New audit reporting standards means Kiwi investors will soon be better-equipped to make investment decisions regarding our large public companies.
Kiwi investors will soon be better-equipped to make investment decisions regarding our large public companies – thanks to new audit reporting standards soon to come into force, says KPMG New Zealand.
The new style of audit report – which requires companies to reveal more information on their key financial reporting issues, and the management decisions surrounding those issues – will become mandatory for certain entities later this year.
Lee White, the CEO of Chartered Accountants of Australia and New Zealand (CAANZ) describes the new auditing standard as the “most revolutionary change in the history of auditing”. He says it will significantly improve the value of audit, by making reports insightful and unique.
The New Zealand stock exchange (NZX) has been first in New Zealand to embrace the new rules. In their latest audit, recently completed by KPMG, they chose to voluntarily adopt the new standards before the required December date.
Darby Healey, a Partner with KPMG, explains what the new standards will mean:
“In the past, audit reports were essentially a pass-or-fail; and apart from the name at the top, they looked the same for every client. In these new reports, the auditor will be providing a greater level of insight.”
As well as describing the process they followed, the auditor will communicate ‘key audit matters’ – such as the particular areas they focused on, what was discussed with the Board, or how management is dealing with key issues.
Darby Healey says these new-style reports will arm investors with greater knowledge.
“They will provide investors with insights on what’s going on in the company, and the management decisions that underpin the financial statements…which is the kind of information that can be critical when making investment decisions.”
Darby Healey says KPMG’s auditors are also welcoming the opportunity to provide greater transparency around the work they do.
“The audit process itself will remain the same – for instance, we’ve always critically assessed the judgments made by directors. But this is the first time we’ve been able to publicly demonstrate the quality of the work we do, and provide investors with some of the qualitative information we gather during the audit process.”
Similar rules have already been implemented in other countries around the world, and the new standard for Australasia comes into force in December 2016. It is initially only mandatory for FMC (Financial Markets Conduct Act) entities with higher public accountability, such as listed companies. However any company can choose to adopt the standard voluntarily – particularly if they see advantages.
“By sharing the detail of their key audit matters, it would demonstrate that the company is willing to be as open as possible with their investors,” says Darby Healey.
In this spirit, NZX decided to become an early-adopter of the new auditing standards, in order to encourage other New Zealand companies to follow suit.
Neil Paviour-Smith, who is Chair of NZX’s Audit and Risk Committee, points out there are benefits to both shareholders and companies.
“For the investor, these new long-form reports are going to be more valuable and informative. I personally think this will encourage shareholders to actually read the auditor’s report, whereas previously they might have just skimmed through it.”
Mr Paviour-Smith credits KPMG for “being willing and ready” to produce one of the country’s first reports under the new standard; and encourages other companies to talk to their own auditors about their ability to do the same.
“Ultimately, the audit report is produced for the benefit of your shareholders. Given that this will enhance their understanding and provide greater transparency around your audit, it’s well worth pursuing.”
© 2017 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
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