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Audit fees for companies listed on New Zealand’s NZX50 index have increased by 11% in 2024, reflecting a significant shift in the country’s financial reporting landscape. This rise, attributed to growing salary pressures, the increasing complexity of audits, and heightened stakeholder expectations, underscores the challenges facing auditors and businesses alike.
The Role of Audits for Investors
Audits play a critical role in maintaining confidence in corporate financial reporting, acting as a safeguard for shareholders. Oliver Mander, CEO of the New Zealand Shareholders’ Association, emphasised the importance of high-quality audits despite their costs.
“For shareholders, audits are an insurance policy,” Mander stated. He acknowledged the tension between directors who seek to minimise costs and shareholders who value thorough audits. Striking the right balance, he suggested, is essential for building trust and ensuring stronger governance.
The Factors Driving Increased Audit Fees
1. Historical Underpayment
Audit fees in New Zealand have long lagged behind international benchmarks. Amir Ghandar, an official from Chartered Accountants Australia and New Zealand (CAANZ), pointed to the need for fees to catch up, noting, “There’s been a recognition that audit fees in New Zealand were traditionally lower, and the market is now correcting itself.”
2. Growing Complexity
The scope of audits has expanded significantly, particularly with the inclusion of climate and sustainability considerations. These additional demands, coupled with economic uncertainties, have placed greater pressure on auditors to deliver comprehensive reviews.
3. Talent Shortages
A limited pipeline of qualified professionals in New Zealand exacerbates the challenges. Historically, the auditing sector has relied heavily on importing talent to fill key positions. Addressing this shortage has become increasingly difficult with global competition for skilled accountants and auditors intensifying.
Industry Perspectives on Rising Fees
The Big Four accounting firms, which dominate the auditing market, have defended the fee increases, emphasising transparency in their negotiations with clients. Melissa Collier of Deloitte described the discussions as “healthy” and necessary to ensure fair compensation for the services provided.
The issue is not confined to New Zealand. Audit fees are rising globally, with similar trends observed in Australia and other countries, driven by inflationary pressures and supply chain challenges within the profession.
Addressing the Talent Pipeline
CAANZ has launched initiatives such as the “Make epic things happen” campaign to attract younger talent into the profession in response to the workforce shortages. However, despite these efforts, repositioning auditing as a desirable career remains a significant hurdle. The NZ Shareholders’ Association has urged stakeholders to take proactive measures to build a sustainable talent pipeline, emphasising the importance of securing the future of the auditing profession.
Implications for Investors and Companies
Rising audit fees have broader implications for both investors and companies. For businesses, higher fees may affect profitability, while for shareholders, they could indirectly impact returns. The challenge lies in ensuring that the additional costs translate into tangible benefits, such as enhanced audit quality and reliability.
Experts agree that greater collaboration among auditors, companies, and regulators is vital to solve these challenges. A coordinated approach will be necessary to address workforce shortages, manage fee increases, and maintain the credibility of financial reporting in an increasingly complex environment.