The Disciplinary Tribunal of the New Zealand Institute of Chartered Accountants (NZICA) has released its decision regarding the audits of Fonterra Co-operative Group Limited (Fonterra) for the years ending 31 July 2017 to 31 July 2019 undertaken by PwC New Zealand, following an investigation by NZICA and subsequent complaint to its Professional Conduct Committee.

The decision concerns work performed by Jonathan Skilton as Audit Engagement Partner and Leopino Foliaki as the Engagement Quality Control Reviewer. Both Mr Skilton and Mr Foliaki were licensed auditors under the Auditor Regulation Act 2011 and PwC is a registered audit firm.

At a hearing of the Disciplinary Tribunal on 22 June 2023, Mr Skilton and Mr Foliaki admitted the respective charges and particulars underpinning them.

For Mr Skilton, the charges related to documentation of potential threats to independence in appearance; audit work performed in respect of impairment and related financial disclosures; and obtaining compliant written representations from those charged with Fonterra's governance.

For Mr Foliaki, the charges related to his evaluation of significant judgements relating to impairment and related financial statement disclosures and the conclusions reached by the audit engagement team as the Engagement Quality control Reviewer.

The Tribunal found the members' failings were sufficiently serious to warrant a disciplinary response. It stated:

"While the audit standards, and the respects in which they were breached, may appear technical they are important elements in the audit process, especially for FMC entities. For this reason the Tribunal finds the breaches of the standards by each of the members also breached NZICA's Code of Ethics."

And:

"Upholding those high standards is necessary to protect the interests of shareholders and others involved with the audit entity, to safeguard public confidence in the integrity of the audit process and to maintain confidence in New Zealand's capital markets."

The Tribunal censured both members, noting that:

"While there was no claim or evidence of any actual loss or harm as the result of the Members' failures to adhere to auditing standards, their failings were sufficiently serious to warrant a disciplinary response. A meaningful sanction was needed to send a clear signal to the profession and the public about the importance of maintaining high auditing standards."

The Tribunal had regard to the fact that both members are experienced practitioners with otherwise unblemished records. It also had regard to the fact that PwC New Zealand had undertaken appropriate remediation.

In addition to censures, the Tribunal has ordered that the members pay full costs of the investigation and hearing being $151,759 and that the Tribunal's decision be published on CA ANZ's website and in its official publication Acuity with mention of the members' names and locality.

There is no impact on the practitioners' auditor licences.

This was a complex case, involving the audit of one of New Zealand's largest entities. The decision represents a robust response to a complaint and is a significant reminder to the profession of the importance of quality documentation, judgement, and work in all aspects of an audit.

Auditors are one of the strongest and most reliable mechanisms New Zealand has for maintaining and growing trust and confidence in our capital markets, public institutions, and broader economy. As the frontline regulator of licensed auditors, NZICA is responsible for monitoring and enforcing members' compliance with professional and ethical standards in New Zealand, in accordance with its statutory obligations under the NZICA Act 1996 and the Auditor Regulation Act 2011.

A copy of the Disciplinary Tribunal's decision dated 21 August 2023 can be found on the decisions register.

The censure does not take effect until the expiry of the 21-day appeal period or while any appeal awaits determination by the Appeals Council, in accordance with the NZICA Rules.