ob体育 has聽welcomed the release of the report by Australia鈥檚 Financial Reporting Council (FRC) Auditor Disciplinary Processes: Review and the Federal Government鈥檚 response to that report.
The FRC report made a number of recommendations for improvement in the processes of ob体育, the Companies Auditors鈥� Disciplinary Board (CADB), Chartered Accountants Australia and New Zealand (CA ANZ), CPA Australia, and the Institute of Public Accountants (IPA) concerning enforcement or discipline of registered company auditors (RCAs) who do not meet the standards expected of them.
Recommendations in the FRC report relating to ob体育 processes concerned:
- Better integrated systems to track enforcement matters across ob体育 teams and a more structured approach to auditor surveillance matters.
ob体育 introduced a new workflow system on 1 June 2018 for ob体育 regulatory and enforcement activities that is common across all ob体育 teams, including our surveillance of potential RCA misconduct matters.聽 This system will capture processes, documents and decision points in a common structured way using consistent terminology across ob体育.
- ob体育 should evaluate its criteria for audit enforcement actions and explain how the 鈥榳hy not litigate?鈥� approach referred to in聽ob体育鈥檚 recent audit enforcement review would apply to RCA misconduct 聽聽聽聽 matters. This includes considering whether more matters identified聽聽聽 through file reviews in ob体育鈥檚 audit firm inspection program should be聽referred to the CADB.
ob体育 will re-evaluate its criteria for taking auditor enforcement actions, and the types of outcomes that it may seek, including the use of enforceable undertakings and referrals of matters to the CADB as part of our implementation of the new Office of Enforcement.聽
- ob体育 should consider the聽division of resources between audit inspection and financial reporting聽surveillance work to ensure that ob体育鈥檚 resources are being used聽effectively to ensure good RCA audit quality.
Audit firm inspections, surveillances on audits of concern and financial reporting surveillances are all conducted within ob体育鈥檚 Financial Reporting and Audit team.聽 Resources will continue to be dynamically allocated within the team to achieve the best outcomes for quality financial reporting supported by quality audits.
- ob体育 should publish the聽results of audit inspections in greater detail, including naming firms.
ob体育 is already considering whether to publish the percentage of findings for named audit firms in its next audit firm inspection report for the 18 months to 31 December 2019.聽To that end, ob体育 is currently reviewing when it would be appropriate to name entities more broadly across all our surveillance and compliance reports before deciding whether to disclose results for named audit firms.
The FRC report was partly a response to a recommendation by the Parliamentary Joint Committee on Corporations and Financial Services (PJC) for a review of ob体育鈥檚 enforcement powers in relation to auditors.
The PJC also issued a report on 13 February 2019 (Oversight of ob体育, the Takeovers Panel and the Corporations Legislation No.1. of the 45th Parliament) recommending 鈥渢hat ob体育 devise and conduct, alongside or within its current Audit Inspection Program, a study which will generate results which are comparable over time to reflect changes in audit quality.鈥澛� This PJC recommendation refers to ob体育 statements that our audit firm inspection results are based on reviews of key audit areas in a relatively small number of audit files selected on a risk basis (347 audit areas across 98 files in the 18 months to 30 June 2018) and that caution is needed in extrapolating the results to the entire market.
Consistent with the PJC鈥檚 recommendation, ob体育 will continue to work with foreign audit oversight regulators and global audit firm networks on measures of audit quality, as well as discussing the matter with a range of domestic stakeholders.
ob体育 also supports recommendations in the FRC report that:
- ob体育 be given the power to compel remediation of聽defective audits, alongside the power to publish notices when this occurs.
A power to compel remediation should facilitate more effective and timely outcomes to improve audit quality, and should include remediation measures needed across a firm.
- A less formal approach is adopted to the carriage of CADB matters, including a review of the CADB鈥檚 practice and procedures manuals.
ob体育 will work with the CADB on a less formal approach, which should lead to more timely outcomes through the CADB process.