ASIC has released the findings of its first year of on-site inspections of audit firms since the enactment of new regulatory requirements.
Under the Corporations Act 2001, ASIC has responsibility for the surveillance, investigation and enforcement of auditor independence requirements.
Australia significantly enhanced its regulatory requirements for auditors on 1 July 2004 with the enactment of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosures) Act 2004 (CLERP 9).
ASIC conducted on-site inspections of Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers. The firms are national partnerships and together audit approximately 54% of all entities listed on the Australian Stock Exchange, and 91% by market capitalisation of the 300 largest entities.
‘As this was the first time ASIC had conducted such inspections, we focused on assessing whether the firms had documented and implemented a quality control system that provides reasonable assurance that they comply with the independence requirements,’ Jennifer O’Donnell, Executive Director Compliance said.
ASIC’s inspections identified that:
- All firms had documented policies in place and these were generally adequate.
- While ASIC conducted a limited review of engagement files to see whether these policies were being implemented in practice, it did not seek to comprehensively test for breaches of the audit independence requirements.
- No breaches of the Corporations Act were identified in the course of the inspections.
The inspection did identify some suggested improvements in the arrangements of each of the firms.
Ms O’Donnell acknowledged the commitment of the major firms to working co-operatively with ASIC to improve confidence in financial reporting, audit, and the capital market.
‘We look forward to the firms continuing to demonstrate this commitment by embracing and acting upon our observations and findings,’ Ms O’Donnell said.
ASIC’s next phase of work will include selected mid-tier firms and further inspections of the major firms.
‘Our first year of inspections was focused on independence, and we are actively expanding our resources and capabilities to review audit methodology and the application of Australian Audit Standards,’ Ms O’Donnell said.
The Financial Reporting Council (FRC) has been provided with results of the ASIC inspection as set out under the Memorandum of Understanding between the two organisations.
End of release