Service 3: Audit information reported by public organisations about their performance

What went well

What didn’t go to plan

The opening of borders has increased the number of senior auditors, which has resulted in more audits being completed in 2022/23 than 2021/22. The percentage of audit reports in arrears at 30 June has remained stable. Most of the arrears relate to school audits. An independent review confirmed the probity and objectivity of our methods and processes for allocating audits and monitoring the reasonableness of audit fees.

Audit delivery remains a challenge, especially for smaller public organisations. Private sector auditors have a significant number of previously deferred audits to bring up to date, most of which are school audits. Time and resource pressures are impacting the quality of the audit files we reviewed during the year.

This service is funded through the appropriations Audit and Assurance Services RDA and Audit and Assurance Services and the amount appropriated in the Main Estimates for 2022/23 was $105.526 million.

The core work of our Office is annual audits of public organisations. Our annual audits provide assurance that the financial and performance reporting of public organisations is materially correct. Annual audits account for around 85% of our resources. Audit New Zealand and other audit service providers carry out this work on the Auditor-General’s behalf.

We allocate annual audits to audit service providers. An annual independent review of our audit allocation model confirms the methods and processes we use to allocate audits and to monitor the reasonableness of audit fees (see Appendix 2).

Our audit service providers issue reports to those charged with governance with observations from our work and how they could improve their organisation’s control environment and reporting.

We periodically carry out quality assurance reviews of appointed auditors.

Our performance results show that the Covid-19 pandemic and a shortage of auditors affected the timeliness of our audits.

The commentaries for the following performance measures explain some of the circumstances affecting our achievement against the performance standards. We will continue to look at how we can improve the factors that are within our control.

Quantity measures

Indicator: Number of annual audit reports signed and issued
Target: Not applicable

Year	Result
2022/23	3074
2021/22	2704
2020/21	3356
2019/20	2922
2018/19	New measure for 2019/20

We expect to sign and issue about 3300 audit reports each year (because this roughly equates to the number of public organisations within the Auditor-General's mandate). The Covid-19 pandemic has significantly affected the timely completion of audits. The audits falling due in 2022/23 and the previous years’ outstanding audits mean we had a total of 4790 audits to complete. Of the audits in arrears as at 30 June 2023, 74% are audits for schools. Our modelling for 2023/24 shows that we are now on track to return to pre-Covid levels of audit delivery for large public organisations in the coming year.

Indicator: Number of council long-term plan audit reports signed and issued
Target: Not applicable

Year	Result
2022/23	Not assessed, because it was not a long-term plan year
2021/22	Not assessed, because it was not a long-term plan year
2020/21*	66
2019/20	Not assessed, because it was not a long-term plan year
2018/19	Not assessed, because it was not a long-term plan year

* Twelve councils did not adopt their audited 2021-31 long-term plans by 30 June, which is the statutory deadline for adopting a new plan. Those councils adopted their plans during 2021/22.

Timeliness measures

The Covid-19 pandemic has continued to have an adverse effect on audit timeliness and efficiency. The global auditor shortage has also continued to affect audit timeliness.

Indicator: Percentage of audit reports that are signed by the applicable statutory deadline
Target: At least 80%

Year	Result
2022/23	55%
2021/22	57%
2020/21*	71%
2019/20	63%
2018/19	81%

* Revised measure for 2020/21.

This target has not been achieved since the onset of Covid-19.

In 2022/23, 55% of audit reports were signed by applicable statutory deadlines. The Covid-19 pandemic caused disruptions to the timely completion of financial statements and audits. We have focused on completing the audits of large public organisations that are most critical to public accountability and parliamentary scrutiny. We are pleased to have completed most audits of large public organisations on time. However, for many smaller organisations, including schools, we completed only 54% of the audits on time.

Indicator: Number of public entities with audit reports in arrears as at 30 June 2023
Target: Decreasing

Year	Result
2022/23*	1089
2021/22	1078
2020/21**	600
2019/20	848
2018/19	New measure for 2019/20

Note: “In arrears” means not completed within statutory timeframes and remaining outstanding, as at 30 June 2023.

