NZ AS 1 (Revised)

0.1 This standard takes effect on the 28th day after the date of its publication under the Legislation Act 2019.¹

Accounting period in relation to which standards commence to apply (section 28 Financial Reporting Act 2013)

0.2 The accounting periods in relation to which this standard commences to apply are:

1. For an early adopter, those accounting periods following, and including, the early adoption accounting period:

2. For any other auditor, those accounting periods following, and including, the first accounting period that begins on or after the mandatory date.

0.3 In paragraph 0.2:

early adopter means an auditor that applies this standard for an early adoption accounting period.

early adoption accounting period means the accounting period

1. that begins before the mandatory date but has not ended or does not end before this standard takes effect (and to avoid doubt, that period may have begun before this standard takes effect); and

2. for which the early adopter

   1. first applies this standard, and

   2. discloses in its audit report for that accounting period that this standard has been applied for that period.

mandatory date means 1 January 2024.

0.4 This Standard supersedes NZ AS 1 The Audit of Service Performance Information.

1. Service performance information is information about what the entity has done and achieved during the reporting period in working towards its broader aims and objectives, together with supporting contextual information about why an entity exists, what it intends to achieve and how it goes about this, prepared in accordance with the applicable financial reporting framework. (Ref: Para. A1)

2. This New Zealand Auditing Standard (NZ AS) deals with the auditor’s responsibilities with respect to service performance information when an auditor is engaged to audit the service performance information concurrently with the financial statements.

3. This NZ AS establishes requirements and provides guidance not addressed by other International Standards on Auditing (New Zealand) (ISAs (NZ)) with respect to service performance information.

4. This standard together with the ISAs (NZ) sets out the requirements to obtain reasonable assurance over service performance information.

5. This NZ AS applies when the auditor is required by law or regulation or is otherwise engaged to audit both the financial statements and the service performance information prepared in accordance with the applicable financial reporting framework. (Ref: Para. A2)

6. The objective of the auditor is to express a reasonable assurance opinion on whether the service performance information presents fairly², in all material respects the service performance in accordance with the applicable financial reporting framework.

7. The auditor may achieve the objective of this NZ AS by considering the following two steps:

1. Assess whether each of the following aspects of the service performance information are appropriate and meaningful in accordance with the applicable financial reporting framework: (Ref: Para. A3)

   • The elements/aspects of service performance that the entity has selected to report on.

   • The performance measures and/or descriptions the entity has used to report on what it has done in relation to those elements/aspects of service performance during the reporting period.

   • The measurement basis or evaluation method used to measure or evaluate the performance measure and/or description.
2. Assess whether the reported service performance information fairly reflects the actual service performance and is not materially misstated.

8. For the purposes of this NZ AS, the following terms have the meanings attributed below:

1. Misstatement – Misstatements can be intentional or unintentional, qualitative or quantitative, and include omissions. Misstatements can arise from error or fraud when:

   1. An element/aspect of service performance or performance measure and/or description, or a measurement basis or evaluation method is not appropriate and meaningful; or

   2. An element/aspect of service performance or performance measure and/or description that would be appropriate and meaningful is omitted; or

   3. Incorrectly measuring or evaluating the entity’s service performance.

2. Risk of Material Misstatement – The risk that the service performance information is materially misstated prior to the audit. This consists of two components, described as follows at the assertion level:

   1. Inherent risk – The susceptibility of an assertion about a performance measure and/or description, measurement basis or evaluation method or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls.

   2. Control risk – The risk that a misstatement that could occur in an assertion about a performance measure and/or description, measurement basis or evaluation method or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s system of internal controls.

9. The auditor shall apply the ISAs (NZ) and this NZ AS when auditing service performance information. (Ref: Para. A4-A5)

10. The auditor shall not represent compliance with this NZ AS unless the auditor has complied with the requirements of both this NZ AS and the ISAs (NZ) in relation to the audit of service performance information.

11. The auditor shall plan and perform the audit of service performance information by exercising professional judgement and with an attitude of professional scepticism. (Ref: Para. A6)

12. The auditor shall document the nature, timing and extent of the audit procedures performed to comply with this NZ AS.³ (Ref: Para. A7)

13. The audit documentation shall include:

1. Significant professional judgements made in audit procedures performed, the audit evidence obtained, and conclusions reached. (Ref: Para. A8-A9)

2. As far as possible, evidence of relevant relationships between the service performance information and the financial statements.

14. The terms of the engagement shall include⁴:(Ref: Para. A10-A11)

1. The objective and scope of the audit. (Ref: Para. A12-A16)

2. The responsibilities of the auditor with respect to the service performance information:

   1. To obtain an understanding of the process applied by the entity to select its elements/aspects of service performance, performance measures and/or descriptions and the measurement bases or evaluation methods.

   2. To evaluate whether the selection of elements/aspects of service performance, performance measures and/or descriptions and measurement bases or evaluation methods present an appropriate and meaningful assessment of the entity’s service performance in accordance with the applicable financial reporting framework.

   3. To evaluate whether the service performance information is prepared in accordance with the entity’s measurement bases or evaluation methods, in accordance with the applicable financial reporting framework.

   4. To evaluate whether the overall presentation, structure and content of the service performance information represents the elements/aspects of service performance in accordance with the applicable financial reporting framework.

3. The responsibilities of those charged with governance, including that they acknowledge and understand their responsibility on behalf of the entity for:

   1. The selection of elements/aspects of service performance, performance measures and/or descriptions and measurement bases or evaluation methods that present service performance information that is appropriate and meaningful in accordance with the applicable financial reporting framework.

   2. The preparation of service performance information in accordance with the entity’s measurement bases or evaluation methods, in accordance with the applicable financial reporting framework.

   3. The overall presentation, structure and content of the service performance information in accordance with the applicable financial reporting framework.

