The Financial Reporting Council (FRC), which oversees the development of auditing and accounting standards, has called on the corporate regulator and professional accounting bodies to improve the monitoring of the quality of audits.
An FRC report into audit quality oversight published this week says the Australian Securities and Investments Commission (ASIC) has reduced the number of audit files from major firms that it examines to assess the quality of audit, and that this approach is insufficient.
“ASIC is the statutory regulator who has the power to perform audit surveillance, however there is no legislative requirement for ASIC to undertake proactive surveillance of auditors. As a result, ASIC design their program based on their overall strategy, competing priorities and budgetary pressures,” the FRC report says.
The corporate watchdog has reviewed fewer sets of audit working papers across the major firms that do listed company audits, and this meant that only 15 sets of working papers were reviewed for the 2022-23 financial year as opposed to 45 in the 2021-22 reporting period.
A key recommendation from the FRC is for there to be an audit working paper review process that has a wider scope.
The FRC report says that the government needs to consider which body ought to do the broader audit review program as recommended by the FRC.
“The Government should give consideration to whether ASIC undertakes this additional program and are funded to do so, or whether there should be a new independent body established whose legislated responsibility is to perform an audit surveillance program,” the report says.
“There should also be consideration as to whether the audit surveillance program covers all RCAs over an established time period, or all auditors i.e., not just [registered company auditors]. This would require consideration as to whether all auditors should be required to be members of a [professional accounting body] or some other minimum competency accreditation system.”
The FRC also says that relevant ethical standards should be given the force of law and be subject to a compliance review by a regulator, and that the professional bodies should consider the scope of their reviews and how the report on the scope and findings from their practice quality review programs.
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