Acting for You, August 2024
by CATHERINE MAXWELL FGIA FCG General Manager, Policy & Advocacy, Governance Institute of Australia
Consultation Paper on Regulation of accounting, auditing and consulting firms in Australia
This Treasury consultation is part of the Government response to the PwC matter and the systemic issues raised during the course of the Parliamentary Joint Committee on Corporations and Financial Services Inquiry. These issues included the adequacy of regulations applying to large consulting, accounting and auditing firms and whether there are appropriate governance obligations on these firms in areas such as transparency, executive responsibility, management of conflicts of interest and dealing with misconduct.
In our Submission we expressed the view that:
- There are a complex range of issues to consider in relation to appropriate governance practices in partnerships. Companies need a high degree of trust and confidence in their auditors. There is a strong link between governance and trust. Strong governance in organisations is driven not only by appropriate policies and processes but also by the culture of the organisation. Leaders at all levels of an organisation play a key role in driving a culture that supports good governance.
- Our members do not consider partnerships should be forced to corporatise and that there are other options available to improve governance practices in partnerships.
- Mandatory rotation for audit firms could have significant impact on companies and their operations and that further consideration should be required prior to any changes being made.
- An audit firm governance code focusing on the culture and governance of large professional services firms in the Australian environment would be a useful starting point for considering how to approach the governance mechanisms of large accounting partnerships and would create greater external accountability and more consistent practice.
- Appropriate management of conflicts of interest is fundamental to auditor independence. While there is an appropriate standard in place there is no regulatory ability to enforce this Standard.
- In our members’ experience, the provision of non-audit services is managed well with both auditors and companies alive to the issue. There may be merit in providing further regulatory guidance on classifying non-audit services. There is an emerging issue in relation to climate-related and other sustainability reporting in the context of multi-disciplinary firms.
- Membership of a Professional Accounting Organisation (PAO) and therefore agreement to be bound by the professional Code of Ethics is voluntary, noting that many firms require employees to be PAO members. However, there is no regulatory requirement for general consultants to be licensed or bound by a code of ethics. This is a gap in the current regulatory framework which will become more important as the range of multi-disciplinary services companies require from firms increases.
- It would be useful to review the requirements for Transparency Reports to consider whether they remain fit for purpose in the current environment. Alternatively, there could be a requirement for large firms to prepare general purpose financial reports, including remuneration disclosures and subjecting them to audit if they are not already subject to audit, which would be filed with ASIC and available for public inspection
- ASIC should have the power to enforce the Auditing and Assurance Standards Board (AUASB) firm quality management standards on audit and assurance (AUASB QMSs).
- There should be consideration of the scope of ASIC’s audit/audit firm oversight, the industry funding model, and regulatory capability, performance and accountability. We also expressed members’ strong support for continuation of the audit surveillance program. given the valuable oversight function it provides and the important insights the findings provide to companies on the conduct of audits, but consider additional funding is required to adequately resource the function with appropriately skilled staff.
- We recommended:
- The establishment of a sector agnostic, comprehensive whistleblower protection mechanism, including a consistent whistleblower protection regime for both the private and public sectors through a stand-alone, general whistleblower protection regime in its own Act (applicable to the private sector)
- The establishment of an independent Whistleblower Protection Authority, and
- Harmonisation of whistleblower protections across all sectors.
- In our members’ view there is sufficient competition to provide choice to clients in selecting accounting and auditing services in the Australian market and our members would be reluctant to interfere with companies’ ability to choose the service provider they consider best meets their needs.
We will continue to keep members updated on this issue.
Statutory Review of the Meetings and Documents amendments
As previously advised to members (Acting for You, July 2024) Treasury announced a review on the effectiveness of the amendments made to the Corporations Act 2001 by:
- the Corporations Amendment (Meetings and Documents) Act 2022 and
- Schedule 1 to the Treasury Laws Amendment (2021 Measures No. 1) Act 2021.
In our Submission to the Review Panel we:
- Noted that our members encourage participation by shareholders at meetings and facilitate this in a number of ways. Given the extremely low take up of telephone questions, we recommended amending the Corporations Act to remove the requirement to have telephone lines available for meetings.
- Confirmed members’ opposition to the to the requirement for a constitutional amendment by way of a special resolution to permit virtual meetings.
- Pointed out that while the approach in the legislation seems to assume virtual AGMs are particularly subject to being poorly administered, this ignores the fact that a poorly run meeting is a poorly run meeting, regardless of the format – physical, hybrid or virtual.
- If improvements are needed to better facilitate participation our members consider that they would be better provided through industry guidance.
- We expressed members’ full support for retaining flexibility for directors to join board meetings using technology as required.
- We expressed strong support for the amendments to enable the giving, sending and receipt of electronic meeting-related documents as a long-overdue modernisation of the notice provisions of the Corporations Act, subject to shareholders having the right to opt in to paper-based communications. There is also an opportunity to further streamline these processes, particularly where shareholders have not made an election about the form of communications, by moving to an opt in process similar to that for annual reports, which has been operating effectively since first introduced in 2012.
- Confirmed that members universally report that electronic execution of documents is working well apart from continuing difficulties with the acceptance by some state land and other registries of documents executed electronically and some financial institutions continuing to require ‘wet ink’ signatures for financing large sums.
- Advocated that modernising and harmonising document execution across the Commonwealth should be a key priority for Government.
We will continue to keep members updated on this issue.
Regulation of Accounting, auditing and consulting firms in Australia – 2 July 2024
Statutory review of the Meetings and Documents Act – 19 July 2024