   4. Such internal control as those charged with governance determine is necessary to enable the preparation of the service performance information that is free from material misstatement, whether due to fraud or error.

4. Reference to the expected form and content of the auditor’s report.

15. The auditor shall obtain an understanding of: (Ref: Para. A17)

1. Why the entity exists and what it intends to achieve i.e., its purpose or objective.

2. What activities or services the entity performs.

3. Who the entity aims to serve i.e., the entity’s primary stakeholders and the primary users of the service performance report.

4. What is considered important to those stakeholders and users and what they may use the service performance information for.

16. The auditor shall obtain an understanding of:

1. The legal and regulatory framework applicable to the entity and the industry or sector in which the entity operates, and laws and regulations that specify the form, content, preparation, publication, and audit of service performance information; and (Ref: Para. A18-A21)

2. How the entity is complying with that framework.

17. The auditor shall obtain an understanding of:

1. The applicable financial reporting framework relevant to the service performance information.

2. The process, including the rationale and logic the entity undertook to determine what elements/aspects of service performance, performance measures and/or descriptions and measurement bases or evaluation methods and judgements to report. (Ref: Para. A22- A24, A27)

3. The process the entity undertook to identify the intended users of the service performance information and the level of engagement with the intended users.

4. The measurement bases or evaluation methods used by the entity to assess the performance measures and/or descriptions and how these are made available to intended users. (Ref: Para. A79-A80)

5. Changes to the elements/aspects of service performance, performance measures and/or descriptions and the measurement bases or evaluation methods used to report its service performance compared to prior year, planned, forecast or prospective information. (Ref: Para. A25)

6. Where the entity intends to report its service performance information. (Ref: Para. A26)

18. In accordance with ISA (NZ) 315 (Revised 2019)⁵, the auditor shall obtain an understanding of the entity’s system of internal control over the preparation of the service performance information. (Ref: Para. A28-A29)

19. Based on the auditor’s evaluation of each of the components of the entity’s system of internal control, the auditor shall determine whether one or more control deficiencies have been identified.

20. The auditor shall develop an audit plan with a single audit approach to concurrently cover the service performance information and the financial statements. ⁶ (Ref: Para. A30)

21. In establishing the overall audit strategy, the auditor shall:

1. Consider the factors that, in the auditor’s professional judgement, are significant in directing the engagement team’s efforts in respect of the audit of service performance information.

2. Determine the timing of when to evaluate whether the entity’s service performance information is appropriate and meaningful.

22. The auditor shall discuss with those charged with governance: (Ref: Para. A31-A33)

1. What elements/aspects of service performance and performance measures and/or descriptions the entity intends to report as part of its service performance information;

2. What measurement bases or evaluation methods the entity intends to use to measure or evaluate its performance; and

23. Any concerns identified shall then be communicated to those charged with governance as soon as practicable.

24. The auditor shall evaluate whether the service performance information reported or intended to be reported is in accordance with the applicable financial reporting framework. (Ref: Para. A34)

25. The auditor shall evaluate whether the service performance information is appropriate and meaningful⁷ including whether: (Ref: Para. A9, A35, A42-A44)

1. It fairly reflects the auditor’s understanding of the entity’s performance from all other audit work performed on the audit. (Ref: Para. A36)

2. It is likely to meet the needs of the intended user to enable an informed assessment of the entity’s service performance. (Ref: Para. A37-A38)

3. It relates to an element/aspect of service performance that significantly contributes to the entity’s core purpose, functions or objectives. (Ref: Para. A39)

4. There is likely to be sufficient appropriate evidence to support the performance measure and/or description.

5. It is capable of measurement or evaluation in a consistent manner from period to period. (Ref: Para. A40-A41)

6. It is presented in a way that is easy to follow, concise, logical and aggregated where appropriate so that it will enable a user to identify the main points of the entity’s service performance in that year.

26. The auditor shall obtain sufficient appropriate audit evidence that the entity has complied with laws and regulations that have a direct material effect on the reporting of service performance information.⁸

27. The auditor shall use the understanding gained in paragraphs 15-19 to determine the significant elements/aspects of service performance. (Ref: Para. A45-A46)

28. The auditor shall determine and document materiality considerations and/or materiality for service performance information to determine the:⁹ (Ref: Para. A9, A47-A50)

1. Nature, timing and extent of further audit procedures; and

2. The auditor’s tolerance for misstatement in relation to material service performance measures and/or descriptions.

29. The auditor shall apply materiality to assess whether:¹⁰ (Ref: Para. A51-A59)

1. The significant elements/aspects of service performance and related material performance measures and/or descriptions are appropriate and meaningful; and (Ref: Para. A51-A52)

2. The performance measures and/or descriptions, measurement bases or evaluation methods contain individual or collective misstatements, that based on the auditor’s judgement, are likely to influence the decisions of the intended users based on the information.

30. The auditor shall revise the judgements made in determining materiality for the service performance information if matters come to the auditor’s attention during the audit that would have caused the auditor to make a different materiality judgement.¹¹

31. The auditor shall consider individually or collectively, all misstatements identified, other than those that are clearly trivial, that are uncorrected by the entity, to conclude whether the service performance information is materially misstated. (Ref: Para. A54-A59)

32. The auditor shall design and perform risk assessment procedures, in accordance with ISA (NZ) 315 (Revised 2019) to obtain audit evidence that provides an appropriate basis for identification and assessment of risks of material misstatement, whether due to fraud or error:

1. At the service performance information level; and

2. At the assertion level for performance measures, descriptions or disclosures. (Ref: Para. A60-A62)

33. The auditor shall determine whether any of the assessed risks of material misstatement are significant risks.¹² (Ref: Para. A63)

