Australia: Big four name-and-shame audit quality reprieve criticised
Aug 15, 2023
Accounting bodies have softly lashed the corporate watchdog for axing its annual report card on big four accounting firms’ audit quality, cutting the program size, and ditching its chief accountant.
The concern comes amid growing disquiet about the dominance of the big four firms – KPMG, PwC, EY and Deloitte – in audit work, conflicts created by parallel consulting services, and calls for the quad to be broken up.
Elinor Kasapidis, head of policy and advocacy at CPA Australia, said the peak body was “surprised and concerned by the reduction in scope of ASIC’s audit inspection program”.
“High-quality audits are vital to inspiring trust and confidence in capital markets,” Ms Kasapidis said. “We urge ASIC to provide a clear plan about how it will maintain its audit oversight role.”
Recent media attention prompted Chartered Accountants Australia and New Zealand assurance leader Amir Ghandar to call on the government to formally respond to a three-year Senate inquiry into the audit quality.
That inquiry was instrumental in pushing the Australian Securities and Investments Commission to make public its audit review findings.
“The inquiry examined audit regulation, quality, independence, the market and other related matters – and ultimately put forward clear bipartisan conclusions and 10 recommendations,” Mr Ghandar said.
Among those were recommendations to clearly define the difference between audit and non-audit services, and for ASIC to review its audit inspection methodology and develop a more sophisticated report card.
ASIC cuts back audit program
Three years after first making public its findings, however, The Australian Financial Review revealed in June ASIC had moved to scale back its audit quality program and axed publication of firm-level results.
ASIC conducted just 15 reviews of high-risk audits in 2022-23, two-thirds less than the previous year.
The regulator believes undertaking 45 reviews each year was too time- and resource-intensive and that a more targeted approach, focusing on specific and significant issues rather than a broad sweep, would yield better results.
Mr Ghandar said while the accounting peak body acknowledged ASIC’s push to streamline enforcement and decision-making, it was deeply concerned by a restructure that came into effect in early July.
“ASIC’s oversight role and statutory powers on reporting and audit are Australia’s main regulatory defence serving to ensure we have reliable information in the capital markets,” he said.
“We share concerns at the extent of apparent cutbacks in ASIC’s audit and reporting oversight, and we have raised this with ASIC.”
Last year, the regulator announced that it would focus on company account audits where there had been a misstatement, a move supposed to be “much more powerful” than looking at files where nothing might be wrong.
While a smaller, better-targeted program had been expected, the size of the fall was a surprise to some industry sources. The 15 file audits for this year compared with 45 in each of 2022 and 2021, 53 in 2020 and 58 in 2019.
In FY22, ASIC found 60 per cent of audits reviewed had negative findings, a nearly 10 per increase for the six largest firms, including PwC, EY, Deloitte, KPMG, BDO and Grant Thornton.
Deloitte and KPMG were singled out for a drastic decline in audit quality, which the regulator said needed immediate action. Both firms needed to take “deliberate and concerted action” to improve, ASIC said.
[Financial Review (AFR)]
