NZ Small Audit vs Full Audit: Which is Better? – Aurora Financials

The fees and regulatory requirements between a small audit and a full audit in New Zealand can differ by thousands of dollars. Large organizations with public accountability need full audits under Tier 1 requirements. Small audits work better for simpler organizations that have expenses under NZD 5 million.

Understanding NZ audit requirements is vital to stay compliant, whether you run a listed company or a small charity. Licensed NZ auditors must pay annual fees of NZD 6,320. The Financial Markets Authority oversees registered firms with additional regulations. The process has become simpler for smaller entities since January 2024, thanks to the new service performance audit standard.

Let’s explore what makes small and full audits different and find out which one fits your organization best. This piece covers everything about picking the right audit approach in New Zealand, from costs to what the rules say.

Understanding Audit Types in NZ

New Zealand’s audit system works on tiers that depend on an organization’s size and public accountability. Small audits focus on simple financial statement checks for organizations with annual expenses under NZD 938,085.65. These audits take 6-7 days. The process involves checking financial records, verifying transactions, and making sure organizations follow simple accounting standards.

Full audits provide a more detailed look at financial statements and internal controls. Organizations must get these audits when their annual expenses exceed NZD 1.88 million. The process takes several weeks and needs detailed analysis. The team tests internal controls, checks account balances, and reviews management’s most important estimates.

New Zealand’s regulations set specific rules for both types of audits. Every auditor who handles Financial Markets Conduct (FMC) audits needs a license. The Auditor Regulation Act 2011 requires audit firms that do issuer audits to register. They must go through quality reviews every four years. Here’s a simple breakdown of the differences.

Licensed auditors need to meet the Financial Markets Authority’s ongoing competence requirements. On top of that, registered audit firms go through regular quality reviews to ensure their systems and procedures meet auditing standards.

Cost and Time Implications

Audit costs vary substantially based on how big and complex an organization is. Small audit expenses range from NZD 1,108.65 to NZD 8,528.05. Organizations with income between NZD 341,122.05 and NZD 938,085.65 typically pay NZD 2,387.85 to NZD 3,411.22 for review fees.

The cost of full audits has gone up. New Zealand’s largest companies saw an 11.4% increase in total fees during 2024. Full audit costs don’t have fixed rates. They depend on how complex the operations are, financial risks, and how well-prepared the organization is. Companies with income between NZD 1.71 million and NZD 8.53 million can expect audit fees between NZD 7,675.25 and NZD 11,939.27.

Different types of audits take different amounts of time. Small audits usually take six to seven days. Full audits need several weeks because teams must work extensively on planning, execution, and quality control. Time needed depends on:

• Organization’s size and operational complexity
• Quality of financial documentation
• Staff availability and preparedness
• Changes in business operations or reporting requirements

Organizations can reduce their costs and time by keeping good financial records and fixing reporting problems throughout the year. The audit industry doesn’t deal very well with resource shortages because fewer accounting graduates are available, and immigration poses challenges.

When Do You Need Each Type?

Your organization’s size, structure, and regulatory obligations will determine the right audit type. Medium-sized registered charities need a small audit or review if their annual spending falls between NZD 938,085.65 and NZD 1.88 million. This requirement came into effect in January 2022.

Small Audit Scenarios

Small audits are needed for registered charities that spend less than NZD 1.88 million yearly. New Zealand companies can choose a small audit if they have less than 25% overseas ownership and their annual revenue stays below NZD 56.29 million. Companies with fewer than 10 shareholders can also pick this option if all shareholders agree.

Full Audit Requirements

Companies need full audits in these situations:

• Big New Zealand companies with 25% or more overseas ownership that earn over NZD 56.29 million yearly or own assets worth more than NZD 112.57 million
• Overseas companies in NZ with assets worth over NZD 37.52 million or revenue above NZD 18.76 million
• FMC reporting entities, which include listed companies, banks, and insurers

Large overseas companies must submit audited financial statements within 5 months after their balance date, unless the Registrar grants an exemption. Directors face penalties of NZD 11,939.27 each if they don’t comply.