34. The auditor shall design and perform procedures whose nature, timing and extent:¹³

1. Are responsive to assessed risks of material misstatement at the assertion level; and

2. Allow the auditor to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement.

35. The auditor’s procedures shall include obtaining sufficient appropriate audit evidence as to the operating effectiveness of controls over the service performance information when:¹⁴

1. The auditor’s assessment of the risk of material misstatement includes the expectation that controls are operating effectively; or

2. Where procedures other than tests of controls cannot provide sufficient appropriate audit evidence.

36. Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for all material service performance information.¹⁵

37. The auditor shall obtain sufficient appropriate audit evidence that the:¹⁶ (Ref: Para. A64-A66)

1. Elements/aspects of service performance, performance measures and/or descriptions, and measurement bases or evaluation methods are appropriate and meaningful; and

2. Performance measures and/or descriptions have been prepared in accordance with the entity’s measurement bases or evaluations methods; and

3. Performance measures and/or descriptions are not materially misstated.

38. Where possible the auditor shall draw on relationships that exist between the service performance information and the financial statements. (Ref: Para. A67-A68)

39. The auditor shall determine whether information to be used as audit evidence has been prepared using the work of a management’s expert.¹⁷ (Ref: Para. A69)

40. The auditor shall obtain sufficient appropriate audit evidence about whether any disclosures of judgements related to service performance information are reasonable in the context of the requirements of the applicable financial reporting framework.

41. The auditor shall communicate, unless prohibited by law and regulation, the following matters with those charged with governance:¹⁸ (Ref: Para. A70)

1. Any significant risks identified with the service performance information.

2. The auditor’s views about significant judgements made in reporting the entity’s service performance information, including any significant deficiencies or areas for improvement. (Ref: Para. A71)

3. Significant difficulties, if any, encountered during the audit. (Ref: Para. A72)

4. Unless all of those charged with governance are involved in managing the entity, significant matters arising during the audit that were discussed, or subject to correspondence with management. (Ref: Para. A73)

5. Matters involving non-compliance with laws and regulations with respect to service performance reporting obligations.

6. Deficiencies in internal control with respect to the service performance information that, in the auditor’s professional judgement, are of sufficient importance to merit attention.¹⁹

7. Uncorrected misstatements and the effect that they, individually or in aggregate, may have on the opinion on the service performance information in the auditor’s report and request that they are corrected.²⁰

8. Any modifications including the circumstances and the wording the auditor expects to make to the opinion relating to service performance information in the auditor’s report.²¹

42. When planning the audit of service performance information, the auditor shall:

1. Where a service organisation is used, obtain an understanding of the nature and significance of the services provided by the service organisation and their effect on the user entity’s internal control relevant to the audit of service performance information sufficient to identify and assess the risks of material misstatement and design, and perform audit procedures responsive to those risks in accordance with ISA (NZ) 402.²² (Ref: Para. A74)

2. Where the service performance information relates to a group, obtain sufficient appropriate audit evidence regarding the service performance information of the components and the aggregation or consolidation process in order to express an opinion on whether the group’s service performance information is prepared, in all material respects, in accordance with the applicable financial reporting framework. ²³ (Ref: Para. A75)

3. Where the service performance information includes information upon which another practitioner has expressed an opinion, communicate clearly with the other practitioner, when the auditor intends to use the work of another practitioner about the scope and timing of the work and findings of the other practitioner, and evaluate the sufficiency and appropriateness of evidence obtained and the process for including related information in the service performance information. (Ref: Para. A76)

43. The auditor shall determine whether specialised skills or knowledge are required regarding the service performance information and whether to use the work of an auditor’s expert.²⁴ (Ref: Para. A77)

44. The auditor shall request written representations from those charged with governance that they have fulfilled their responsibility for:²⁵ (Ref: Para. A78)

1. The selection of elements/aspects of service performance, performance measures and/or descriptions and measurement bases or evaluation methods that present service performance information that is appropriate and meaningful in accordance with the applicable financial reporting framework.

2. The preparation of service performance information in accordance with the entity’s measurement bases or evaluation methods, in accordance with the applicable financial reporting framework.

3. The overall presentation, structure and content of the service performance information in accordance with the applicable financial reporting framework.

4. Such internal control as those charged with governance determine is necessary to enable the preparation of the service performance information that is free from material misstatement, whether due to fraud or error.

45. The auditor shall form an opinion on whether the service performance information is prepared, in all material respects, in accordance with the applicable financial reporting framework.²⁶

46. In order to form that opinion, the auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the service performance information is free from material misstatement, whether due to fraud or error. That conclusion shall take into account:

1. Whether sufficient, appropriate audit evidence has been obtained;

2. Whether uncorrected misstatements are material, individually or collectively; and

3. The auditor’s evaluation of whether the service performance information is prepared, in all material respects, in accordance with the entity’s measurement bases or evaluation methods, in accordance with the applicable financial reporting framework.

47. The auditor shall conclude whether, in view of the applicable financial reporting framework:

1. The entity has presented service performance information that is appropriate and meaningful.

2. The measurement bases or evaluation methods are available to intended users. (Ref: Para. A79-A80)

3. When the information is prepared in accordance with a fair presentation framework²⁷, the service performance information achieves fair presentation, including whether:

   1. The overall presentation of the service performance information has been undermined by including information that is not relevant or that obscures a proper understanding of the matters disclosed;

   2. The overall presentation, structure and content of the service performance information represents the service performance of the entity in a manner that achieves fair presentation; and

   3. The disclosure of the judgements made in reporting the service performance information, if applicable, is reasonable.

48. The auditor shall consider:

1. Any matters arising during the course of the audit of the financial statements that may affect the auditor’s evaluation of the service performance information.

2. The impacts of any matters arising during the audit of the service performance information that may affect the auditor’s evaluation of the financial statements.