* To improve understanding and provide greater transparency of performance, the wording of this performance measure has been changed from “percentage” to “number of”, and the budget standard for 2022/23 has been changed from “less than 10%” to “decreasing”.

** Revised measure for 2020/21.

We have not achieved this target since the onset of Covid-19. As at 30 June 2023, 33% of audit reports were in arrears. This was because of a sustained shortage of auditors and significant impacts of the Covid-19 pandemic on audit service providers and public organisations.

More than 70% of the audit reports we are required to issue each year are for schools. Schools must have their audited financial statements completed by 31 May. As noted above, only 54% of small organisations, including schools, had their audits completed on time.

Many of the audits not completed remained incomplete as at 30 June 2023. This accounted for 92% of the audits in arrears. At 31 August 2023, 73% (1,791) of school audits had been completed, and arrears of school audits reduced to 27% (672).

Indicator: Percentage of finalised reports to governors about the audit (which incorporate responses from management) that are provided within six weeks of signing the audit report
Target: 100%

Year	Result
2022/23	88%
2021/22	88%
2020/21	90%
2019/20	97%
2018/19	97%

We did not achieve our target in 2022/23. This was due to a sustained shortage of auditors and significant impacts of the Covid-19 pandemic on audit service providers. We asked our auditors to prioritise the delivery of audits of large public organisations that are most critical to public accountability and parliamentary scrutiny within statutory time frames. In some cases, this meant that letters to governors were deferred in order to complete other audit work.

Indicator: Percentage of Ministerial letters on annual audits that are issued to Ministers and parliamentary select committees within the expected time period where the audit report statutory deadline is 31 October, within 15 weeks of signing the audit report, and, for all other audits, within 10 weeks of signing the audit report
Target: 100%

Year	Result
2022/23	76%
2021/22	77%
2020/21	61%
2019/20	93%
2018/19	New measure for 2019/20

Similar to 2021, public organisations and auditors have been impacted by the ongoing effects of the Covid-19 pandemic, the extended statutory deadlines, the shortage of auditors, and impact of the additional work done in 2022/23, which delayed the reporting of some audits. This contributed to delays in preparing and finalising some ministerial letters.

Quality measures

We are committed to maintaining high standards of auditing. We periodically carry out a quality assurance review of appointed auditors to ensure that they have complied with the Auditor-General’s auditing standards. We expect all our auditors to achieve at least a “satisfactory” grade.

At 30 June 2023, 88% of our auditors achieved at least a satisfactory grade. Where auditors did not achieve a satisfactory grade, our concerns with the audit files related to the compliance of the file rather than the appropriateness of the audit opinion.

We work with auditors who did not achieve a satisfactory grade to address any immediate concerns, create improvement plans, and carry out a follow-up review (typically within a year). Where necessary, we make changes to auditors’ audit portfolios.

In 2022/23, resourcing constraints meant we could review fewer audit files than normal. We focused on reviewing higher risk appointed auditors, new appointed auditors, and those for whom we had limited data about the quality of their files. This targeted risk-based approach, together with fewer files being reviewed, helps explain the reduced number of appointed auditors and files rated as “satisfactory” or higher.

Indicator: Percentage and number of appointed auditors with a quality assurance grade of at least “satisfactory based on the most recent quality assurance review
Target: 100%

Year	Percentage and number
2022/23*	88% (122 of 139)
2021/22	92% (120 of 131)
2020/21	90% (123 of 136)
2019/20	94% (115 of 123)
2018/19	93% (113 of 121)

* To improve transparency, the wording of this performance measure has been changed to include both the percentage and number of appointed auditors, which varies from year to year.

The rating of audit files subject to the quality assurance review influences the quality assurance grade of appointed auditors. The appointed auditors who were not graded at least “satisfactory” are required to improve the audit approach or audit evidence obtained. Despite the need for this improvement, we were satisfied that the conclusions reached by these audits and the opinions included in the audit reports were appropriate. Where an appointed auditor’s performance does not meet a grade of at least “satisfactory”, we monitor their quality improvement plan, which is prepared to address the deficiency.

