ASIC unveils plans to ramp up surveillance on auditor independence
The corporate regulator plans to undertake a review of auditor compliance across key systemic requirements in 2024–25.
ASIC has provided an update on its surveillance of financial reports and audits and has also flagged plans for further compliance activities in a recent letter to the inquiry into audits, assurance and consulting.
The letter to the Parliamentary Joint Committee on Corporations and Financial Services provides additional information on ASIC’s regulatory work on financial reporting and audits.
ASIC said that in addition to continuing the work on its financial reporting and audit program, it is planning work “to review how auditors are complying with important systemic requirements”.
This will include compliance with auditor independence requirements in the Corporations Act and ethical and independence requirements in the Australian Auditing Standards.
“ASIC is currently scoping this work. It is anticipated that the review will take place in the financial year 2024-25,” it said.
The regulator said it is also continuing its enforcement focus on auditor misconduct and will continue to take action against those who break the law.
“There are a number of investigations and enforcement actions underway,” it said.
“ASIC uses a range of enforcement tools in relation to auditors including referrals to the company auditors disciplinary board (CADB), court enforceable undertakings, criminal proceedings and most recently the issuing of infringement notices.”
It also justified its change in approach to its surveillance of financial reports in the letter, following concerns raised by the accounting industry and broader community.
In mid-2022, ASIC combined its surveillance of financial reports and surveillance of audits into the financial reporting and audit program.
The new approach means ASIC routinely selects audit files for surveillance where a change has been made to financial information, or where ASIC has concerns that a financial report may have a risk of material misstatement.
“This approach also means that we can concentrate our resources on audits where there is more likely to be harm to consumers and investors through deficient financial information,” the regulator said.
In October 2023 ASIC published its first integrated report covering financial reporting and audit findings, with messages directed to all key players in the financial reporting ecosystem: preparers, directors and auditors.
“The report includes a summary of individual audit findings for all firms reviewed, so all auditors can focus on improving audit quality,” said ASIC.
“As part of the new approach, ASIC is actively engaging across other parts of the financial reporting ecosystem to help improve audit quality. ASIC is now writing to company directors to report findings from audit reviews. This is with the clear expectation that directors will take appropriate action with management and auditors.”
During the inquiry into audit, assurance and consulting, ASIC has copped criticism for “having no appetite for action” regarding the audit industry.
One submission by Macquarie University professors said that a poorly resourced regulator and lack of oversight over parts of the audit profession had enabled misconduct to flourish.
“ASIC conducts an audit quality surveillance regime. Still, despite breaches of auditing standards being identified year after year across all major firms, the industry remains untouched,” the submission said.