49. The auditor’s report on the financial statements and the service performance information shall be included in a single report and shall include the elements required by ISA (NZ) 700 (Revised) as applicable to the service performance information. (Ref: Para. A81-A82, A84)

50. The opinion section of the auditor’s report shall:

1. Identify the service performance information;

2. State that the service performance information has been audited;

3. Identify the applicable financial reporting framework; and

4. Refer to the measurement bases or evaluation methods (Ref: Para. A83)

51. In addition to the requirements addressing financial statements in ISA (NZ) 700 (Revised), the auditor’s report shall:

1. State, in the basis for opinion section, that the audit of the service performance information was conducted in accordance with International Standards on Auditing (New Zealand) and New Zealand Auditing Standard 1 (Revised);

2. Describe the responsibilities of those charged with governance for:

   1. The selection of elements/aspects of service performance, performance measures and/or descriptions and measurement bases or evaluation methods that present service performance information that is appropriate and meaningful in accordance with the applicable financial reporting framework.

   2. The preparation of service performance information in accordance with the entity’s measurement bases or evaluation methods in accordance with the applicable financial reporting framework.

   3. The overall presentation, structure and content of the service performance information in accordance with the applicable financial reporting framework.

   4. Such internal control as those charged with governance determine is necessary to enable the preparation of service performance information that is free from material misstatement, whether due to fraud or error.
      When the financial report is prepared in accordance with a fair presentation framework, the description of responsibilities shall refer to “the preparation and fair presentation of the service performance information” or the “preparation of service performance information that gives a true and fair view” as appropriate in the circumstances.²⁸

3. In the “auditor’s responsibilities” section describe the audit of the service performance information by stating that, in accordance with the ISAs (NZ) and this New Zealand Auditing Standard, the auditor’s responsibilities are to:

   1. Obtain an understanding of the process applied by the entity to select its elements/aspects of service performance, performance measures and/or descriptions and the measurement bases or evaluation methods.

   2. Evaluate whether the selection of elements/aspects of service performance, performance measures and/or descriptions and measurement bases or evaluation methods present an appropriate and meaningful assessment of the entity’s service performance in accordance with the applicable financial reporting framework.

   3. Evaluate whether the selected service performance information is prepared in accordance with the entity’s measurement bases or evaluation methods, in accordance with the applicable financial reporting framework.

   4. Evaluate whether the overall presentation, structure and content of the service performance information represents the elements/aspects of service performance in accordance with the applicable financial reporting framework, including where relevant its fair presentation.

52. The auditor may be required or may voluntarily report key audit matters in the auditor’s report in accordance with ISA (NZ) 701²⁹. If reported, where, in the auditor’s judgement matters related to service performance information were of most significance to the audit, key audit matters shall include matters related to service performance. (Ref: Para. A85)

53. The auditor shall modify the opinion, with respect to the service performance information when:³⁰

1. The auditor concludes that either individually or collectively the elements/aspects of service performance, performance measure and/or descriptions, or measurement bases or evaluation methods are materially misstated in that it is not appropriate and meaningful and as such is not in accordance with the applicable financial reporting framework, or

2. The auditor concludes, based on the audit evidence obtained, that the service performance information is not individually or collectively free from material misstatement, or (Ref: Para. A86)

3. The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the service performance information, as a whole, is free from material misstatement.

54. When the auditor modifies the opinion with respect to the service performance information, the auditor shall consider the effect of the modification on the opinion on the financial statements. (Ref: Para. A87)

55. When the auditor modifies the audit opinion with respect to the service performance information only, the audit opinion shall clearly indicate that the opinion on the financial statements is not modified. The auditor shall use the headings “Qualified Opinion on the Service Performance Information”, “Adverse Opinion on the Service Performance Information” or “Disclaimer of Opinion on the Service Performance Information” as appropriate. The opinion with respect to the financial statements shall use the heading “Opinion on the Financial Statements”.

56. If the auditor modifies the opinion on the financial statements, the auditor shall consider the effect of the modification on the opinion on the service performance information.

57. If the auditor considers it necessary to draw users’ attention to a matter presented or disclosed in the service performance information, that in the auditor’s judgement, is of such importance that it is fundamental to users’ understanding of the service performance information, the auditor shall include an Emphasis of Matter paragraph in the auditor’s report. (Ref: Para. A88)

58. If the auditor considers it necessary to communicate a matter other than those that are presented or disclosed in the service performance information, that in the auditor’s judgement, is relevant to users’ understanding of the audit of service performance information, the auditor shall include an Other Matter paragraph in the auditor’s report. (Ref: Para. A88)

59. The auditor shall determine whether:

1. Prior period comparative service performance information agrees with disclosures presented in the prior period or when appropriate, have been restated; and

2. The elements/aspects of service performance, performance measure and/or descriptions, or measurement bases or evaluation methods is consistent with the current period or, if there have been changes, whether those changes have been properly accounted for and adequately presented and disclosed.

60. Where the entity presents a comparison of published prospective service performance information with the service performance information, the auditor shall:

1. Assess whether the prospective service performance information agrees with the information presented in the published prospective service performance information: or

2. Assess that any changes have been clearly explained in the service performance information.

61. The auditor shall read the other information and consider whether there is a material inconsistency between: (Ref: Para. A89-A90)

1. The other information and the service performance information; and

2. The other information and the auditor’s knowledge obtained in the audit.

A1. Service performance reporting requirements are generally less prescribed than financial information which may result in varied service performance reporting between similar entities and industries. The format of the information is not prescribed, and information may be presented outside the annual report and may be incorporated by cross reference. The auditor may benefit from early engagement with the entity to understand the entity’s service performance reporting process, where it intends to report its service performance information and address any challenges that may arise to evaluate whether the service performance information is appropriate and meaningful as required by paragraph 25.