Indicator: Percentage of audit files subject to quality assurance review during the year that achieve a rating of at least “satisfactory”
Target: 100%

Year	Result
2022/23	74%
2021/22	84%
2020/21	69%
2019/20	91%
2018/19	New measure for 2019/20

Indicator: Number of audit reports withdrawn
Target: No audit reports withdrawn

Year	Result
2022/23	0
2021/22	2
2020/21	1 (revised measure for 2020/21)
2019/20	New measure for 2019/20

Note: To improve the accuracy of reporting, we have changed the wording of this performance measure from “audit opinions” to “audit reports”.

Indicator: Percentage of public entities that are “satisfied” with the overall quality of their audit service (as determined by responses to our satisfaction survey)
Target: At least 85%

Year	Result
2022/23	69%
2021/22	71%
2020/21	71%
2019/20	82%
2018/19	76%

In 2022/23, overall client satisfaction decreased to 69%. One important reason for the fall in satisfaction was the delay in completing audits. As we address historical fee settings, we expect this measure to remain lower than our target.

Indicator: Annual independent review confirms the probity and objectivity of the methods and processes we use to allocate and tender audits and to monitor the reasonableness of audit fees
Target: Confirmed

Year	Result
2022/23	Confirmed by annual independent review
2021/22	Confirmed by annual independent review
2020/21	Confirmed by annual independent review
2019/20	Confirmed by annual independent review
2018/19	Confirmed by annual independent review

Entities audited under section 19 of the Public Audit Act 2001

Section 37(2)(c) of the Public Audit Act 2001 requires us to include in the annual report a list of organisations audited by the Auditor-General under an arrangement in accordance with section 19 of the Public Audit Act 2001. At 30 June 2023, arrangements had been entered into for audits of:

• The New Zealand Sport Foundation Charitable Trust; and
• Te Awa Tupua (including Te Korotete).

Changes to standards

The Public Audit Act 2001 requires us to report each year on any significant changes made to the Auditor-General’s auditing standards. We are required to publish these standards at least once every three years. In March 2023, we published the latest update, which included:

• a new code of ethics that specified the fundamental principles of the Auditor-General and explained the reasoning that supports the high standards expected by the Auditor-General, particularly for independence;
• two new quality management statements (AG PES 3 and AG PES 4) to align with the updated quality management standards issued by the External Reporting Board (XRB);
• new standards for Other Auditing Services (AG-7) and Statutory Requirements for the Auditor-General to Report, Other than Annual Audits (AG-8). We also updated our standard for Performance Audits (AG-5); and
• withdrawing two statements – AG ISA (NZ) 330: The auditor’s responses to assessed risks and AG ISA (NZ)
  450: Evaluation of misstatements identified during the annual audit – because they replicated requirements already in the standards.

Other assurance work

Under the Public Audit Act 2001, Audit New Zealand can carry out services that are reasonable and appropriate for an auditor to carry out. This work generally focuses on reviewing procurement and contract management, project management, asset management, risk management, governance, and conflicts of interest. In 2022/23, Audit New Zealand spent just under 3600 hours providing assurance services. We issued 32 assurance reports in the financial year and started 46 new assurance engagements.

Assurance work helps public organisations comply with rules and guidelines and adopt good practice. Audit New Zealand measures client satisfaction after each engagement. In 2022/23, satisfaction was rated 5 out of 5 for all surveyed public organisations.

Audit New Zealand and our other audit service providers also carry out other assurance engagements that are prescribed in legislation other than the Public Audit Act 2001 – for example, work to support disclosure regimes required by the Commerce Commission.

Appointing auditors and monitoring audit fees

The Auditor-General appoints auditors from Audit New Zealand and private sector auditing firms to carry out the annual audits of public organisations on his behalf. Our processes are designed to ensure that these auditors are independent, that they carry out high-quality audits, and that their audit fees are reasonable. The annual independent review confirmed the probity and objectivity of the methods and processes we use to allocate audits and to monitor whether fees are reasonable.