At PwC we recognise that our reputation relies, in part, on being transparent about how we work. Our Audit Transparency Report details how we continue to focus on audit quality through a range of measures such as learning and development and ensuring sustainable workloads for our people. We understand that delivering quality goes beyond reporting and compliance – it includes culture, standards, training, governance and the tools we use to deliver our work.
This commitment to transparency is part of our approach to building trust. We know that trust in audits is fundamental to investors and wider society, particularly now as challenging economic conditions and market volatility persist. The goal of this report is to provide investors, regulators, industry bodies, and the wider market with insight into what we do and how we operate.
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This report comes at a time when the audit profession continues to face a range of changes and challenges that will impact how it operates both now and in the future. Globally, there is a shortage of auditors and the number of students majoring in accounting has declined. A competitive job market means there are a broad range of alternative career opportunities available to accounting and finance graduates. These trends have the potential to create multiple issues for delivering audits. To help address them, we are focused on promoting the attractiveness of a career in audit and the different pathways available to enter the profession. This includes working with professional bodies and universities to explore new ways to recruit talented people.
The role of the auditor is evolving with new skills and technology required to meet stakeholder needs and an increasingly complex business environment. These changes mean the expertise required to deliver audits in years to come will likely be different to those today. We are embedding frameworks and support structures into our practice to ensure that those entering the profession are well equipped to meet future demands.
Our people are core to everything we do and we recognise the important role culture plays in audit quality. The wellbeing of our people and the quality of our work goes hand in hand. In FY23 we have continued our work to ensure sustainable and flexible workloads for our people while maintaining high quality standards for our clients and stakeholders.
PwC is a multidisciplinary firm, however this report is focused on our audit practice and related services in New Zealand. It is split into two parts covering our year in audit quality and how we work to deliver it.
In this, our first section we include:
In Delivering on our commitment to audit quality we cover a range of information including:
This year, our report and Balanced Scorecard include data points that do not meet the high expectations we have of ourselves. While internal inspections found that 86% of our audit files were compliant, 14% were non- compliant and did not meet our quality expectations. We have responded to the root causes and made changes to our quality system.
In addition, two New Zealand Institute of Chartered Accountants (NZICA) determinations relating to historic audits of former clients Wynyard Group and Fonterra were published in the last 12 months. In the years since those audits were carried out, we have taken a range of actions and continued our investment in our programme to strengthen audit quality including implementing additional training and making changes to policies.
These outcomes were a timely reminder that quality is about continuous improvement and consistency of application.
We are committed to the delivery of consistently high quality audits. Maintaining quality is core to our purpose.
We welcome the opportunity to continue the conversation about the role and importance of audit quality through releasing this year’s report and we look forward to talking more with you in the coming year.
Rich Day
Audit Leader
PwC New Zealand
Karen Shires
Chief Risk & Reputation Officer
PwC New Zealand
Inspections identified non-compliant audit files from the sample reviewed. While there were no matters that required additional audit work to be performed, or resulted in changes to the issued audit reports, this was a disappointing result and does not meet the standards we set for ourselves.
Through our investigation into the non-compliant files, including our root cause analysis, we have been able to establish that the matters that gave rise to the non-compliance did not indicate any systemic weaknesses in our System of Quality Management (SoQM). We continue to have reasonable assurance that the objectives of our SoQM are being achieved. Reasonable assurance is a high level of assurance but is not an absolute level of assurance, as there are inherent limitations in any system of quality management.
Other Balanced Scorecard insights include:
PwC New Zealand is subject to regular inspections by regulatory and professional bodies.
There are times these inspection results do not meet our high expectations or those of the community. While these are disappointing, we are committed to being transparent about our audit practice, our mistakes and our commitment to quality and continuous improvement. We acknowledge there will always be more to do as we continue to focus on audit quality.
The firm is reviewed biannually, and was included in the Financial Markets Authority (FMA) 2023 inspection cycle. The FMA inspected six engagement files and reviewed the quality control systems and processes in place – our system of quality management (SoQM). The findings from the 2023 FMA inspection of PwC and other firms will be included in the FMA’s annual Audit Quality Monitoring Report to be issued in November 2023.
The firm is also subject to reviews by the Office of the Auditor-General (OAG) for engagements that are completed on its behalf. During the year ended 30 June 2023, an internal cold file inspection review, which involved the OAG reviewing specific aspects, was completed for one audit partner who is an OAG Appointed Auditor.
In the year to 30 June 2023, there was one New Zealand Institute of Chartered Accountants (NZICA) determination relating to PwC New Zealand.
NZICA published Appeals Council, and earlier Disciplinary Tribunal findings, concerning a 31 December 2015 audit of Wynyard Group. These findings related to the application of audit standards, regarding the adequacy of audit evidence and documentation, and independence. The more serious charges of negligence, such that it would bring the profession into disrepute, were dismissed.
