07 Auditors

The board should ensure the quality and independence of the external audit process.

FMA Guidelines

The board should inform itself fully on the responsibilities of external auditors and be rigorous in its selection of auditors on professional merit.
The board should satisfy itself there is no relationship between the auditor and the entity, or any related person that could compromise the auditor’s independence. The board should require confirmation of this from the auditor.
The board should facilitate regular and full dialogue among its audit committee, the external auditors and management.
No issuer’s audit should be led by the same audit partner for more than seven consecutive years. For listed issuers, NZX rules require most listed entities’ audit partners to be rotated from the engagement after a maximum of five years.
Boards of issuers and entities that are obliged to prepare and file financial reports under the FMA Act should report annually to shareholders and stakeholders on the fees paid to auditors, and should differentiate between audit fees and fees for individually identified non-audit work (for example, separating each category of non-audit work undertaken by the auditors, and disclosing the fees for this).
Boards of issuers should explain in the annual report what non-audit work was undertaken and why this did not compromise auditor objectivity and independence. They should also explain the following:
- how they satisfy themselves on auditor quality and effectiveness
- the boards’ approach to tenure and reappointment of auditors
- any identified threats to auditor independence
- how the threat has been mitigated.

Additional Forum Guidelines for NZ listed companies

There should be active consideration of audit firm rotation every 10 years.
The annual report should describe the work of the audit committee in discharging its responsibilities. The report should include:
- the significant issues that the committee considered in relation to the financial statements, and how these issues were addressed;
- an explanation of how it has assessed the effectiveness of the external audit process.