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

What went well	What didn’t go to plan
93% of our auditors achieved a quality assurance grade of at least “satisfactory”, which is higher than previous years.	The number of audits in arrears substantially increased (from 18% to 33%, as at 30 June). These were mostly school audits.

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 2021/22 was $91.495 million.

The core work of our Office is annual audits of public organisations. Our annual audits fundamentally support the integrity of the financial and performance reporting of public organisations. They account for 85% of our resources. Audit New Zealand and other audit service providers carry out this work.

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 on how they could improve their organisation’s control environment and reporting.

Because annual audits are allocated to audit service providers, we carry out quality assurance reviews of appointed auditors, typically once every three years.

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 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
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). Since late February 2022, impacts from the Covid-19 pandemic have significantly affected the timely completion of audits. As at 30 June 2021, there were about 400 more audits outstanding than there typically would have been before the onset of Covid-19. As at 20 June 2022, there were about 1100 more audits outstanding than there typically would have been. This is mainly affecting the school portfolio, where about 900 school audits were outstanding. We expect these to be completed within the next few months. 

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

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

* 12 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 impact audit timeliness this year.

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

Year	Result
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 March 2020.

In 2021/22, 57% of audit reports were signed by applicable statutory deadlines. Disruptions related to Covid-19 have affected 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 of the audits of large public organisations on time. However, for many smaller organisations, including schools, we completed only 54% of the audits on time.

Indicator: Percentage of public organisations with audit reports in arrears as at 30 June
Target: Less than 10%

Year	Result
2021/22	33%
2020/21*	18%
2019/20	25%
2018/19	New measure for 2019/20

* Revised measure for 2020/21. The wording of this indicator was revised for 202/21. Previously, it was "Percentage of entities with audit opinions in arrears as at 30 June".

This target has not been achieved since the onset of Covid-19 in March 2020. As at 30 June 2022, 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, which are required to have audited financial statements completed by 31 May. As noted above, only 54% of small organisations, including schools, had their audits completed on time and many of those not completed remained incomplete as at 30 June 2022. This accounted for 98% of the audits in arrears.

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
2021/22	88%
2020/21	90%
2019/20	97%
2018/19	97%

This target was not achieved in 2021/22. This was because of a sustained shortage of auditors and significant impacts of the Covid-19 pandemic on audit service providers. It also impacted the additional work done in 2020/21 that delayed the start of some audits in 2021. We asked our auditors to prioritise the timely delivery of audits of large public organisations that are most critical to public accountability and parliamentary scrutiny to ensure that they met their statutory deadlines. 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 the signing of the audit report
Target: 100%

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

In 2021/22, we did not achieve our target. Similar to 2020, the statutory deadlines for some 2021 audits were extended because of the ongoing effects of the Covid-19 pandemic on public organisations and auditors. The extended statutory deadlines, ongoing effects of the Covid-19 pandemic, the shortage of auditors, and impact of the additional work done in 2020/21 delayed the reporting of some audits. This contributed to delays in the preparation and finalisation of some ministerial letters.

Quality measures

We are committed to maintaining high standards of auditing. We carry out a quality assurance review of appointed auditors (usually every three years) 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 2021/22, 93% of our auditors achieved this target. We work with auditors who do not achieve a “satisfactory” grade to address any immediate concerns, and we carry out a follow-up review typically within a year. Where necessary, we make changes to auditors’ audit portfolios.

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

Year	Result
2021/22	93%
2020/21	90%
2019/20	93%
2018/19	94%

The rating of audit files subject to the quality assurance review influences the quality assurance grade of appointed auditors. The 7% of 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
2021/22	84%
2020/21	69%
2019/20	91%
2018/19	New measure for 2019/20

This year, 84% of the audit files we reviewed achieved a rating of at least “satisfactory”. If the audit files for small audits are excluded, the percentage of audit files that achieved a rating of at least satisfactory is 95% (see Appendix 5).

Most of the small audits that did not achieve a rating of at least “satisfactory” had the same audit service provider. After our review, the audit service provider made changes to address our findings from the review. We performed a review of the changes implemented before the audit service provider issued any further audit reports. We concluded that the changes made addressed our findings.

We also ask appointed auditors to make the improvements needed to ensure that all future audit files are rated at least “satisfactory”. We follow up to check that the improvements have been made.

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

Year	Result
2021/22	2
2020/21	1 (revised measure for 2020/21)
2019/20	New measure for 2019/20
2018/19	New measure for 2019/20

Two audit reports were withdrawn and new audit reports issued. After their audits were completed, two public organisations identified additional information, which meant there were errors in their financial statements. They wanted to correct the errors, which required reissuing both the financial statements and the audit reports. The audit opinions did not change.

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
2021/22	71%
2020/21	71%
2019/20	82%
2018/19	76%

In 2021/22, overall client satisfaction remains at 71%. The most consistent issue identified was delays in completing audits because of disruptions from the Covid-19 pandemic.

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
2021/22	Confirmed by annual independent review (see Appendix 2)
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 entities audited by the Auditor-General under an arrangement in accordance with section 19 of the Public Audit Act 2001. At 30 June 2022, arrangements had been entered into for audits of the following entities:

• 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 have made no significant changes to the standards this year.

Other assurance work

Audit New Zealand carries out other assurance work. This work generally focuses on reviewing procurement and contract management, project management, asset management, risk management, governance, and conflicts of interest. However, it can include services that are reasonable and appropriate for an auditor to carry out. In 2021/22, Audit New Zealand spent just under 3700 hours providing assurance services and issued final reports on 35 separate 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 2021/22, satisfaction was rated 4.94 out of 5.

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 audits of high quality, and that their audit fees are reasonable. The annual independent review of the methods and processes we use to allocate or tender audits and to monitor whether audit fees are reasonable confirms their probity and objectivity.

Our audit work is funded by fees charged to each audited public organisation. The fees are agreed after consultation with the public organisation within agreed parameters.

Historically, the audit fees of many public organisations have not kept pace with the increase in the hours needed to carry out the audits. We have, previously, limited audit fee increases to reflect the pressures public organisations face. However, to ensure the delivery of high-quality audits in the public sector, larger increases in audit fees have become necessary to recover the costs required to deliver quality audits. We have done this while ensuring that fee negotiations with public organisations result in audit fees that are fair and reasonable to both parties.

The table summarises changes in audit fees from 2020/21 to 2021/22. The figures exclude additional audit fees negotiated with public organisations because of unforeseen problems arising after audit fees were agreed.

2020/21 to 2021/22

Sector	Increase in total fee	Because of changes in time	Because of changes in charge-out rate	Number of organisations*
Central government	13.6%	7.8%	5.8%	311
Local government	6.4%	1.9%	4.5%	366
Schools	15.7%	6.3%	9.4%	2445
Total	11.5%	5.6%	5.9%	3122

2019/20 to 2020/21

Sector	Increase in total fee	Because of changes in time	Because of changes in charge-out rate	Number of organisations*
Central government	2.4%	0.4%	2.0%	329
Local government	5.3%	0.2%	5.1%	362
Schools	3.0%	0.3%	2.7%	2443
Total	3.4%	0.3%	3.1%	3134

* The number of organisations is all those that agreed on the audit fees at the time our analysis was prepared.