Media Release
MR No. 2022 – 50
The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko notes the New Zealand Institute of Chartered Accountants (NZICA) has released its disciplinary decisions arising from the 2015 PwC audit of the formerly NZX-listed Wynyard Group.
The FMA complained to NZICA after developing significant concerns about PwC’s audit of Wynyard¹, following a routine audit quality review completed in August 2017. The FMA referred PwC’s two audit partners responsible for the Wynyard audit (the Engagement Lead Partner and the Engagement Quality Review Partner) to NZICA’s Professional Conduct Committee.
The FMA was concerned about:
- the audit firm’s independence, because Wynyard had engaged PwC’s Transaction Services team during the audit period. The team was contracted to provide Wynyard with a limited due diligence report as part of Wynyard’s $30 million dollar capital raise, disclosed as subsequent events in the financial statements;
- the audit work performed to support Wynyard’s going concern assumption as disclosed in the financial statements and how it concluded that sufficient evidence was obtained regarding its assessment; and
- the role the audit quality reviewer played in performing its tasks in relation to this engagement.
NZICA’s Appeals Council and Disciplinary Tribunal findings include that the Lead Engagement Partner failed to:
- adequately identify or evaluate all perceived, potential and/or actual threats to auditor independence caused by PwC’s Transaction Services team engaging with Wynyard, as required by the Assurance Standards. Further, the partner failed to take appropriate action to eliminate or reduce (to an acceptable level) the threat to independence posed by this engagement by applying safeguards or withdrawing from the engagement, as required by the Standards. Finally, the partner failed to disclose the Transaction Services engagement in the audit report and communicate to Wynyard’s board the bearing on independence and/or the related safeguards that were applied in respect of any identified threats of this engagement;
- obtain sufficient and appropriate audit evidence to support their conclusion that no material uncertainties existed in respect of Wynyard’s ability to continue as a going concern; and
- ensure sufficient audit documentation was prepared on timely basis relating to the audit procedures performed, evidence obtained and auditor’s conclusion that there was no material uncertainty in relation to Wynyard’s ability to continue as a going concern.
- And that the Engagement Quality Review Partner failed to adequately evaluate significant judgments made by the audit engagement team and/or failed to identify where such judgments were lacking, as required by ISA (NZ) 220, in relation to:
- the audit team’s evaluation of independence including threats and/or safeguards
- the audit team’s conclusion that no material uncertainty existed in relation to Wynyard’s ability to continue as a going concern the appropriateness of the audit report.
Paul Gregory, FMA Acting Director of Capital Markets, said: “Auditor independence and the assessment of going concern are fundamental parts of the audit. Failure to perform these core functions appropriately can result in significant harm, and undermine investor confidence. So, it was important for us to test the issues we found, with NZICA’s disciplinary tribunal.”
“The decisions clarify for auditors what is required for the documentation of, and assessment of threats to independence, and the evidence and documentation required when assessing going concern. The decisions also note that the importance of the Engagement Quality Review Partner’s role in the audit should not be underestimated. We expect that auditors will learn from this case to ensure that core areas of their audits are performed to the required standards.”
The full NZICA disciplinary decisions can be found here:
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.
Following Wynyard’s failure in October 2016, the FMA and NZX also undertook an investigation into the conduct of the company and its directors. The FMA published the findings of its investigation into Wynyard’s compliance with continuous disclosure and fair dealing obligations in November 2018.
About NZICA
As a frontline regulator for auditors, NZICA plays a crucial role in New Zealand’s financial markets, with responsibility for overseeing domestic licensed auditors and registered audit firms. Disciplinary actions against licensed auditors are one of NZICA’s key regulatory functions under the Auditor Regulation Act.
ENDS
¹ The FMA audit quality review of PwC in 2016/2017 included the review of the 2015 audit of Wynyard completed on 21 March 2016.
Media contacts:
Andrew Park
FMA Media Relations Manager
[email protected]
021 220 6770
Campbell Gibson
FMA Senior Adviser, Media Relations
[email protected]
021 945 323
