28 Feb New auditor every decade plan
Michael Roddan – The Australian – Friday 28 February 2020
Corporations would be forced to tender contracts for an external auditor every 10 years under proposals outlined by a bipartisan parliamentary committee, which has called on the Morrison government to make digital financial reporting “standard practice” in Australia.
In its interim report released on Thursday, the parliamentary joint committee on corporations and financial services said it would not wait a further six months to release its recommendations after the inquiry into regulation of the auditing sector was extended by the Opposition.
“We did not want to delay the action required by regulators, government and the industry by withholding our recommendations for six months,” PJC chairman and Liberal Party senator James Paterson said.
Although Senator Paterson said the inquiry did not find “any new empirical evidence of systemic audit failure in Australia” the committee has recommended ASIC revise the way it reports audit inspection findings to grade its findings based on “relative severity”, and to publicly post results for individual firms PricewaterhouseCoopers, KPMG, Deloitte, Ernst & Young, Grant Thornton and BDO.
The government’s Financial Reporting Council had also been asked to overhaul how companies disclosed audit and non-audit services provided by their auditor, and to introduce new guidelines about what services auditors are prohibited from performing for their key audit clients.
Companies would also be required to disclose how long they had retained their auditor and lead audit partner under the committee’s recommendations, which also includes a plan to amend the Corporations Act to ensure companies tender the contracts for their external auditor at least every 10 years.
Companies that have had the same auditor for more than 10 years since 2012 would be first to face the new tendering rules.
The Australian last year revealed some of Australia’s biggest companies had failed to change auditors for decades — in one case for 65 years — raising concerns about a heightened risk of corporate disasters under a practice that had been outlawed in Britain and Europe. The average tenure of auditing firms employed across the ASX 20 group had risen to 22.4 years — longer than the maximum 20 years allowed under European laws.
The Australian also revealed contracting fees — worth a total of $265m — amount to one-fifth of the fees the big four accounting firms charged the 20 biggest Australian companies over the past five years.
Under the recommendations, the sector’s code of ethics would also prevent an audit partner from being incentivised by the sale of any non-audit services to an audit client.
Mr Paterson said he was most excited by the recommendation to introduce mandatory digital reporting of financial statements.
“The benefits it promises will not just be limited to the audit industry, but for all users of financial statements,” he said.
“Auditing is systemically important to a healthy financial system. It gives investors’ confidence they can rely on financial statements made by companies. Audit therefore needs not just to be high quality, but be seen to be high quality,” Mr Paterson added.
“The most commonly relied-upon evidence to claim we have systemic audit failure in Australia was the ASIC inspection reports … this data should not be relied upon to make judgments about the entire industry.”