1. 48 OCTOBER 2013
BUSINESS
A
s an ethics leader, educator and regulator, NZICA
performs an important role in audit quality.
NZICA members supply assurance services, as
well as participating in the financial reporting
chain through management, governance and investment. As
a professional accounting membership organisation, NZICA
serves the public interest in helping people access quality
information from the financial reporting system.
NZICA’s commitment to audit quality is written into its
foundation documents, such as the NZICA Act 1996 (the
Act). NZICA’s functions under the Act include the regulation
of its members and the promotion of quality in assurance
engagements and other areas. The Act requires that NZICA
always has a Code of Ethics (Code), which governs the
professional conduct of its members. At its July 2013 meeting
the NZICA Council approved a new Code. The revised Code,
which will be effective from 1 January 2014, is based on, and
substantially similar to, the ethical requirements established
by the International Federation of Accountants (IFAC), of
which NZICA is a member.
Education lays the foundation of many of the factors that
contribute to audit quality. Professional training under the
CA Program provides insight into assurance engagements,
enabling students to make informed decisions about whether
they are suited to work in this field. It also helps them develop
the skills necessary to perform quality audits.
The CA Program study plans are mapped to IFAC’s
International Education Standards, which emphasise
scepticism, ethics and professional judgement.
Once they have qualified, members are obliged, under
NZICA’s Code and its Rules, to maintain standards
of competence by undertaking continuing professional
development (CPD), which includes a mandatory
ethics element of four hours training every five years.
In the consultation paper “A Framework for Audit Quality”
(the Framework), the International Auditing and Assurance
Standards Board (IAASB) identified a number of factors that
contribute to quality audits.
One of the “areas to explore” identified in the IAASB’s
Framework is to establish a common understanding of the
capabilities in practitioners that contribute to audit quality.
This would then be used by audit firms in recruiting,
evaluating, promoting and remunerating partners and staff.
In NZICA’s view, such an understanding could be useful in
designing educational programmes.
NZICA also performs an important role in the regulation
of auditors of issuers in New Zealand. Under the Auditor
Regulation Act 2011, which came into force on 1 July 2012,
NZICA is an accredited body. As such, it issues licenses
to auditors and registers audit firms that meet prescribed
minimum standards set by the Financial Markets Authority
(FMA). NZICA has powers to add conditions to licenses,
and to suspend and cancel licenses.
When the 2011 Act came into effect, auditors of issuers
were granted transitional licenses if certain requirements were
met. Under the transitional regime, the number of licensed
Education lays the foundation for many
of the factors that contribute to audit
quality
By John Hodge CA
Audit quality
NZICA’s role in audit quality.

2. 49OCTOBER 2013
auditors and registered audit firms has fallen. In July 2012
there were 169 licensed auditors and 56 registered audit
firms; at the end of August 2013, 150 licensed auditors and
39 registered firms. Further consolidation of the issuer audit
market is expected to occur until the transitional regime
expires on 1 May 2014, by which time auditors will need to
be fully licensed and firms will need to be fully registered.
Under a contract with the FMA, NZICA undertakes
quality reviews of issuer audits on the FMA’s behalf, to
ensure that licensed auditors and registered audit firms’
systems, policies and procedures meet the required standards.
In line with EU requirements for auditor regulation, the FMA
is involved in evaluating and approving each stage of the
quality review process, including the selection of issuers to
be reviewed, the composition of the review team, the quality
review plan and the resulting report. Another of the FMA’s
obligations is to publish an annual report on the results of
its quality reviews. The first such report is due by the end of
December 2013.
The themes arising in NZICA’s quality review findings
are broadly similar to those in the United Kingdom, the
United States, Australia and Canada, where areas identified
for improvement include professional scepticism, audit
documentation, acceptance and continuance procedures,
and evidence of engagement quality control review.
NZICA supports the new Auditor Regulation Act, but
observes that it only covers a narrow range of audits. NZICA
has therefore been considering how to further promote
quality, expertise and integrity in the wider audit profession.
Recently NZICA has proposed the introduction of an
“Approved Assurance/Audit Practitioner Regime” for
members carrying out either statutory audit engagements
or all assurance engagements that exceed a particular
threshold. By taking this approach, NZICA aims to ensure
that assurance practitioners are experienced and competent,
and that they demonstrate ongoing competence.
According to NZICA’s Rules, members’ practices are
subject to periodic review to ensure that they are meeting
professional standards. Provided NZICA consults with
the Practice Review Advisory Group on its findings, it can
lodge a complaint with the Professional Conduct Committee
(PCC). The PCC investigates complaints and, if the situation
warrants it, refers them to the Disciplinary Tribunal (DT).
Decisions of the PCC and DT are published on the NZICA
website.
Another of NZICA’s roles is to make submissions on
policy and influence debates in the accounting profession –
in the public interest, first and foremost, but also on behalf
of members.
New Zealand, like an increasing number of countries,
adopts international standards. The External Reporting
Board makes relatively few adaptations to international
standards before issuing them in New Zealand. This
underscores the importance of achieving an international
voice on audit issues.
In addition to the IAASB’s focus on audit quality, there are
a number of initiatives underway concerned with expanding
the audit report and addressing a perceived lack of auditor
objectivity and independence. These initiatives, which include
mandatory audit tendering and audit-only firms, could have a
significant impact on the auditing profession in New Zealand
in the coming years.
Both alone and through its involvement with the Global
Accounting Alliance, NZICA is acting to ensure that proposed
changes to international audit regulation demonstrably
increase audit quality.
John Hodge CA is General Manager – Technical and Quality
Assurance at NZICA.
For further detail see A Framework for Audit Quality,
January 2013, and NZICA’s response, Submission on
Consultation Paper: A Framework for Audit Quality, May
2013. Both are available on the IAASB website. You can
read more about audit quality on the website of the Centre
for Audit Quality: thecaq.org.
Audit quality – concluding remarks
This series has explored the issue of audit quality from
a variety of perspectives, including those of the standard
setter, audit committee and management, along with
those of the auditor, academic and investor. The articles
have made it clear that achieving a high-quality audit
requires commitment from all of the participants in
the financial reporting supply chain. Here are the
key messages:
1. It is difficult to evaluate the standard of an audit,
so audit quality is generally assessed through the
use of proxies, such as the audit firm’s reputation.
2. Auditing is a specialist area, and audits should
only be carried out by those who are appropriately
qualified and trained.
3. The independence of the auditor is a top priority.
It is vital for audit quality that auditors remain
professionally sceptical and have a high level of
personal integrity.
4. The audit committee must possess an appropriate
combination of skills and experience, and be able
to dedicate sufficient time and energy.
5. The tone at the top drives the organisation’s
values, ethics and attitudes. It is management’s
responsibility to create an environment where all
staff embrace a constructive relationship with the
auditor.

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