ASIC flags conflict of interest issues with auditor compliance
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The news: Multiple auditors from audit firms of all sizes were unable to effectively demonstrate compliance with independence and conflict of interest obligations, a new Australian Securities and Investments Commission (ASIC) review has revealed.
The findings, outlined in a new report, follow ASIC action against several auditors and audit firms identified as in likely breach of their obligations.
The numbers: ASIC reviewed data relating to 2,900 auditors for indicators of potential threats to independence. The regulator then selected 48 auditors from 19 audit firms for a targeted review.
ASIC said that across the board it observed a 'tick-a-box' approach to compliance with conflict of interest and independent obligations. 15 auditors — almost a third of the final review cohort — were found to be in likely breach of rotation requirements, relationship prohibitions or providing a prohibited non-audit service.
Nine auditors failed to demonstrate how they complied with mandatory rotation requirements that prevent auditors from auditing a listed client for more than five consecutive years.
Five auditors appeared to hold prohibited relationships with clients, including one auditor who was also an officeholder of their client.
None of the 15 auditors flagged by ASIC as having breached their obligations had proactively reported the potential breaches to the regulator, despite receiving a reminder from ASIC in October last year.
As a result of the review, ASIC accepted the cancellation of a company auditor’s registration for independence failures, issued a $78,250 infringement notice to Nexia Perth over prohibited services, and entered into three court enforceable undertakings with auditors associated with Hall Chadwick and the firm over audit rotation failures.
What they said: "Auditor independence underpins stakeholder trust and confidence in the audit process and the reliability of the financial information being audited," said ASIC commissioner Kate O'Rourke.
"Unfortunately, our review found that many auditors failed to meet the basic independence requirements, and others failed to identify and critically evaluate potential threats to their independence.
"It is not enough for auditors to adopt a tick-a-box approach to complying with these important obligations. They must think more critically about whether they are independent and be alive to even the perception that their independence is compromised."
The source: ASIC media release