A2. An entity may be required to identify the service performance information that is prepared in accordance with the applicable financial reporting framework. This standard only applies to service performance information prepared in accordance with the applicable financial reporting framework.

A3. Examples that the auditor may consider to assess whether the aspects of service performance information are appropriate and meaningful include:

A4. This NZ AS supplements the ISAs (NZ). It expands on how the ISAs (NZ) are to be applied to the service performance information. This NZ AS includes specific requirements for the service performance information that are not explicitly dealt with by the ISAs (NZ) or where the application of the ISAs (NZ) differs as a result of the nature of the service performance information.

A5. The applicability of each of the ISAs (NZ) to the service performance information requires careful consideration. For example, ISA (NZ) 240³¹, ISA (NZ) 540 (Revised)³², and ISA (NZ) 550³³ are in principle, relevant. This is because the service performance information could be misstated as a result of fraud, misstated estimates as a result of measurement that is subject to estimation uncertainty, or the effect of related party transactions.

A6. The applicable financial reporting framework enables an entity to determine how it selects, aggregates, measures and presents its service performance information. As such, this elevates the need for early engagement and planning of sufficient time to obtain an understanding of the entity and to exercise professional judgement, particularly to assess whether the service performance information is appropriate and meaningful and to determine materiality. The auditor may find it helpful to seek out examples of service performance reporting of similar entities.

A7. The following are examples of matters that the auditor may include in the audit documentation:

A8. ISA (NZ) 230³⁴ notes that, an important factor in determining the form, content and extent of audit documentation of significant matters is the extent of professional judgement exercised in performing the work and evaluating the results. Documentation of the professional judgements made, where significant, serves to explain the auditor’s conclusions and to reinforce the quality of the judgement.

A9. Examples of circumstances relating to the use of professional judgement to include in audit documentation include significant matters and judgements relating to:

A11. An illustrative audit engagement letter including service performance information is set out in Appendix 2.

A12. Where the service performance information is not within the scope of the audit engagement, the auditor’s responsibility for the service performance information is limited to following the requirements in ISA (NZ) 720 (Revised).³⁵

A13. Some entities may be required to prepare information that is in addition to service performance information addressed in this standard and/or performance information that is required to be audited under legislation. For example, Crown Entities are required to include information on its obligation to be a good employer.

A14. Differences between reporting and auditing requirements in legislation may have been identified by the entity or by the auditor. In some instances, the entity or the auditor may have identified performance information that would be useful or valuable to have audited and that falls outside the scope of what is required to be statutorily audited.

A15. Some entities that are required by the applicable financial reporting framework to prepare service performance information, may not be required by law or regulation to have an audit. For example, some Tier 3 registered charities, and all Tier 4 registered charities may have no statutory audit requirements. Where the service performance information is not within the scope of the audit engagement, the auditor’s responsibility for the service performance information is limited to following the requirements in ISA (NZ) 720 (Revised).

A16. Some entities are required by the applicable financial reporting framework to prepare entity information. For Tier 3 registered charities that have a statutory audit requirement, all information required to be prepared by the applicable reporting standard is required to be audited, including the entity information. When the entity information is not within scope of the audit engagement, the auditor’s responsibility for the entity information is limited to following the requirements in ISA (NZ) 720 (Revised).

A17. The auditor may obtain an understanding through:

1. Enquires with management and those charged with governance;

2. Reading:

A18. Laws and regulations may differ among entities depending on their governing legislation.

A19. The scope of what service performance information the entity reports may be embodied in law or regulation specific to the entity, industry or sector in which the entity operates and, in particular, with laws and regulations that specify the form and content of service performance information or which describe the entity’s accountability.

A20. The nature of the performance report may be specified in applicable legislation, which may indirectly determine the nature of the performance information to be reported.

A21. The provisions of those laws and regulations may require the entity to present particular service performance information which may be over and above any requirements to comply with the applicable financial reporting framework. As the reporting is required by law and regulation the auditor is not required to assess whether the service performance information is appropriate and meaningful.

A22. The entity will need to interpret the applicable financial reporting framework and either select pre-existing external service performance information, including pre-established performance measures and/or descriptions or measurement bases or evaluation methods from guidance, standards, laws or regulation , or it may need to apply judgement to develop internally its own performance measures and/or descriptions or measurement bases or evaluation methods for its service performance information. The need for such judgement makes the preparation of service performance information inherently more susceptible to the risk of management bias.

A23. The process applied by the entity to determine what service performance information to report on and how to measure or evaluate its service performance information may affect the work that the auditor carries out. The level of potential management bias in selecting the elements/aspects of service performance, performance measures and/or descriptions and measurement bases or evaluation methods directly correlates with the amount of work that the auditor may need to perform when considering the service performance information reported or intended to report. For example, use of performance measures and/or descriptions or measurement bases or evaluation methods specified by external benchmarks or industry guidance may require less work than internally generated performance measures and/or descriptions or measurement bases or evaluation methods, as external guidance reduces the risk of management bias. The entity may have documentation that reflects the process it went through in selecting its service performance information. Transparency about the entity’s process to select its service performance information and the entity’s consideration of materiality may also affect the work that the auditor carries out.

A24. In the early stages of reporting service performance information, the entity may not have developed an appropriate process, supported by internal controls, to identify its service performance information, or service performance information may be less accurate or complete. The entity may therefore be unable to include certain aspects of its service performance in its service performance information. The auditor exercises professional judgement to conclude on the impact of such omissions (including those for which the entity has provided reasons or explanations). This is particularly relevant since entities will be at varying stages of maturity in respect of preparing service performance information.

