ANAO deep dives on ASIC regulation of big audit firms

The Australian Securities and Investments Commission (ASIC) has been placed under scrutiny by the Auditor-General.

The Australian National Audit Office (ANAO) has called for submissions to an audit it is undertaking to “assess the effectiveness of the ASIC’s regulation of registered company auditors”.

The audit comes on the back of the controversy which has surrounded the big four audit companies in the wake of the conduct of PwC which was the subject of close scrutiny by the Parliamentary Joint Committee on Corporations and Financial Services.

The ANAO said it proposes to examine the following issues:

• Are ASIC’s governance arrangements and the design of regulatory activities for registered company auditors fit for purpose?
• Has ASIC appropriately implemented regulatory activities for registered company auditors?

The Parliamentary Committee report on Ethics and Professional Accountability and Structural Challenges in the Audit, Assurance and Consultancy Industry delivered damning recommendations including not permitting PWC to tender for Government work until after investigations and remedial action is completed.

The committee also recommended the Government commission “an appropriate body to review and make recommendations on the long-term goal of regulation of large partnerships, including in relation to:” the appropriate regulator and its powers, applicable governance principles, transparent reporting obligations, penalties for breach, and a roadmap for implementation given the complexities of overlapping jurisdiction”.

The committee also recommended that the Australian Securities and Investments Commission:

• re-establish a program of random audit inspections;
• supplement its existing risk-based approach by also reviewing audit files where conflicts of interest arise from the Big Four firms providing other services to their audit clients (noting that such conflicts should not occur from the time of implementation of operational separation); and
• increase the level of resources that it devotes to financial report inspections and audit inspections until there is a significant improvement in audit quality.