Statutory reporting time frames to be extended to respond to auditor shortages

Parliament has passed the Bill to extend by two months the statutory reporting time frames in the Crown Entities Act 2004 and the Local Government Act 2002. The extensions apply to Crown entities and organisations listed in Schedules 4 and 4A of the Public Finance Act 1989 and local authorities and council-controlled organisations with 30 June balance dates.

Last year, all reporting time frames for public organisations with a 30 June balance date needed to be extended. This was because of the way Covid-19 affected many of those organisations’ ability to prepare their financial statements (and performance information) and affected our ability to carry out the annual audits. This year, global mobility restrictions and auditors leaving the profession have meant a shortage of auditors in Australia and New Zealand.  There are simply not enough auditors available to do the work.

It is vital that the shortage of auditors does not compromise the quality of the audit work carried out, especially during times of increased uncertainty. The reporting time frames are being extended to allow auditors to sequence their work over a longer period and maintain the quality of their work.

The move will also avoid many public organisations breaching their statutory reporting timeframes. Statutory time frames are important to the integrity of New Zealand’s public accountability system.

Auditors will engage directly with Crown entities, organisations listed on Schedules 4 and 4A of the Public Finance Act 1989, local authorities, and council-controlled organisations to discuss the sequencing of audit work. Many of the public organisations that we audit will be unaffected by this change and their audits will be completed within normal statutory time frames.

Audits that will be completed within the normal statutory reporting time frames include:

• The audit of the financial statements of the Government and its main component audits. This includes all government departments, the Reserve Bank of New Zealand, New Zealand Superannuation Fund, State-owned enterprises, and mixed-ownership model companies.
• Large Crown entities, such as the Accident Compensation Corporation, Kainga Ora – Homes and Communities, Waka Kotahi NZ Transport Agency, and larger district health boards.
• All Financial Markets Conduct reporting entities (those covered by the Financial Markets Conduct Act 2013) such as Auckland Council.
• Larger local authorities (for example, Christchurch City, Tauranga City, Wellington City, and Dunedin City, including significant council-controlled organisations).

Any outstanding audits of local authorities’ long-term plans 2021-31 will also be a priority, as well as any remaining audits of significant public organisations with a 31 March 2021 balance date.

Audits that will be completed within the extended statutory reporting time frames include:

• small to medium-sized local authorities and smaller council-controlled organisations;
• some smaller district health boards; and
• smaller Crown entities, trusts, and organisations listed on Schedules 4 and 4A of the Public Finance Act 1989.

Background

Covid-19 continues to significantly affect many organisations in New Zealand, including ours.

There is a shortage of auditors across New Zealand and Australia. Normally, the audit profession relies on bringing in auditors from overseas to manage the workload at this time of the year. With global mobility restrictions, there is a limited supply of auditors in both the public and private sectors. Compounding this, there are auditor retention challenges. A tight labour market for qualified finance staff means that auditors are being actively sought for other positions.  

These factors are affecting all audit firms, as shown in a recent Chartered Accountants Australia and New Zealand survey. They also affect audits in both the public and the private sectors. The Financial Markets Authority has already allowed for an extended reporting deadline for Financial Markets Conduct reporting entities in response to the shortage of auditors.

The auditor shortage impact has been particularly acute for Audit New Zealand, the Auditor-General’s in-house audit service provider. Audit New Zealand relies on both recruitment from overseas and on short-term engagements of auditors from New Zealand private audit firms during its busy period.

Auditors are also experiencing extended high workloads – from an extremely busy 2020 due to Covid-19, and a busy first half of 2021 with the audits of local authorities’ long-term plans and their associated consultation documents.

For these reasons, the Auditor-General wrote to the Minister of Finance in mid-June requesting his support for a legislative amendment that would extend statutory time frames by two months for some public organisations’ 30 June 2021 year-end reporting. There are similarities to the extensions provided in 2020 for a broader range of public organisations.

With a two-month extension to timeframes, we expect that all 30 June 2021 audits will be completed by the end of this calendar year without compromising audit quality. Although, as always, completing audits will depend to some extent on the readiness of public organisations for audit.

There is no short-term solution to the industry-wide shortage of auditors. We, together with the broader auditing profession, are actively working on a range of longer-term measures. These include supporting auditors being added to Immigration New Zealand’s list of priority workers, recruiting a larger number of graduates, and extending the circumstances in which auditing work can be carried out offshore or through virtual secondments (with due consideration of security risks).

Although we want to return to a normal reporting cycle, it is possible that this auditor shortage will continue until at least the end of 2022. For this reason, allowing for extended time frames this year and next year will allow certainty of planning for public organisations and for our auditors.

Our auditors will now engage directly with the public organisations that are potentially affected by the extended statutory reporting time frames to confirm audit arrangements.