It censured both members and ordered them to pay the full costs of the investigation and hearing which amounted to $151,759. The tribunal also ordered the decision to be published on the institute’s website.
There was no impact on the practitioners’ auditor licences, it said. The censure does not take effect until an appeal period expires.
“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,” the tribunal decision said.
“While the audit standards, and in the respects in which they were breached, may appear technical, they are important elements in the audit process, especially for FMC entities (entities reporting under the Financial Markets Conduct Act).”
For this reason, the tribunal found the breach of the standards by each of the two members also breached NZICA’s code of ethics.
“A meaningful sanction was needed to send a clear signal to the profession and the public about the importance of maintaining high auditing standards.”
PwC, which had been Fonterra’s auditor since the dairy exporter’s creation in 2001, surrendered the contract in 2019 after pressure from shareholders, including Armer, who claimed it was too close to the Fonterra board of directors.
The tribunal said it had regard to the fact that both auditors were experienced with otherwise unblemished records. It also considered that PwC had undertaken appropriate remediation.
The decision concerned the work performed by Skilton as audit engagement partner and Foliaki as the engagement quality control reviewer for the years ending July 31, 2017 to July 31, 2019.
For 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 Foliaki, the charges related to his evaluation of significant judgments relating to impairment and related financial statement disclosures, and the conclusions reached by the audit engagement team as the engagement quality control reviewer.
Both admitted the charges and particulars underpinning them.
Both were licensed auditors and PwC is a licensed audit firm.
PwC NZ, in a statement attributed to Rich Day, audit leader, said it accepted the tribunal’s findings.
“These findings relate to the documentation of the application of professional judgment and audit standard requirements. In particular documentation of audit independence in appearance, the form of written representations from the company’s directors, the adequacy of evaluation of the carrying value of an offshore investment and certain financial statement note disclosures,” the statement said.
“The Disciplinary Tribunal’s decision acknowledged the remedial steps PwC New Zealand has since taken. We have:
- implemented additional independence training and made changes to policies regarding retired partners’ governance roles
- reviewed our risk and quality function and the monitoring of our processes
- reported independence matters to NZICA for a two-year period
- delivered training and guidance to audit teams on impairment assessments and associated financial statement note disclosures
- delivered training on the language to be used and accepted in representation letters from those charged with governance
- reinforced consultation when there is a deviation from PwC’s standard templates.
Armer said the decision “has been a very long time coming”.
He called on Fonterra, New Zealand’s biggest business, to fully disclose to shareholders the issues around the findings at the company’s annual meeting later this year.
Around $4 billion - representing 5 per cent of dairy farm equity in New Zealand - was wiped off the balance sheets of Fonterra’s then-10,000 farmer-owners in 2018 and 2019, according to calculations by shareholder watchdog the Fonterra Cooperative Council.
At the time Armer said the shareholders had been “badly let down” by the co-operative’s leaders, the council and auditor PwC.
Fonterra in a statement said it was not a party to the tribunal process.
“Further, as noted by the tribunal ... there was no allegation or inference that Fonterra was at fault.
“The FMA had previously made inquiries of Fonterra, subsequent to the release of Fonterra’s 2019 financial statements market announcement and following a complaint from a shareholder ... In July 2021, the FMA concluded its inquiries and announced that it did not find evidence to support regulatory action, including litigation, under the Financial Markets Conduct Act.”
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.
