The Australian Securities and Investments Commission (ASIC) refused to give free access to private company financial statements on its database to researchers looking at the quality of financial reporting, according to evidence given by senior academics from Deakin University to a parliamentary committee on Monday.
Deakin University professors Peter Carey and George Tanewski have spent 14 years conducting research into corporate reporting by private companies at various times for the Australian Accounting Standards Board (AASB).
Their research in conjunction with Brad Potter, an associate professor from The University of Melbourne, found the quality of financial reports lodged by private companies with the corporate regulator was poor.
Tanewski said that there was an apparent reluctance from the regulator to share financial reporting data during their first research project.
“In 2010 when the chair of the AASB asked us to do the research, ASIC really baulked. They weren’t very keen to give us all of the financial reports that the accounting standards board wanted [for] us,” Tanewski said.
A key finding of the research into private companies that used special purpose financial reports is that these companies produced financial statements that were of a lower quality but they paid higher audit fees to their auditors when compared with entities that were listed.
The Deakin academics were also involved in two follow-up projects for the AASB but on those occasions, the regulator refused to part with financial statements.
On one occasion Deakin University and Melbourne University had to purchase access to financial statements on the corporate regulator’s database, spending $50,000 to complete a project in 2016 because the regulator refused to provide the academics with free access to the information on their database.
“I know that they charge per financial report but surely it would be in their interests to actually provide it to us to have a look and see whether there was any change in the reporting,” Tanewski said.
“They didn’t want to give it to us. We had to purchase it.”
The AASB also had to pay $24,000 to private information broker Illion to access data relating to the quality of financial reporting for private companies.
Tanewski said that the researchers offered to build a database for the regulator so it could monitor the quality of reporting by entities that were lodging financial reports when they discovered the financial statements they eventually got were scanned into the system.
The corporate regulator declined the offer.
Carey said a meeting with ASIC included six lawyers seeking to dispute the research findings.
“The chief accountant brought six lawyers along to the meeting trying to argue that what we found in our study wasn’t valid,” Carey said. “They were just working against us at every turn.”
Tanewski said ASIC may have been concerned that poor financial reporting lodged by private companies on ASIC’s database could reflect adversely on the commission’s role as a regulator of financial reporting.
Tanewski and Carey also analysed which accounting firms audited the various private entities that lodged special purpose financial reports with the regulator.
Carey said the analysis showed that not all of the audit firms were the same in the way they deal with special purpose reporting clients but that he was reluctant to name the firms that had the clients with the poorest reporting quality.
He said that the analysis of audit firms was not published in the final report at the request of the AASB because the firms provide resources to the board.
“We were told we probably shouldn’t put it in the report because each of the representatives of the Big Four sit on the accounting standards board, and they do it voluntarily, which is a problem,” Carey said.
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