Small firm accountants face major barriers to auditor registration

Small accounting firms are facing considerable challenges in the process of becoming ASIC-registered company auditors (RCAs) with the process tailored primarily to larger firms, according to an aspiring company auditor and accounting practice principal.

Principal of Kirk Davis Accounting, Kirk Davis, has called for better pathways to become a registered company auditor for accountants from smaller firms after encountering countless barriers in attempting to become registered himself.

Davis explained that the legislative requirements for RCA status often assume the operational model of a larger firm, including extensive timekeeping, mentorship programs, and specific audit structures.

“Smaller firms, however, typically operate differently, with fewer staff and less formalised systems,” Davis said.

Davis has faced his own difficulties in meeting the mentoring requirements due to not having kept computer-generated timesheets of supervision with his mentor.

“As a contractual arrangement, our work is based on more agreed outcomes, rather than an hourly rate,” he said.

He also spent over 3,000 hours working on audits and being mentored by a registered company auditor for over 750 hours.

Davis and his mentor provided ASIC with a statutory declaration and other signed documents including a table of the hours and listings of the audit duties performed.

While Davis did not have formal staff, he established a collaborative mentorship arrangement with an RCA where he would review their work similarly to reviewing the work of junior staff. The RCA would then conduct a final review following the feedback from Davis.

He believed the arrangement to be an effective and practical solution for small business operations.

However, the corporate regulator determined that it failed to meet the requirements for RCA status as Davis did not directly supervise any staff.

Davis said legislative changes should be made that accommodate these differences through alternative evidentiary requirements or a mentorship program facilitated by ASIC, for example.

This would make the process more attainable without diminishing the standards expected of auditors, he said.

Small firms also often encounter significant delays in the application process and receive limited guidance or support from ASIC.

Davis said this was compounded by the ambiguity in the interpretation of requirements.

“Over the last two years I have been given bad advice from ASIC, and many of my questions have been ignored by ASIC,” he said.

Despite providing additional information to ASIC, Davis said ASIC refused to acknowledge or appropriately reply to his questions.

With the number of company auditors continuing to decline, Davis said it was crucial that these anti-competitive restrictions for small firms were rectified.

“When my mentor, Richard, retires, his clients will be left with no choice but to transition to larger firms, despite the fact that clients should have the freedom to choose smaller audit practices if they prefer.”

Auditor shortages would become increasingly critical once mandatory climate-related disclosures are rolled out, he added.

While there are plans to fast-track the integration of overseas auditors into Australia, Davis said the government should first prioritise addressing the significant barriers small firms face in accessing opportunities from becoming registered company auditors.

“Australian small businesses are at a distinct disadvantage. It is difficult to comprehend why Australian small firms face these challenges while overseas professionals are expedited,” he said.

Davis has lobbied various accounting bodies, the Commonwealth Ombudsman, the Australian Small Business and Family Enterprise Ombudsman, and has also written to various ministers to try and bring about change in this area.

“This situation presents an opportunity for ASIC to enhance its processes, making the path to RCA status more accessible to small firms,” he said.

“To support the sustainability and growth of small accounting practices, it is essential to create a more inclusive pathway for achieving Registered Company Auditor (RCA) status.

“Streamlining processes, reducing administrative delays, and providing clearer guidance would significantly improve accessibility for small firms.”

Davis noted that these measures would not only level the playing field but also foster a more diverse and competitive auditing industry.