Auditors are being urged to lift their game when it comes to engaging with the investing public after a survey identified serious gaps in what investors expect and what auditors actually deliver.
The Financial Markets Authority commissioned the research to measure confidence in areas such as trust, professionalism and perceived quality of auditing financial statements.
It came amid an overhaul of the way the UK's auditing industry is regulated which is likely to have far-reaching consequences for company directors, managers and accountants across the globe.
It also follows the FMA's own findings of inconsistencies in audits of companies that sell financial products to the public.
Overall, investors have a lack of faith and trust in the audit profession and the quality of audit in New Zealand mainly related to the level of involvement or "closeness" of the audit process.
Just over half of investors surveyed – 56 per cent - agreed they would trust the audit profession to act with ethics and integrity. That compared to 68 per cent of company directors who indicated they trusted the audit profession.
Just under half of investors – 48 per cent - thought the quality of audit were of a high standard; with more directors (57 per cent) agreeing audit was of high quality.
Investors had concerns about the independence of auditors from the entities they audit, lack of professional scepticism, and auditors not asking questions and challenging the judgment of the management and directors. In contrast, the directors rated auditor independence fairly high (71 per cent agreed).
FMA chief executive Rob Everett said this showed a lack of understanding about what audit firms are supposed to be doing and what they are not.
"I think there's a sense that investors want more from the auditing process than is currently required. Perhaps the answer to that is that if investors really want them to do more, let's talk about what that would look like and who would have to pay for it."
Everett said the gap between what investors think they are getting from an audit and what they are getting was more pronounced than expected.
"We have seen enough here to tell us that the industry has plenty of improvement still to make but also doesn't seem to be willing to sell its value proposition properly to the end users, the investors.
"That's a problem because we focus on investor confidence in markets and participation in markets and if there's a big expectation gap between shareholders and auditors, that gap needs to get closed.
One retail investor surveyed said it would help if auditors made comments at annual shareholders meetings and provide a summary of the work they did on the financial statements.
The main factors influencing investors' trust in the audit profession to act ethically included perceptions that auditors will accept an auditing job even though there is a conflict of interest (due to financial motivation to get the business), awareness of recent cases where audited businesses failed, and instances of breaches of ethics.
"There are not enough measures in place to avoid conflicts of interest, not enough competition or performance oversight," one investor was quoted as responding.
Everett said investors were very concerned about audit independence compared to company directors who were less worried.
"The challenge is that if you break apart audit entirely from the rest of what the accounting firms deliver you will repeatedly be told that in a country the size of New Zealand, it's the audit part that will die because it's high-risk, high-liability and not much reward.
"What the survey shows though is that this really bothers investors. So the end solution might not be as black and white as separating it, but the auditors definitely have a job to do to explain why you might tolerate a set-up where some degree of other services are provided."
A total of 357 people took part in the research, between November 28 and December 14 2018.
Late last year the FMA released its review of audits and audit firms covering five domestic registered audit firms, and 24 audit files.
It found only 23 per cent of audit firms fully addressed previous findings of areas needing improvements.
Another 33 per cent showed "significant improvement" and another 40 per cent showed "some improvement" while 4 per cent showed no improvement.