Choosing Between Audit Types

You need to look at several factors to make a smart choice between audit types.

Company Size Considerations

Your organization’s size drives audit requirements. Companies need full audits when their total assets are more than NZD 112.57 million or revenue exceeds NZD 56.29 million. In spite of that, organizations can skip audit requirements through a 95% shareholder resolution if they have less than 25% overseas ownership.

Industry Requirements

Each sector comes with its own audit rules. FMC reporting entities, especially when you have banks and insurers, must work with registered audit firms. These firms need to pass mandatory quality reviews every four years to keep their registration status. Building and construction companies’ audit requirements line up with Minimum Financial Requirements (MFR) reports, and revenue levels set the audit scope.

Risk Assessment Factors

Several risk elements help decide the right audit type. Auditors review:

• How business transactions affect financial reporting and their complexity
• How well internal control systems work to prevent material misstatements
• How much judgment goes into financial measurements, especially when you have uncertainty

Companies should look at their risk profile to pick the right audit type. To cite an instance, companies with major overseas operations or complex financial instruments might need full audits, whatever the size thresholds.

Comparison Table

Conclusion

Small audits and full audits serve different purposes in New Zealand’s financial reporting framework. Our analysis shows small audits work best for organizations that spend less than NZD 938,085.65 yearly. These audits take about a week to complete. Full audits take more time and money but give detailed assurance that larger companies need, especially when you have significant overseas ownership or public accountability.

The price gap between these audit types is a big deal as it means that small audit fees range from NZD 1,108.65 to NZD 8,528.05. Full audits cost much more, particularly for organizations that spend over NZD 1.88 million annually. These price differences reflect how deeply auditors examine your books and what regulations say they must do.

Regulatory oversight is a vital part of deciding what type of audit you need. Your organization’s size, industry rules, and risk factors will determine your choice. Listed companies, banks, and insurers must follow stricter rules. They need full audits from registered firms that undergo regular quality checks.

These differences are the foundations of making smart choices about your audit needs. Small businesses and charities can use affordable small audits to stay compliant. Larger entities get the assurance they need through detailed full audits. This knowledge helps organizations meet their legal requirements while using their resources wisely.

FAQs

Q1. What is the main difference between a small audit and a full audit in New Zealand? 

A small audit primarily focuses on basic financial statement verification for organizations with annual expenses under NZD 938,085.65, typically taking 6-7 days to complete. A full audit involves a more comprehensive examination of financial statements and internal controls, usually for organizations with annual expenses exceeding NZD 1.88 million, and requires several weeks to complete.

Q2. How do the costs differ between small audits and full audits? 

Small audit expenses generally range from NZD 1,108.65 to NZD 8,528.05. Full audit costs are significantly higher and vary based on factors such as organizational complexity and size. For entities with income between NZD 1.71 million and NZD 8.53 million, full audit fees typically range from NZD 7,675.25 to NZD 11,939.27.

Q3. When is a full audit required for a company in New Zealand? 

A full audit is mandatory for large New Zealand companies with 25% or more overseas ownership and annual revenue exceeding NZD 56.29 million or assets over NZD 112.57 million. It’s also required for Financial Markets Conduct (FMC) reporting entities, including listed companies, banks, and insurers.

Q4. Can small businesses opt out of audit requirements in New Zealand? 

Yes, under certain conditions. Companies with less than 25% overseas ownership and annual revenue below NZD 56.29 million can opt for a small audit. Additionally, non-large companies with fewer than 10 shareholders may choose to opt out of audit requirements through shareholder agreement.

Q5. How often are audit firms in New Zealand subject to quality reviews? 

Registered audit firms in New Zealand, particularly those conducting audits for Financial Markets Conduct (FMC) reporting entities, are subject to mandatory quality reviews every four years to maintain their registration status and ensure compliance with auditing standards.