chartered Accountants (CA) who also
holds a Certificate of Public Practice (CPP).
The authority for this lies in the section
18.3(b)(ii) of the NZICA Rules.
Where there is no statutory assurance
requirement, the earnings cap of $13,500
applies to all work including the provision
of assurance services, before the member
must hold a CPP.
Since the introduction of the Auditor
Regulation Act, auditors of issuers are
subject to a dual regulation regime. The
individual must be licensed and the firm
must be registered. The Act applies for issuer
audits having a balance date from 1 July
2012 onwards.
The Public Audit Act 2001 states that
the Auditor-General is the auditor of every
public entity. Although the Auditor-General
may from time to time appoint other people,
or bodies, to act as auditor on their behalf.
Any person appointed to undertake the
audit of a body corporate, friendly society
or Maori trust board must be a person
who is qualified to act as an auditor for a
company in accordance with section 199 of
the Companies Act 1993.
Where there is no statutory assurance
requirement, under section 15(3)(c) of
the NZICA Act 1996 nothing prevents
any person from acting as auditor of a
club or society which is a NFP. Thus for
registered charities, incorporated societies,
unincorporated societies and charitable
trusts it is up to the founding documents of
the entity whether the assurance practitioner
should be a member of NZICA. Realistically
though, entities should only appoint as
auditors people who are trained in audit,
which generally comes down to CAs.
SUMMARY
Assurance requirements are governed by the
law or regulation under which the entity is
established. If there is no statutory assurance
requirement, we encourage a thorough
review of the entity’s founding documents,
along with open dialogue with the client to
establish the driver of such a request for an
assurance engagement. This will help ensure
the chosen engagement meets the needs of the
users of those financial statements, and that
the assurance practitioner is appropriately
qualified to carry out that engagement.
Zowie Murray CA is a Technical Advisor on
NZICA’s Technical Services Team.
One of the
main reasons
NFPs in New
Zealand need
an audit
is in order
to obtain
funding

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