A25. Unforeseen events impacting the entity may require the entity to focus on different elements/aspects of service performance, performance measures and/or descriptions or measurement bases or evaluation methods than intended when the service performance information was determined for the period. The auditor should gain an understanding of such events and the impact it has on service performance reporting and whether any alternative elements/aspects of service performance, performance measures and/or descriptions or measurement bases or evaluation methods used are more appropriate and meaningful to fairly reflect the revised activities or services performance of the entity over the period.

A26. Service performance information can also be located outside the service performance report. Such information can, for example, be included with the service performance reporting of another entity or in some other publication and/or published form (for example, a stand-alone service performance report or industry sector report). Service performance reporting can also be activity based rather than focused on the service performance of a single entity.

A27. When forecast service performance information is prepared, it may largely determine the service performance information that is reported.

A28. An entity’s internal control systems related to the preparation of service performance information may vary by size or complexity of the entity, and the nature and complexity of the service performance information. There is a difference between simple controls and inadequate controls. Simple controls may be adequate when the entity and the performance measure and/or description and its measurement basis or evaluation method are not complex. Internal control systems related to the preparation of service performance may be less developed or less well ‘embedded’ into the operations than those related to the preparation of financial information. They may be less traditional to those used for financial information and require greater work effort by the auditor to gain an understanding.

A29. Controls in the control activities component that may be relevant to the audit of the service performance information include policies and procedures that pertain to internal management performance reviews, such as reviews and analyses of actual performance versus budgets and relating different sets of data – operating or financial – to one another.

A30. Although it is likely that the service performance information and financial information will come from different systems, a single audit approach recognises the inextricable link between the service performance information and the financial statements of an entity.

A31. It is important to engage with the entity as early as possible to understand whether the elements/aspects of service performance, performance measures and/or descriptions and measurement bases or evaluation methods the entity intends to report are appropriate and meaningful.

A32. If an entity prepares forecast service performance information, providing feedback on the forecast service performance information provides the best opportunity to engage with the entity on whether the service performance information intended to be reported is appropriate and meaningful.

A33. The audit of the end of year service performance reporting, can influence how you assess the forecast service performance reporting for the following year.

A34. Principles and requirements for the reporting of service performance information are specified within the applicable financial reporting framework as follows:

1. For tier 1 and tier 2 public benefit entities, PBE FRS 48 Service Performance Reporting

2. For tier 3 public benefit entities:³⁶

   • Reporting Requirements for Tier 3 Not-for-Profit Entities

   • Reporting Requirements for Tier 3 Public Sector Entities

3. For tier 4 public benefit entities:

   • Reporting Requirements for Tier 4 Not-for-Profit Entities

   • Reporting Requirements for Tier 4 Public Sector Entities Appropriate and Meaningful (Ref: Para. 25)

A35. To determine if the service performance information is appropriate and meaningful the auditor should assess how well the entity has balanced the qualitative characteristics and pervasive constraints when selecting its elements/aspects of service performance, performance measures and/or descriptions, and measurement bases and evaluation methods.

A36. The auditor may consider whether the service performance information inappropriately attributes service performance to the entity.

A37. The auditor may consider:

A38. An entity may select service performance information to report on the basis that the selected performance is readily obtainable or measurable however it may not be the most relevant information to enable the user to understand or assess the service performance of the entity.

A39. The auditor may consider whether:

A40. The potential for management bias directly correlates with the amount of work that the auditor may need to perform to obtain sufficient appropriate audit evidence that the service performance information is appropriate and meaningful. For example, the auditor may need to consider management bias when there are multiple measurement bases or evaluation methods possible to assess a performance measure. Also, there may be greater management bias when the measurement basis or evaluation method is internally generated rather than an external industry standard.

A41. Some service performance information that is more relevant for users, may be measured less precisely. The auditor may perform different audit procedures than for those where the service performance can be more precisely measured.

A42. The auditor’s evaluation of the service performance information may be an iterative process.

A43. For entities that prepare forecast service performance information for a reporting period, the auditor is encouraged to evaluate whether it is appropriate and meaningful when it is developed.

A44. The considerations in paragraph 25(b), (c), (d) and (e) are most relevant in the auditor’s evaluation of whether the forecast service performance information is appropriate and meaningful.

A45. There can be significant variation in the service performance information selected and presented by entities. The auditor’s understanding of the entity is important in determining what are the significant elements/aspects of the entity’s service performance which are important to intended users of the service performance information.

A46. Understanding what elements/aspects of service performance are significant to users may assist the auditor in focusing their audit efforts and applying professional judgement when considering any misstatements identified.

A47. The auditor’s materiality considerations and determination of materiality is a matter of professional judgement. The evaluation required by paragraph 25, particularly the factors regarding relevance considered by the auditor in paragraphs A35 to A44, may assist the auditor to determine materiality considerations and/or materiality.

A48. The applicable financial reporting framework may discuss the concept of materiality in the context of preparation and presentation of service performance information. Such a discussion provides a frame of reference to the auditor in determining what is material. The auditor’s consideration of the entity’s process to select the elements/aspects of service performance, the performance measures and/or descriptions, and measurement bases or evaluation methods to use also provides context in determining materiality considerations and/or materiality.

A49. The basis for materiality will likely differ from the financial statements. Materiality may be expressed in terms of the appropriate unit of account for each element/aspect of service performance or performance measure and/or description reported. The auditor is unlikely to be able to set an overall materiality because there is unlikely to be a common unit of account. It may be possible to group similar service performance measures and/or descriptions together and make materiality decisions on the same basis if they have the same unit of account.

A50. The materiality considerations determine the auditor’s tolerance for misstatement in relation to material service performance measures and/or descriptions. Material misstatements may occur in both qualitative and quantitative service performance information. The auditor may need to exercise professional judgement beyond the traditional approach of applying a % to a chosen benchmark. In some instances, there may be no tolerance for error in some performance measures and/or descriptions.

