FMA Cancels Auditor’s Licence To Carry Out FMC Audits For Multiple Failures

The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko – has cancelled the New Zealand licence of Sydney based auditor, Mr Sam Danieli, to carry out FMC audits in New Zealand. Mr Danieli’s licence was issued by the FMA under the Auditor Regulation Act 2011 (the AR Act). New Zealand allows recognition of Australian based auditors under the Trans-Tasman Mutual Recognition Act 1997 (the TTMRA).

The decisions stem from the audit of former FMC reporting entity Alliant Perpetual’s financial statements for the year ended 31 January 2022 (the audit). Mr Danieli conducted the audit.

The FMA made orders under section 78 of the AR Act cancelling Mr Danieli’s licence for multiple failures relating to the audit. During the investigation, Mr Danieli accepted that his conduct fell below the required standard and raised arguments in mitigation which were considered by the FMA. The FMA has also ordered that Mr Danieli may not reapply for an audit licence for FMC audits in New Zealand for three years.

Alliant Perpetual lodged its financial statements in December 2022 along with Mr Danieli’s auditor’s report. Following a review of Alliant Perpetual’s financial statements and auditor’s report for the year ended 31 January 2022, the FMA opened an investigation into Mr Danieli’s conduct of the audit. The investigation found that Mr Danieli did not:

• Obtain sufficient evidence to support the existence and valuation of Alliant Perpetual’s investments
• Perform a thorough evaluation of management’s assessment of the Alliant Perpetual as a going concern
• Perform the audit with professional scepticism particularly when assessing the valuation of the investments
• Take responsibility for the overall quality of the audit by completing the audit before the Engagement Quality Control Reviewer had performed an objective evaluation of the significant judgements made by the engagement team
• Obtain external confirmation when assessing Alliant Perpetual’s Cash at Bank
• Obtain reasonable assurance Alliant Perpetual’s financial statements were free from material misstatements.

The FMA found that Mr Danieli also did not comply with the conditions of his licence by failing to notify the FMA that he had accepted other audit engagements which he had not previously undertaken, and by failing to provide the FMA with details of a separate review of his audit work by the Australian Securities and Investments Commission (ASIC).

The orders have been published on the Companies Office Auditor’s Register.

FMA Head of Auditing, Financial Reporting, and Climate Related Disclosures, Jacco Moison, said: “Mr Danieli’s conduct fell materially short of the reasonable care, diligence and skill expected and included serious breaches of auditing and assurance standards. The breaches are serious because they were systemic. Although the Investigation focused on the 2022 audit of Alliant Perpetual, the broader circumstances illustrate a poor compliance history on Mr Danieli’s part. Poor auditing practices, especially in respect of FMC reporting entities, can cause real investor harm and erode the public’s confidence in capital markets.”

“The FMA would like to thank ASIC for its assistance under our Memorandum of Understanding. It is important for the effectiveness of the regulation of overseas auditors licensed in New Zealand, pursuant to the TTMRA, and subject to New Zealand’s regulatory requirements, that we work closely together as regulators to maintain audit quality in both Australia and New Zealand.”

Alliant Perpetual

Alliant Perpetual was a registered building society that was struck off the register in September 2023.

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