Public sector auditors should not do non-assurance work

Auditor-General John Ryan argues auditor independence is essential.

This article was first published by the NBR on 8 November 2020 and has been republished with permission.

In my line of work, an article titled “Is NZ running out of auditors” is bound to grab my attention. It was an excellent read with insightful comments from the Big Four audit firms about auditing in the private sector.

But, what about auditing in the public sector?

As Auditor-General, I am responsible for ensuring Parliament and the public have assurance about the reliability of published financial and performance information from our roughly 3,500 public sector agencies – including every government department, district health board, university, council, and public school.

The challenges canvassed in that article – auditor independence, audit quality, and fees – are challenges for public sector auditors too.

But, in my mind, these challenges are not equal.

I believe that complete independence of mind, more than any other factor, is fundamental to ensuring audits have value and are seen to have value.

The importance of independence in forming judgements is easier to see when compared with other environments.

Imagine, for example, if an Australian coach was made referee of a Bledisloe Cup game. He or she would know all the rules and might apply them fairly. But no matter who won, the judgements made – and the overall outcome – would be seriously undermined by doubts about the referee’s independence.

Increasing questioning

The same risk applies to an auditor’s report where the auditor is also involved in non-assurance work for the organisation they audit.

Here and overseas, politicians and the public are increasingly questioning the independence of auditors from those they audit.

I understand the need for auditors to bring different expertise to bear on an audit. This is important.

But, in the public sector, I believe that allowing auditors to do even small amounts of non-assurance work for any organisation they audit is no longer appropriate.

Auditors carrying out public sector audits, no matter what firm they’re from, must follow my Auditing Standards. This year, I’ve further strengthened the independence standard so public auditors can do only audit and assurance work for those agencies they audit.

If Parliament or the public felt we were, in effect, ‘working for’ public agencies, this would fundamentally undermine the value of my office’s work. This rule should give extra comfort that we are truly independent from those organisations we audit. It should also give reassurance that I am able to tell it like it is.

A strong stand on independence, to my mind, strengthens trust and confidence in our system and increases the profile and standing of our profession and the work we do.

Many other issues facing the audit profession will be easier to address if we ensure the fundamental underpinning of an audit – professional judgement, applied by an independent mind – is carefully protected, fully accepted, and understood by those we ultimately audit for – in my case, Parliament and the public.

This article was first published by the NBR on 8 November 2020.