MR No. 2020 – 41
13 November 2020
The Financial Markets Authority (FMA) today released its Audit Quality Monitoring Report for 2020. The annual review, part of a three-year monitoring cycle of all licensed auditors, scrutinises selected audit files for listed companies and other entities that report under the Financial Markets Conduct (FMC) Act.
Audit quality has continued to improve, with the overall number of issues discovered by the FMA reducing over time. However, while the number of individual issues in each file reduced, 35% of files in the sample were rated non-compliant, which is consistent with previous reviews.
A non-compliant rating does not necessarily mean that financial statements fail to show a true and fair view or require restatement.
Sarah Vrede, FMA Director of Capital Markets, said: “Audit files are selected for review on a risk basis, meaning these files have a higher chance of being non-compliant than files selected at random. This ensures we are targeting and revealing areas that may require improvement.
“Audit quality is a key priority for the FMA as it is a cornerstone of market integrity and investor confidence. Investors rely on audited financial statements and need to have confidence that they present a true and fair reflection of a company’s financial position and performance, particularly in this time of heightened economic uncertainty.”
The FMA review also checks progress against action plans provided by audit firms from previous reviews. While progress against these plans varied across audit firms, all firms have continued to make significant investments in audit quality.
The report highlights the following key areas of focus for auditors and directors:
Areas that have previously been raised and continue to require attention include:
Covid-19 related disruptions had a significant impact on preparers of financial statements and on auditors. The FMA responded by granting affected FMC-reporting entities additional time to audit and file financial statements. In addition to providing this relief, we engaged closely with audit firms, the External Reporting Board (XRB) and the Australian Securities and Investment Commission (ASIC), to assess the emerging risks and challenges over the last 8 months.
The FMA report noted that while the pandemic related disruptions may have made it more difficult to complete an audit, this should not have compromised overall quality. The FMA also noted the expectation of auditors to engage closely with directors where information was of poor quality or difficult to obtain, and for any significant uncertainties to be assessed as part of the audit opinion.
Other matters highlighted in the report:
A snapshot of audit oversight of the licensed peer-to-peer (P2P) lending sector
FMA Media Relations Manager
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