A51. If the auditor’s assessment required by paragraph 29(a) is that the significant elements/aspects of service performance and related material performance measures and/or descriptions is not appropriate and meaningful, it is a matter of professional judgement as to whether that gives rise to a material misstatement.

A52. The auditor may firstly consider which elements/aspects of service performance are important to intended users. Having identified those, the auditor may then consider what are the material performance measures and/or descriptions that measure performance in those elements/aspects of service performance. A tolerance for misstatement is then applied by the auditor to material service performance measures and/or descriptions.

A53. The following factors may assist the auditor in applying materiality:

A54. A misstatement may arise when:

A55. An individual misstatement, impacting a single element/aspect of service performance, performance measure and/or description, may be material.

A56. A number of misstatements, when observed collectively across the service performance information, may also be material if they amount to a misleading portrayal of the entity’s service performance information. Even though taken individually, each service performance measure and/or description may not be materially misstated, the auditor needs to consider whether the service performance information as a whole is materially misstated.

A57. It is unlikely that the auditor will be able to aggregate misstatements numerically. However, this does not remove the need for the auditor to form a conclusion as to whether uncorrected misstatements are material individually or collectively, as required by paragraph 31.

A58. The auditor exercises professional judgement to conclude on the impact of any material misstatement on the opinion. The auditor may consider factors such as whether the misstatement impacts a significant element/aspect of service performance and whether it is likely to influence the decisions of the intended users.

A59. Examples of factors that may lead to a material misstatement, include:

• Misuse of language – that creates a misleading picture of the entity’s performance.

• Misleading presentation – which highlights or downplays aspects of performance, to create a misleading picture of the entity’s service performance.

• Bias – an emphasis is placed on good performance and downplays or omits poor performance i.e., isn’t neutral.

• Omission of fact – something is left out that may be important to understanding the entity’s service performance or is important to intended users.

• Incorrect measurement or evaluation – the service performance measure isn’t prepared in accordance with the measurement basis or evaluation method selected by the entity.

• Where quantifiable service performance information misstates the level of actual performance beyond a determined level (the traditional application of materiality).

• Misstatement of fact.

• Misrepresentation of trend – performance presented does not represent the facts available.

• Unsubstantiated claims.

A60. Assertions used by the auditor in considering the different types of potential misstatements of service performance information that may occur may fall into the following categories:

1. Occurrence – service performance that has been reported has occurred.

2. Attributable to the entity – the service performance reported by the entity includes only service performance that the entity has evidence to support its involvement with either directly or in conjunction with other entities with common goals.

3. Completeness – all important service performance that should have been reported has been included in the service performance information.

4. Accuracy – service performance has been reported, measured and described appropriately and is not inconsistent with the financial statement information.

5. Cut-off – service performance has been reported in the correct period.

6. Presentation – service performance is appropriately aggregated or disaggregated, clearly displayed and not misleading, and related disclosures are relevant and understandable.

A61. The auditor may use the assertions as described in paragraph A60 or may express them differently provided all aspects described above have been covered. For example, the auditor may choose to combine the assertions about occurrence and attribution or based on the nature of the service performance information reported consider existence may be more appropriate than occurrence.

A62. When assessing the likelihood and magnitude for identified risks of material misstatement the auditor exercises professional judgement in considering the degree to which inherent risk factors of the service performance information affect the susceptibility of an assertion to misstatement. Considering the degree to which inherent risk factors affect the susceptibility of an assertion to misstatement, assists the auditor in appropriately assessing inherent risk for risks of material misstatement at the assertion level and in designing a more precise response to such a risk. Due to the variation in how an entity can aggregate, measure and present its service performance information, this assessment needs to be done at a meaningful level to reflect the inherent risk of the particular measure.

A63. Risks of material misstatement that may be assessed as having higher inherent risk and may therefore be determined to be a significant risk, may arise from matters such as the following:

• Performance measures that use a measurement basis or evaluation method that may be subject to differing interpretations.

• Performance measures that involve complexity in data collection and processing.

• Performance measures that use a measurement basis or evaluation method that involves complex calculations.

• Changes in the entity’s business that involve changes in service performance.

A64. Determining whether service performance information selected is appropriate and meaningful involves a considerable amount of judgement. There may be documentation that provides audit evidence to support the judgements made by the entity in selecting the service performance information to report, for example, those referred to in paragraph A17.

A65. The mix of procedures to be performed may vary compared with the mix used for financial information but does not alter the need to obtain sufficient appropriate audit evidence.

A66. Service performance information may not come directly from traditional financial reporting information systems and source records. Nevertheless, the entity will need an accurate record keeping system that provides relevant and reliable audit evidence. The auditor may find it more challenging and need to think differently to obtain relevant and reliable audit evidence where information systems, source records or internal controls are different to those used in traditional financial reporting.

A67. The auditor may be able to identify relationships between the service performance information and the financial information as a sense check that the financial and service performance information are reflecting a consistent report of the performance of the entity. For example, does the movement in fuel expense in the financial statements reflect the number of home visits reported.

A68. The auditor’s procedures may include:

• Agreeing or reconciling amounts reported in the service performance information to any underlying financial and non-financial records.

• Agreeing cross references between the service performance information and the financial statements.

A69. The auditor may use the work of an individual or organisation possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the service performance information (a management’s expert). Examples may include a professional survey firm conducting a perception questionnaire or satisfaction survey, or preparing a water quality report.

A70. The auditor is encouraged to communicate with those charged with governance early or as soon as practicable

A71. The auditor’s views on the judgemental areas of reporting the entity’s service performance may be particularly relevant to those charged with governance in discharging their responsibilities for the preparation of the service performance information. For example, why the auditor considers the service performance information not to be appropriate and meaningful. Open and constructive communication including feedback on the maturity of the entity’s process to prepare the service performance information, the service performance information selected by the entity or how the information compares to other entities may drive improvements over time. This may include comments about, for example, judgemental aspects of what service performance information to report on, concerns regarding management bias or the quality of the presentation of the information.

