ASIC cites power of US regulators on audit firms

The Australian Securities and Investments Commission (ASIC) has lamented the fact that, unlike its regulatory counterparts in the US, it is unable to action against audit firms with poor culture and governance.

In doing so, ASIC cited instances of international regulators such as the US Public Company Accounting Oversight Board sanctioning KPMG Australia for cheating on mandated training by censuring it and imposing a $450,000 civil penalty and the US Securities and Exchange Commission fining EY $100 million after finding dozens of audit personnel had cheated on an exam.

“ASIC is unable to take this kind of action on audit firms’ poor culture and governance because, unlike the US, the Australian quality management standard is an auditing standard under the Corporations Act and ASIC can only act against a lead audit partner for non-compliance with an auditing standard in the conduct of an individual audit,” it said.

“Further, ASIC registers individuals as Registered Company Auditors (not audit firms) and ASIC has no ability to act against a Firm or staff of a firm who are not RCAs for misconduct related to culture and governance (such as training matters),” it said.

ASIC went on to say that while there was no legislative requirement for it to undertake proactive surveillance of financial reports and audits it had been doing so anyway since 1991.

The ASIC submission also pointed to the fact that individual partners of Firms and employees may be subject to ethical codes and standards overseen by their relevant professional disciplinary bodies.

“For example, tax agents are registered and monitored by the Tax Practitioners Board. Other disciplinary bodies in the auditing and accounting profession include: the CPA Australia Disciplinary Tribunal, the Chartered Accountants Australia and New Zealand Disciplinary Tribunal, and the Institute of Public Accountants Disciplinary Tribunal. The jurisdiction of these tribunals is limited to members of the relevant professional association,” it said.

“ASIC is able to refer Registered Company Auditors to the Companies Auditors Disciplinary Board, Registered Liquidators to the Liquidators Disciplinary Committee, and financial advisers to the Financial Services and Credit Panel for disciplinary or other administrative action. These bodies are constituted under the ASIC Act or Corporations Act.”