The Financial Markets Authority reviewed 20 audit files across eight registered firms this year and found four were non-compliant. That is a 20% failure rate, published today in its 2026 Audit Quality Monitoring Report. Audits are the reason investors can take a company’s numbers on trust. A one-in-five miss rate is not a crisis, but it is not a comfortable number for a market that depends on that trust.
Better than last year, still not good enough
The figure is an improvement. In its 2024/25 report, the FMA found 5 of 14 files non-compliant, or 36%. That sample was smaller and weighted towards large bank audits. The year before, in 2023/24, the rate was 26%. So the trend is not getting worse. The problem is that the same failures keep turning up.
The caveat matters too. A non-compliant finding does not mean the financial statements were wrong or needed restating. It means the auditor did not meet the required standard of evidence, scepticism or documentation, RNZ reports. But an audit opinion is only worth the work behind it. If the work isn’t there, investors are relying on luck.
“Fewer of the files we reviewed this year were non-compliant, but the problems we found are familiar ones,” said Jacco Moison, the FMA’s head of audit. “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.”
None of this is new. As far back as January 2025, Moison told CPA Australia that New Zealand auditors “have developed good procedures, but they’re not always executed well.” Two years on, the regulator is still describing the same execution problem.
The safety net mostly didn’t work
The sharpest finding is about the engagement quality review. This is the second partner whose job is to catch the lead auditor’s mistakes before an opinion is signed. In three of the four failed files, the FMA believes that reviewer could have spotted and fixed the problems.
“Engagement quality reviews should provide an important safeguard. Where they aren’t effective, firms need to understand why and take actions to address it,” Moison told RNZ.
That is a quality-control failure inside the firms, not a problem with the rules. A backstop that fails three times out of four suggests the review is too often a sign-off formality rather than a real challenge.
Fund managers vouching for their own numbers
The finding that matters most for ordinary investors is in the FMA’s thematic review of managed investment schemes. It found auditors took inconsistent approaches to evidencing valuations, especially for assets not traded in active markets. In some cases, NBR reports, auditors relied heavily on confirmations from investment managers, the same people who set the values being audited.
Put plainly, the auditor sometimes asked the fund manager whether the fund manager’s valuation was right, and accepted the answer. As BusinessDesk notes, billions are flowing into KiwiSaver and managed funds, and more of that money sits in unlisted assets that are hard to value. Those are exactly the holdings where independent checking matters most. Right now, by the regulator’s own account, that checking is uneven.
The review also found auditors relied on third-party service providers, including online accounting software, without enough evidence to justify it. It also warned that AI tools bring risks around confidentiality, over-reliance and supervision. Expect AI to feature more heavily in future reviews as firms bring it into their audit work.
Why Australia is the warning
Moison told NBR it would be “naive to think the Australian scandals at PwC and KPMG couldn’t happen in New Zealand.” PwC Australia’s partners misused confidential government tax policy information. KPMG Australia faces allegations that confidential client information was improperly used, along with claims of governance failures and poor handling of whistleblower complaints, BusinessDesk reports.
The FMA’s response is the right kind of regulation. It is not adding new rules. It is using its existing power to examine firms’ culture, incentives and whistleblower frameworks directly. Targeted oversight that catches cultural rot early is far cheaper for business than the reform that follows a full-blown scandal.
What lands on honest issuers
Audit quality is not a compliance footnote. It feeds straight into the cost of capital. When investors doubt the numbers, they want a higher return, they discount valuations and they hold back money. That penalty falls on every issuer, including the ones whose audits were done properly.
Boards and audit committees should expect tougher questions from their auditors, particularly on valuation evidence for private and alternative assets. They should welcome that, not push back. Fund managers should expect their own confirmations to count for less. The 20% figure will probably improve again next year. What the market really needs to see is the second-partner review starting to catch problems before the opinion is signed.
Sources
- FMA: Audit quality remains at a good level, but areas for improvement remain, FMA finds (2026-11-03)
- RNZ: Financial Market Authority auditor review finds 20 percent failed to meet standards (2026-11-03)
- BusinessDesk: FMA tightens scrutiny of NZ audit firms after PwC and KPMG Australia scandals (2026-11-02)
- FMA: Audit Quality Monitoring Report 2024/25 (2025-11)
- CPA Australia: New Zealand auditors hot on procedure, some poor on execution (2025-01-31)
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