New Zealand’s Financial Markets Authority (FMA) has identified persistent weaknesses in how auditors verify financial information, according to its Audit Quality Monitoring Report 2026 released on November 3. The findings are relevant to insurance professionals because the reliability of audited financial statements underpins the due diligence brokers perform when recommending insurers and fund-linked products to clients.
The report covers FMA reviews of registered audit firms and licensed auditors conducted between July 1, 2025, and June 30, 2026. At June 30, 2026, New Zealand had 130 domestic licensed auditors across 11 registered audit firms, with 1,025 Financial Markets Conduct (FMC) audits conducted over the preceding 12 months.
The FMA reviewed 20 audit files across eight registered firms. Four were assessed as non-compliant, a rate of 20%, down from 36% in 2024/25. The regulator cautioned that 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.
Read more: What the FMA is watching in insurance for 2026/27
A non-compliant rating does not necessarily mean the audited financial statements failed to give a true and fair view or needed to be restated. In three of the four non-compliant files, the FMA said a properly executed engagement quality review should have identified the deficiencies before the audit report was issued.
New Zealand’s results sit below the international average. The FMA’s report shows that among listed-entity audits performed by the six largest audit firms, 13% of NZ files reviewed in 2024/25 were non-compliant. The International Forum of Independent Audit Regulators (IFIAR), which surveyed 52 jurisdictions, reported that 35% of inspected listed public-interest entity audits globally had at least one finding in 2025, up from 34% in 2024. IFIAR measures “findings” rather than “non-compliance,” and its survey covers only the six largest global audit networks, so the two figures are not directly comparable. They do, however, indicate that NZ audit oversight is producing results closer to international expectations than many other markets.
The problems the FMA identified go to the core of financial statement reliability. Common themes included poor execution of audit procedures, insufficient professional scepticism, weak documentation when evaluating management’s assumptions, and unsupported reliance on third-party service providers.
“Fewer of the files we reviewed this year were non-compliant, but the problems we found are familiar ones. 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,” said Jacco Moison, FMA head of audit, financial reporting and climate related disclosures.
“Engagement quality reviews should provide an important safeguard. Where they aren’t effective, firms need to understand why and take actions to address it,” he said.
For brokers advising clients on investment-linked products, the report’s thematic review of managed investment scheme audits is particularly relevant. KiwiSaver and other managed investment schemes collectively held NZ$151 billion in funds under management as at June 2026, according to research firm Plan For Life.
The FMA found inconsistent approaches to how auditors obtained evidence to support investment valuations. The gaps were 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.
In some cases, auditors did not identify third-party providers as service organisations at all, meaning they failed to consider the impact on their audit approach. Others relied on cloud-based systems without establishing the reliability of the information produced. The report noted that where investment manager confirmations were the primary evidence for unit valuations, this would not ordinarily constitute sufficient audit evidence because the confirmations originate from the party responsible for the valuation being audited.
Read more: FMA spotlights audit quality progress and compliance gaps
The FMA’s findings raise practical questions for brokers and advisers who place business based on an insurer’s or fund’s financial position. Brokers may want to ask whether the entities they recommend have received a clean audit opinion, whether their auditors have been subject to FMA review, and whether any managed investment schemes in a client’s portfolio invest in unlisted assets where valuation evidence is harder to obtain. For brokers operating under the Code of Professional Conduct for Financial Advice Services, understanding the quality of the financial information behind a recommendation is part of the obligation to give suitable advice.
The FMA acknowledged that audit firms have made progress embedding systems of quality management under Professional and Ethical Standard 3 (PES 3). Firms have increased dedicated resources, strengthened monitoring, and introduced more structured root cause analysis processes.
Many firms, however, cannot yet demonstrate that their controls operate in practice.
“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,” Moison said.
The report flagged the use of artificial intelligence in audit work as an emerging area of regulatory attention. The FMA said AI introduces risks around confidentiality, over-reliance, and supervision, and that the use of AI in audits will increase the number of audit files subject to review in the coming year.
“Firms remain responsible for testing what goes into and comes out of these tools, and AI should support professional judgement, not replace it,” Moison said.
The FMA also noted that developments in Australia, including parliamentary hearings into audit firm conduct, will shape its scope of work going forward. The regulator said it expects increased scrutiny around whistleblower procedures, independence, and confidentiality across the closely integrated Australian and New Zealand markets.
