How we allocate audits

The Auditor-General uses an “audit allocation model” for selecting auditors to carry out annual audits of public entities, including schools.

The Auditor-General established this approach in 2002-03, after a review of procedures to appoint auditors. The changes resulted in most audit contracts continuing to be reviewed every three years, and audit arrangements continuing to be made by direct allocation, with limited recourse to tendering.

In allocating annual audits to auditors, the Auditor-General chooses from a pool of audit service providers – which includes Audit New Zealand, the four major chartered accountancy firms, and a range of medium-sized and smaller audit firms. The Auditor-General may use a tender process for the audits of some entities where they consider it warranted.

Since the establishment of the audit allocation model in 2002-03, we have developed a range of techniques to monitor audit fees at the point of negotiation, and to provide a comparative analysis to help resolve concerns about proposed audit fees. Our overall objective is to ensure that audit fees are fair to the public entities subject to audit, and provide a level of return to the auditors commensurate with the auditing standards that public entities, the Auditor-General, and Parliament expect.

About audit fees

Each public entity pays an audit fee for the annual audit. Fees are set to be fair to public entities and still provide a fair return to the appointed auditors for the work they do.

Audit New Zealand, a business unit of the Controller and Auditor-General, operates like a private sector professional services firm but is not a profit-seeking business. It is expected to break even. Its audit fees are used as a benchmark for maintaining reasonable fees among all the audit service providers who work for the Auditor-General.

The Auditor-General monitors audit fees to ensure that they are based on realistic hours (that is, hours reflecting the nature and extent of work required), an appropriate audit team mix, and charge-out rates in line with market rates.

The allocation of audits and the audit fee-setting and monitoring systems are independently reviewed each year to ensure that they are carried out with due probity and objectivity. The report of that independent review is published each year.

Page last updated: 14 November 2014