In August 2023, the NZICA Disciplinary Tribunal published the determination of its investigation into the 2017-2019 audits of Fonterra. The findings related to the documentation of the application of professional judgement and audit standard requirements. In particular documentation of audit independence in appearance, the form of written representations from the company’s directors, the adequacy of evaluation of the carrying value of an offshore investment and certain financial statement note disclosures. The Disciplinary Tribunal’s decision acknowledged the remedial steps PwC New Zealand has taken to improve audit quality.
The final decisions are available on the CA ANZ website.
Both these matters involved historic audits. Since they were carried out, we have made substantial quality improvements including in the areas of consultation requirements, templates, training and independence.
Our independent Audit Advisory Board was formed in October 2020. The purpose of the Board is to advise PwC New Zealand on enhancing audit quality and to challenge the firm to continuously improve how it delivers audits.
In this section of the report, we share the Board’s observations and recommendations about audit quality at PwC New Zealand and include an update on recommendations made in the prior year.
The Board is chaired by Warren Allen and includes Stephen Layburn and Alison Posa.
The report was finalised in October 2023 and covers the year ended 30 September 2023.
Warren Allen,
Chair
Stephen Layburn
Alison Posa
The Board’s approach to its work programme to date has been to focus on two key themes:
The Audit Advisory Board concludes the enhanced approach adopted by PwC continues to support appropriate emphasis on audit quality:
The key challenge is aligning the audit practice’s staff and partner resources with the objective of enhancing audit quality. The Advisory Board is of the opinion PwC has continued with substantial efforts in this area and these efforts are yielding worthwhile results:
PwC is well aware of the need to transform the audit practice to respond to the ever-increasing changes it is facing. The Advisory Board observes that several key initiatives have been progressed or planned this year by the audit practice:
The Audit Advisory Board (AAB), based on its work during 2022/2023, wishes to make two recommendations for consideration by PwC. These recommendations are in the form of supportive actions that the Advisory Board sees as being needed in addition to activities already underway within the audit practice. It is our opinion these actions are necessary to ensure PwC continues to have a sustainable audit practice capable of delivering consistent quality audits in the future which is responsive to multiple stakeholders’ needs.
Recommendation 1
We observed, that during this reporting period, the delivery of audits was characterised by the following:
It does appear the above characteristics will continue to apply to audits over the next few years.
PwC New Zealand's response: We agree with the recommendation made by the AAB and have taken certain actions that support several of these initiatives already. We will consider additional plans of action to further address the recommendations within this report.
Recommendation 1.1
Against this background PwC must continue its focus on rebalancing the workload to improve staff engagement, while maintaining the financial sustainability of the audit practice. Continued enhancement of initiatives already underway, such as the integration of service centres and the use of technology to both drive efficiency and improve quality will be critical to unlocking work pressure on team members.
PwC New Zealand's response: A primary focus continues to be ensuring the workloads of our people are sustainable and all of our partners, along with our dedicated resourcing team, have specific accountability and objectives in respect of this. We will continue to invest in our service delivery centres and technology, particularly with respect to automation and standardisation of our methods.
Recommendation 1.2
Also, the occurrence of non-compliant file reviews highlights the importance of continually reinforcing audit quality processes to audit partners and staff. These audit quality processes have been significantly enhanced over the past four years, and are now seen as highly effective. While progress on maintaining independence is encouraging, the approach to file reviews highlights many factors which impact audit quality. For quality processes to translate into consistently high-quality audits they require continued and constant reinforcement, impactful training, communicating expectations on engagements and timely review. Ongoing attention to the relevant causative factors should ensure the file review outcomes for this reporting period will be seen as an aberration rather than the pointer to a worrisome trend.
PwC New Zealand's response: We are disappointed in having any non compliant files. Encouragingly, our root cause analysis did not identify any systemic or pervasive matters. However, we will continue to give ongoing attention to the causal factors underlying both positive and negative review results.
We are committed to improving our existing communication channels to ensure guidance and reminders are readily available, clear, consistent, and reaching all target audiences. We recently published a reference ‘first stop shop’ on several key audit areas for our staff.
Our Learning, Education and Development team will look at ways to enhance training and fill training gaps that may have led to performance or quality concerns. We also plan on enhancing our onboarding process, including training, for lateral hires.
Recommendation 1.3
Against the background stated above, including the outcome of the file reviews, it was observed by the Advisory Board that a common theme for audit quality issues was shortcomings in review and supervision. It is acknowledged this becomes challenging during busy audit periods and more so in a climate such as that experienced over the past two or three years. However, this is one of the most significant audit quality procedures and it must be given timely due attention during all phases of the audit. Reinforcement, allocating sufficient time to the task, achieving a balance between client-specific knowledge and objectivity and a strengthening of the cultural commitment to this specific quality procedure should see the achievement of the expected level of consistency.
