- The Parliamentary Joint Committee on Corporations and Financial Services has released an interim report from its inquiry into audit regulation
- The report contains 10 recommendations, most of which align with CA ANZ’s 15-point plan for audit and risk
- The inquiry’s final report is expected in September
The Parliamentary Joint Committee's (PJC) Inquiry into the Regulation of Audit in Australia has released an interim report that contains 10 recommendations.
"No new empirical evidence of systemic audit failure was uncovered," said Senator Paterson, Chair of the Parliamentary Joint Committee on Corporations and Financial Services.
"There was no evidence to support radical measures which have been abandoned or discounted internationally, such as mandatory structural separation of audit firms."
The PJC released the report on the rationale that the policy lessons are clear from the evidence already received and action by regulators, firms and government should not be delayed.
The recommendations include:
- ASIC's approach to, and reporting of audit inspections
- clarification of fee disclosures for audit and non-audit services
- a list of non-audit services (NAS) that are prohibited for audited entities
- explicit confirmation in independence declaration that no prohibited NAS have been provided.
- prohibiting incentives for audit partners selling NAS to audited entities
- disclosure of auditor tenure and an "if not, why not" approach to re-tendering after 10 years
- a formal review into reporting requirements in relation to prevention and detection of fraud and management's assessment of going concern
- a public statement by management on internal controls effectiveness, with accompanying assurance over the statement
- mandating of digital financial reporting.
The inquiry began in August 2019 and the final round of public hearings was held in February. It received more than 100 submissions, plus additional information such as answers to questions taken on notice. Release of the final report has been pushed out to 1 September from 1 March.
"The recommendations outlined in the interim report are in step with community and stakeholder expectations, and will improve confidence and quality in audit, as well as provide cover for the risks facing Australians."
CA ANZ submitted a comprehensive plan for audit and risk in Australia to the committee, which put forward a package of 15 recommendations for how to improve the confidence in, relevance and quality of, audits.
The 15-point plan was developed through extensive engagement with Chartered Accountants and stakeholders from business, investor and governance groups and tapping into the latest from reviews happening overseas.
The recommendations in the interim report are in line with the CA ANZ plan, namely internal control, non-audit services, tenure, severity grading of ASIC findings/review of the inspections approach, fraud, going concern and digital reporting.
"The recommendations outlined in the interim report are in step with community and stakeholder expectations, and will improve confidence and quality in audit, as well as provide cover for the risks facing Australians", says Reporting & Assurance Leader Amir Ghandar FCA.
"Clarifying management accountability, auditing targeted at internal control and the risks of fraud and business failure signals a clear path forward for companies, regulators and the auditing profession.
"This is particularly important in light of systems-related risks that we've seen playing out in the business environment recently ranging from anti-money laundering to the issues exposed during the Banking Royal Commission.
"We're optimistic that a holistic review of ASIC's audit inspection program, including more graduated insights on the severity of findings, will lead to better outcomes and constant improvement in audit quality."
The PJC will hold further hearings before issuing its final report in September. We are engaging closely with the Australian Parliamentary Inquiry on audit, facilitating robust audit profession and stakeholder dialogue in New Zealand, and connected with international developments in the UK and beyond on the future of audit and how it can best serve the community.
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