It found the lead engagement partner failed to adequately identify or evaluate all perceived, potential or actual threats to auditor independence caused by PwC’s Transaction Services team engaging with Wynyard, as assurance standards required.
Other findings included the lead engagement partner failed to get sufficient and appropriate audit evidence to support a conclusion that no material uncertainties existed in respect of Wynyard’s ability to continue as a going concern.
The NZICA tribunal lifted some suppression orders, saying naming Wynyard now would have no detrimental effect on the new owners of those products or the brand.
The NZICA appeals council decision said liquidators sold some of the company’s intangible assets and brand as part of the liquidation. Those sales occurred four years ago.
It lifted name suppression for Bruce Baillie, engagement quality control reviewer (EQCR) of the Wynyard audit, but kept the engagement lead partner’s name suppressed.
In a hearing over Baillie’s name suppression, the council said that although at the lower end of the scale of seriousness, it showed significant failings in his role as EQCR.
The FMA today said it had been concerned about the audit firm’s independence, because Wynyard had engaged PwC’s Transaction Services team during the audit period.
“The team was contracted to provide Wynyard with a limited due diligence report as part of Wynyard’s $30 million dollar capital raise, disclosed as subsequent events in the financial statements,” the regulator said.
The FMA said it also raised concerns about audit work performed to support Wynyard’s going concern assumption, as disclosed in financial statements, and how it concluded that sufficient evidence was obtained regarding its assessment.
Another concern related to how the audit quality reviewer played in performing tasks relating to that engagement.
“Auditor independence and the assessment of going concern are fundamental parts of the audit,” FMA acting director of capital markets Paul Gregory said today.
“Failure to perform these core functions appropriately can result in significant harm, and undermine investor confidence. So, it was important for us to test the issues we found, with NZICA’s disciplinary tribunal,” he added.
“The decisions clarify for auditors what is required for the documentation of, and assessment of threats to independence, and the evidence and documentation required when assessing going concern.
“We expect that auditors will learn from this case to ensure that core areas of their audits are performed to the required standards,” Gregory said.
“Investors rely on audited financial statements and need to have confidence that they present a true and fair reflection of a company’s financial position and performance,” he added.
PwC response
Rich Day, PwC New Zealand audit leader, said the company acknowledged the recent NZICA findings, and earlier ones about the application of audit standards, relating to audit evidence and documentation, and independence in an audit at the end of 2015.
Charges arose from the audit of the Wynyard financial statements for the financial year ending December 31, 2015.
The audit was completed in March 2016.
“While the more serious charges of negligence, such that it would bring the profession into disrepute, were dismissed, PwC takes any instance where we have not met the standards set by ourselves and our professional body very seriously,” he added.
PwC said there was no change to the audit opinion issued on the New Year’s Eve 2015 financial statements.
“Over the past seven years, PwC New Zealand has further evolved our comprehensive audit quality measures and made substantial quality improvements, including in the areas of consultation requirements, templates, training and independence,” Day added.
Day said PwC was still investing in audit quality to help meet clients’ increasingly complex operating, regulatory and governance needs.
Wynyard saga
Wynyard Group went into voluntary administration in October 2016. At the time, BusinessDesk said the company failed to secure emergency funds from a UK lender.
It had listed on the NZX in 2013, with investors paying $1.15 a share. The stock hit as high as $3.12 the following year but shares were worth just 21.5 cents when the company went under.
After Wynyard’s failure in late 2016, the FMA and NZX undertook an investigation into the conduct of the company and its directors.
After that investigation, the FMA said nobody involved contravened the Financial Markets Conduct Act.
But the regulator had concerns about the quality of some of Wynyard’s announcements, even though no breach of fair dealing provisions was established.
The FMA at that time said it still had concerns Wynyard may have contravened continuous disclosure obligation in late September 2016.
The authority’s audit quality review of PwC in 2016/2017 included the review of the 2015 audit of Wynyard completed in 2016.
