The Parliamentary Joint Committee on Corporations and Financial Services has tabled its final report into the Regulation of Auditing in Australia. The report builds on the interim report from February 2020 and makes 10 recommendations aimed at auditor independence and tenure.
The Committee welcomed the fact that the major auditors, including EY, KPMG, PwC, Deloitte, Grant Thornton and BDO, all published their ASIC audit inspection reports during the course of the inquiry.
With this improved transparency, the Committee has called on ASIC to continually review its audit inspection methodology with the aim of producing reports of greater sophistication and clarity.
Given the importance of auditor independence, the Committee has recommended the establishment of defined categories, and associated fee disclosure requirements, in relation to audit and non-audit services, including a list of non-audit services that audit firms are explicitly prohibited from providing to an audited entity.
The Committee said consideration should also be given to revising APES 110 Code of Ethics to include a safeguard that no audit partner can be incentivised, through remuneration advancement or any other means or practice, for selling non-audit services to an audited entity.
It has called for the disclosure of auditor tenure by corporate entities and recommended a mandatory tendering regime, under which corporate entities may elect not to undertake a public tender process as long as the reasons for not doing so are disclosed. In its interim report, the Committee recommended a period of 10 years.
To be clear, the Committee recognises that there may be very good reasons why an entity would wish to continue with the same auditor for more than 10 years, and it would not be a mandatory requirement to change auditors every 10 years. Rather, the Committee said the measure was a recognition that boards should not “set and forget” arrangements with their auditor.
The Committee acknowledged that its recommendation for this new tendering regime to begin in 2022 is no longer realistic and the Government should consider a staggered implementation timeline. The Committee also called on the Government to undertake a review to make digital financial reporting standard practice.
This article was first published in Thomson Reuters’ Weekly Tax Bulletin.