On 17 August 2021, former auditors of Halifax Investment Services Pty Ltd (Halifax), Mr Robert James Evett and EC Audit Pty Ltd (formerly Bentleys NSW Audit Pty Ltd) were convicted and sentenced to pay a fine of $10,000 and $40,000 respectively for failing to conduct audits in accordance with auditing standards.

Mr Evett and EC Audit are the first auditors in Australia to face criminal charges and to be sentenced under section 989CA of the Corporations Act. EC Audit and Mr Evett had previously pleaded guilty to the charges (21-163MR).

The charges relate to audits conducted by Mr Evett, as lead auditor, and EC Audit, as audit company, of the profit and loss statements and balance sheets of Halifax for three consecutive financial years ended 30 June 2016, 30 June 2017 and 30 June 2018.

The breaches of the auditing standards included that:

• EC Audit failed to understand Halifax’s business and failed to design appropriate tests to identify material misstatements in the accounts, and
• Mr Evett failed to take responsibility for the overall conduct of the audits and failed to ensure that staff with appropriate skills were conducting the audits.

In delivering the sentence, the Court noted the conclusions of an expert auditor’s report that:

• had the audits of the financial statements been conducted in accordance with auditing standards, the material misstatements would have been detected and Halifax would have been required to cease trading until sufficient capital was raised for it to meet its financial services licence (AFSL) capital requirements; and
• the effect of misstatements was that for each year the financial statements did not disclose that Halifax was not meeting its AFSL requirements, Halifax continued to trade whilst being prima facie insolvent.

ASIC Commissioner Cathie Armour said, ‘Auditors are important gatekeepers to the market and play a key role in ensuring financial reports are free from misstatements.

‘In taking this action against EC Audit, ASIC is sending a message to auditors to maintain a strong culture focused on audit quality and that any serious failure to comply with auditing standards will be prosecuted,’ concluded Commissioner Armour.

The Commonwealth Director of Public Prosecutions prosecuted the matter after a referral from ASIC.

Background

The maximum penalty available for the offences occurring before 1 July 2017 for each charge against Mr Evett was $9,000 and for each charge against EC Audit was $45,000. For the offences occurring on or after 1 July 2017, the maximum penalty for the charge against Mr Evett was $10,500 and the charge against EC Audit was $52,500.

Stronger penalties for auditor breaches were introduced in March 2019 with strict liability penalties up to $11,100 for each offence by an individual and $111,000 for a company. A fault-based offence has also been introduced and this incurs a maximum penalty of two years imprisonment.

Halifax was the holder of an Australian Financial Services licence and was required to lodge audited profit and loss statements and balance sheets with ASIC. The audits would ensure that Halifax was in compliance with its AFSL financial requirements based upon true and fair financial statements. Halifax was placed in administration in November 2018. It entered liquidation in March 2019. ASIC cancelled Halifax’s AFSL in January 2021(21-004MR).

Clients of Halifax used a number of trading platforms to invest in financial products described broadly as exchange traded financial products and ‘over-the-counter’ financial products. Further information on ASIC action regarding Halifax is on the Halifax Key Matters page.