The Australian Securities and Investments Commission (ASIC) has sought to outline the rationale for its changed approach to audit and financial report surveillance in a letter that describes an assessment by a former chief accountant as outdated.
ASIC commissioner Kate O’Rourke told the parliamentary joint committee of corporations and financial services that its former chief numbers man, Doug Niven, left the commission in July last year and that the regulator wanted the committee to have the most current information on its approach to financial reporting and auditing.
O’Rourke told the committee that the audit and financial reporting surveillance programs were largely unchanged for more than 15 years until the two were combined.
The blending of the two is characterised by the regulator as focusing on the entire financial reporting ecosystem rather than treating financial reporting and auditing — two separate but complimentary disciplines — individually for the purposes of monitoring.
“This approach means that we now routinely select audit files for surveillance where a change has been made to financial information or where we have concerns that a financial report may have a risk of material misstatement,” O’Rourke’s letter says.
“This approach also means that we can concentrate our resources on audits where there is more likely to be harm to consumers and investors through deficient financial information.”
The revised approach by the regulator resulted in the publication of what the commission calls its first integrated report combining financial reporting and auditing outcomes.
“The report includes a summary of individual audit findings for all firms reviewed, so all auditors can focus on improving audit quality,” O’Rourke’s letter states.
The commission was prompted into writing the three-page letter to the committee following the publication of a lengthy assessment of the decline in the number of audits and financial reporting examined by Niven, the current chairman of the Auditing and Assurance Standards Board and the commission’s former chief accountant.
Niven’s illustration of the gradual decline in the number of audit working papers reviewed as well as the number of key audit areas examined was provided as a response to a question on notice from PJC chair Deborah O’Neill when Niven gave evidence before the committee on February 22.
He told the committee that ASIC’s approach to surveillance of both audits and financial reports had seen a decline in numbers.
The corporate regulator conducted 58 reviews of audits in the 12 months to 30 June 2019 with 207 key audit areas reviewed but that has declined to only 15 reviews of audits with two or three key audit areas reviewed per set of audit working papers.
Niven’s analysis compares the 15 sets of audit working papers reviewed with other regulators, and he notes that Canada — a jurisdiction that has the “most comparable profile of listed entities to Australia” — proactively reviewed 132 audit files in the 12 months to December 31, 2022.
Financial report surveillance also slipped from 290 sets of financial statements getting looked over by ASIC’s team between 30 June 2019 and 31 December 2019 to 180 sets of financial statements being examined between 30 June 2022 to 31 December 2022.
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