The Financial Markets Authority – Te Mana Tātai Hokohoko (FMA) has found audit quality remains at a good level overall, although there are areas for improvement. Its Audit Quality Monitoring Report 2026 found recurring weaknesses in how some auditors performed audit procedures, obtained evidence and challenged management's assumptions.
The report covers the FMA's reviews of registered audit firms and licensed auditors from 1 July 2025 to 30 June 2026. The review examined audit-files, firms' systems of quality management, and thematic work on audits involving investments in managed investment schemes, which pool money from many investors.
The FMA reviewed 20 audit files across eight registered firms. Four were assessed as non-compliant, a rate of 20%, compared with 36% in 2024/25. The sample includes both risk-based and random selections, and the firms and audits reviewed change each year, so year-on-year comparison should be treated with care. A non-compliant rating doesn't necessarily mean the audited financial statements failed to give a true and fair view or needed to be restated.
Recurring weaknesses included poor execution of core audit procedures, insufficient professional scepticism and weak documentation when auditors evaluated management's assumptions. Some auditors also relied on third-party service providers without sufficient evidence to support that reliance.
"Fewer of the files we reviewed this year were non-compliant, but the problems we found are familiar ones," says Jacco Moison, Head of Audit, Financial Reporting and Climate Related Disclosures. "They come down to the basics: doing the work as planned, challenging what management tells you, and clearly demonstrating your evidence to support the conclusion
"Engagement quality reviews should provide an important safeguard. Where they aren't effective, firms need to understand why and take actions to address it."
Audits involving investments in managed investment schemes showed inconsistent approaches to evidence obtained to support the valuation of investments. This was most evident where investments were held in schemes not traded in active markets or where auditors relied on fund managers, administrators or other service organisations. Service organisations are outside providers whose systems an audited entity depends on.
Some auditors relied on cloud-based systems without establishing the reliability of the information used. In some cases, the auditor didn't identify the providers as service organisations, so did not consider the impact of the service organisation on their audit approach.
“Firms have made progress embedding systems of quality management. However, many can't yet show that their controls operate effectively in practice. Further focus is needed demonstrating effective monitoring, remediation, independence and root-cause analysis,” says Mr Moison.
The report also notes that AI can support audit work but introduces risks around confidentiality, over-reliance and supervision.
“Firms remain responsible for testing what goes into and comes out of these tools, and AI should support professional judgement, not replace it.”
Background
Find the full report on our website here.
The FMA monitors registered audit firms and licensed auditors as part of its oversight of the audit profession.
Audit files are selected primarily on a risk basis, and the results reflect only the files reviewed in each year.
An engagement quality review is an objective evaluation of the audit team's significant judgements, carried out before the audit report is issued, and of whether the audit has been performed in compliance with auditing standards.
A system of quality management is the set of policies and processes a firm uses to make sure its audits meet professional standards.