PwC New Zealand's response: We agree that effective review and supervision is paramount to audit quality. Our response to the recommendations in 1.1 above will help achieve the objective of creating more time and space for our experienced staff to ensure the right individuals have the time needed to perform a detailed and focused review, and to be more available for coaching and upskilling of other staff. We will continue to refine our training and coaching to help our more senior team members understand what our expectations of them are regarding review and supervision. This includes training and coaching for newer managers and being clearer around the roles and responsibilities of our partners and managers. In particular, the review of work performed by our internal experts by senior engagement team members will be a key focus area.
Responsibility: Jonathan Freeman, Audit Quality Leader
30 June 2024
Recommendation 2
The wider New Zealand firm, to date, has avoided any significant issues such as the breaches of values and weaknesses in governance processes reported in relation to the advisory practices of PwC Australia during this year. PwC Australia has, as a result of those breaches, recently received a detailed independent report following a review predominantly of the firmwide governance structure, culture and risk management. That report makes extensive recommendations for change. Whilst acknowledging this report and its recommendations are tailored for PwC Australia, it is noted the review referred to the lessons learned from the implementation of the Australian AQAB.
The report may provide the wider New Zealand firm with an opportunity to consider some of the recommendations. Such a consideration, focused on continuous improvement of the audit practice, may highlight some implementable changes to enhance audit quality.
PwC New Zealands response: PwC New Zealand has a commitment to continuous improvement and is dedicated to maintaining a culture of quality and integrity. Our Board and Executive Leadership Team are reflecting on the Independent Review and PwC Australia’s response to consider any learnings that may be relevant for our operations (given our size and the market here).
Responsibility: Mark Averill, CEO
31 March 2024
The Advisory Board, based on its work during 2021/2022, made three recommendations for consideration by PwC. The following indicates the Advisory Board’s current view as to progress achieved during this current year on these recommendations:
Progress work on climate reporting so PwC is, in an audit-quality sense, ready to meet market expectations.
Status update: Progressing. The firm has created a dedicated team and identified experts to provide specialist support.
PwC should consider an exercise reviewing and determining what the future of the audit profession may be. The Advisory Board encouraged consideration, possibly for a practical joint approach, with PwC Australia.
Status update: Started and on-going. The firm has implemented initiatives to help broaden the potential talent pool such as engaging with professional bodies on alternative pathways into the audit profession.
PwC’s future L&D programme will be required to have more emphasis on the ‘non-technical’ skills required of a PwC auditor of the future.
Status update: Progressing. The firm has evolved the Career Development Pathway (CDP) with a view to using it as part of its recruitment strategy.
Comply with ethical and auditing standards.
Apply a deep and broad understanding of our clients’ businesses and the financial environment in which they operate.
Focus on the wellbeing of our people and invest in their development.
Exercise professional scepticism.
Respond to changes in the audit profession.
Use our experience and expertise to identify and resolve issues in a timely manner.
Upskill our people on how to use new technology and tools.
During the year ended 30 June 2023 there have been significant changes made to standards:
We have worked with our teams to upskill them on these changes, keep them up to date and ensure compliance with the new standards.
Although our SoQM operates continually and is updated to respond to new or changing risks as they arise, our SoQM year ends on 31 March each year. This includes a formal assessment of reasonable assurance after the completion of our periodic monitoring procedures which took place on 31 May 2023. We reassessed reasonable assurance as at 29 September 2023 (following the completion of the PwC Global inspections programme) and at 31 October 2023 (for the purposes of this report) after taking into consideration all events, including quality findings, at each date. We have concluded, at each of these dates, that our SoQM provides us with reasonable assurance that the objectives of the SoQM are being achieved.
Section 2 of our 2023 Audit Transparency Report sets out how we operate and assess our SoQM which is underpinned by the PwC Network’s Assurance Quality Management for Service Excellence (QMSE).
Part of our work relating to audit quality involves helping build awareness about financial reporting and the role of audit. Our recent work in this area has involved investigating how climate change has been reflected in the financial statements of the NZX50. Last year we released reports examining March, June and December 2022 reporters.
This year we revisited March reporters to see how, and what, they are reporting in 2023. Have climate change disclosures in financial statements increased? Have the effects of the recent extreme weather-related events in Aotearoa New Zealand led to any changes in reporting?
The key findings from our analysis of NZX50 March 2023 reporters reveals:
In the coming year we expect these trends to increase as Climate Reporting Entities will be required to fully comply with the Aotearoa New Zealand Climate Standards.
Partner, Sustainability Reporting & Assurance Leader, Auckland, PwC New Zealand
+64 21 355 879
Mariann Trieber
#Auditor Proud is a global day recognising auditors and their role. At PwC New Zealand we recognise the important work our audit teams do over a week long period (28 September – 1 October 2023). Read below to find out why some of our team are #AuditorProud and on our website here.