The Senate has voted to establish an inquiry into the regulation of auditing, the process of inspecting a business’s accounts to be sure that everything matches the expectations of that organisation’s stakeholders. Chartered Accountants Australia and New Zealand reporting and assurance leader Amir Ghandar believes that this audit inquiry is “an opportunity for Australia to join the global discussion on the purpose of audit so we can continually evolve to meet modern stakeholder expectations.”
Many other financial advisers and industry leaders welcome the audit inquiry, due to the increased focus on audit quality. The inquiry will look at the relationship between auditing and consulting services and potential conflicts of interests which include:
- The level and effectiveness of competition in audit and related consulting services.
- Emphasis on audit quality, including valuations of intangible assets.
- Role and effectiveness of audit in detecting and reporting fraud and misconduct;
- Adequacy and performance of regulatory, standards, disciplinary and other bodies;
- Effectiveness of enforcement by regulators.
Implications on auditors
The establishment of the audit inquiry comes after The Australian Securities and Investments Commission (ASIC), found further work was needed to improve quality in the auditing process. There are also concerns by the Joint Committee on Corporations and Financial Services about the audit quality in Australia, with suggestions of a serious review. The Financial Reporting Council delivered an assessment of the current state of auditor disciplinary functions with recommendations for naming and shaming of auditors and firms that fail to meet audit quality expectations.
Focus on culture and talent
The ASIC believes there should be a focus on ‘culture and talent’ in order to achieve better audit quality. Further recommendations include partners and staff being held accountable for their roles while conducting quality audits. Business leaders should stress that audit quality is not negotiable and will hold individuals accountable for inadequate work.
For more information on the recent audit inquiry, please contact Lee Wong, Director of Audit or Adrian Fong, Associate – Morrows Audit.