Government urged to expand ASIC’s audit oversight
The government must clarify and strengthen ASIC’s jurisdiction to regulate audit firms, according to CA ANZ and the Governance Institute.
The scope of ASIC's oversight over audits and audit firms must be reviewed to ensure it is appropriately resourced, the Governance Institute of Australia and CA ANZ have told the government.
In response to Treasury consultation, CA ANZ said that clarifying and strengthening ASIC's jurisdiction to deal with audit regulation at an audit firm-wide level was critical for improving audit independence.
"ASIC and the AUASB have raised concerns about the ability of the government regulator to enforce quality management standards for auditors including ASQM 1," CA ANZ said in its submission.
"Similar concerns have been raised regarding the status of independence standards. This is a critical gap and, in our view, addressing this is the most important action for government regarding its already assumed regulatory role for audit regulation."
CA ANZ said that ASIC does not have clear enough jurisdiction to regulate audit firms at a firm-wide level, including by monitoring and enforcing compliance with leadership, governance and independence standards.
It also noted that ASIC’s resourcing, along with other key bodies such as the Companies Auditors Disciplinary Board, dedicated to audit regulation appears to have decreased over time.
Both the Governance Institute and CA ANZ would also like to see ASIC reintroduce its audit quality measures, indicators and other information reports, which provided important insight into audit quality in Australia.
"We understand ASIC decided to discontinue the reports on the basis that their preparation required a large investment of time and resources from ASIC and the firms, but that there were limited downloads of the reports and the costs to compile data were not perceived to be justified," said CA ANZ.
"We believe the value in these reports should not be assessed solely on downloads. It is likely that a small group of stakeholders and experts would access the reports directly and share the information and context more broadly with market participants."
CA ANZ said it would like to see ASIC recommencing similar reports, potentially with some review and rationalisation of the data included to achieve a better cost/benefit balance.
The Governance Institute said companies, boards and board audit committees valued ASIC’s public reports on its findings following its surveillance of financial reports and audits.
"Companies used ASIC’s reports to review their auditor’s practices in the areas identified. They also provided a valuable source of information that is independent from the information that is provided by the company’s auditor," the association said.
"Some members report that where a company had engaged an auditor identified in an ASIC report, the board audit committee would engage with the relevant firm to understand the issues raised and the actions taken by the firm to address ASIC’s finding."
The Governance Institute said it supported CA ANZ's suggestion that there be consideration of the "scope of ASIC’s audit/audit firm oversight, the industry funding model, and regulatory capability, performance and accountability".
"Our members strongly support the continuation of the audit surveillance program given the valuable oversight function it provides and the important insights the findings provide to companies on the conduct of audits, but consider additional funding is required to adequately resource the function with appropriately skilled staff," it said.