A72. Significant difficulties encountered during the audit may include such matters as:

1. Extensive unexpected effort required to obtain sufficient appropriate audit evidence.

2. The unavailability of expected information.

A73. Significant matters discussed, or subject to correspondence with management may include matters that were pervasive to the service performance information, biases in the performance measures and/or descriptions, for example, questions in a survey articulated to drive a particular result.

A74. It may be appropriate for an entity to report service performance information about elements/aspects of service performance provided by other entities. ISA (NZ) 402 may be relevant to the audit of service performance information, if the user entity makes use of a service organisation for the preparation of service performance information..

A75. ISA (NZ) 600 (Revised) may be relevant, adapted as necessary to the circumstances, when the auditor involves other auditors in the audit of the service performance information where the service performance information includes information about the elements/aspects of service performance provided by other entities.

A76. Alternatively, the service performance information may include information upon which another practitioner may have expressed an opinion. The auditor may decide to use the evidence on which the other practitioner’s opinion is based to provide evidence regarding the service performance information. The work of another practitioner may be used in relation to service performance information that falls outside the boundary of the reporting entity. Such practitioners are not part of the engagement team. Relevant considerations when the engagement team plans to use the work of another auditor may include:

1. A communication that the auditor understands and complies with the requirements of Professional and Ethical Standard 1³⁷.

2. The other practitioner’s professional competence.

3. The extent of the engagement team’s involvement in the work of the other practitioner.

ISA (NZ) 620 may also provide useful guidance with respect to using the work performed by another assurance practitioner.

A77. Expertise in a field other than accounting or auditing may be necessary as a result of information included in the service performance information. Examples may include expertise in relation to such matters as:

1. The measurement of complex performance measures;

2. Assertions made about the entity’s performance, for example, when reporting on the impact that the entity had;

3. Conformity assessments, ecolabelling and certification programmes.

A78. An illustrative representation letter for an audit that includes service performance information is set out in Appendix 3.

A79. The measurement bases or evaluation methods used to assess a performance measure and/or description need to be made available to intended users to allow them to understand how the underlying service performance information has been measured or evaluated.

A80. The measurement bases or evaluation methods can be made available to the intended users in one or more of the following ways:

1. Publicly, for example, readily available documents such as a published external assessment framework on a website.

2. Through inclusion in a clear manner in the presentation of the service performance information, in particular for entity-developed measurement bases or evaluation methods.

3. Through inclusion in a clear manner in the description of the performance measure and/or description itself, for example, number of meals delivered.

4. By general understanding, for example, the method of measuring time in hours and minutes. The auditor may consider whether it is clear what the time is measuring. For example, an entity may measure its response time to an outage but will need to be clear as to whether the response time is measured from when a call is lodged, or measures the time taken to address a fault from when someone arrives to address the fault.

A81. The auditor’s report includes references to the service performance information. An illustrative auditor’s report that includes references to the service performance information is set out in Appendix 4.

A82. This NZ AS requires the auditor’s report to include at least all elements required by ISA (NZ) 700 (Revised).

A83. The auditor’s report refers to the method used to measure or evaluate the service performance so the intended users can understand the basis for the auditor’s opinion.

A84. An example of how the wording may look in an auditor’s report:

In our opinion, the accompanying [financial report/ performance report] presents fairly, in all material respects:

• [the entity information as at December 31, 20X3;]

• the financial position of the [entity] as at December 31, 20X3, and its financial performance, and its cashflows for the year then ended; and

• the service performance for the year ended December 31, 20X3 in that the service performance information is appropriate and meaningful and prepared in accordance with the entity’s measurement bases or evaluation method

in accordance with [the applicable financial reporting framework (e.g.: PBE Standards)] issued by the New Zealand Accounting Standards Board.

A85. The order of presentation of individual matters within the Key Audit Matters is a matter of professional judgement. Key audit matters relating to service performance may be the most important key matter to intended users.

A86. A misstatement of the service performance information may arise in relation to:

1. The application of the measurement basis or evaluation method;

2. Inadequate disclosure of judgements made, where applicable; or

3. Incomplete disclosures that do not include all disclosures required by the applicable financial reporting framework or do not achieve fair presentation of the service performance information.

A87. In many instances, a modification with respect to the service performance information will have no impact on the opinion on the financial statements. Appendix 5 includes illustrative auditor’s reports with modifications to the opinion with respect to the service performance information.

A88. An Emphasis of Matter or Other Matter paragraph may describe for example:

• The underlying facts and information about the entity’s process to select what service performance to report on (e.g., the maturity of the entity’s process compared to others in the industry).

• The source and method used to measure or evaluate the service performance information and whether they are externally established (e.g., established in legislation or externally established performance frameworks).

• Any significant interpretations made in selecting the entity’s service performance information or applying the method(s) to measure or evaluate.

• Whether there have been any changes in the service performance information disclosed or measurement bases or evaluation methods used.

• Any other matters the auditor considers necessary to assist intended users in making decisions based on the service performance information.

• Information the auditor considers would enhance transparency and assist the user to understand the level of maturity that the entity has achieved in its reporting.

A89. Other information, whether financial or non-financial information (other than the financial statements information and service performance information) may be included in an annual report. The auditor’s opinion does not cover the other information. The auditor’s responsibilities regarding other information, is determined by ISA (NZ) 720 (Revised) and by this NZ AS.

A90. In the context of service performance information, the distinction between the audited service performance information and the “other information” is not as pronounced as it is for financial information. As a consequence, quite subtle changes in the way that information is presented in the “other information” (such as wording used to describe performance) can easily provide a misleading impression of the entity’s actual performance when compared to the audited service performance information.