UNITED STATES – AUSTRALIAN AUDIT REGULATION PROGRAMME
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AUDIT INSPECTION POWERS OF THE AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION CONSULTATION PAPER SEPTEMBER 2005 © Commonwealth of Australia 2005 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: The Commonwealth Copyright Administration Copyright Law Branch Attorney-General s Department Robert Garran Offices BARTON ACT 2600 Or posted at: http://www.ag.gov.au/cca Comments are sought on this consultation paper by no later than 18 November 2005. Submissions should be sent by mail, fax or email to: The General Manager Corporations and Financial Services Division Department of the Treasury Langton Crescent PARKES ACT 2600 Facsimile: 02 6263 2770 Email: auditpowers@treasury.gov.au Phone: 02 6263 3971 Confidentiality All submissions will be treated as public unless the author clearly indicates to the contrary. A request made under the Freedom of Information Act 1982 for access to a submission marked confidential will be determined in accordance with that Act. Copies of this paper are available on the Treasury website: (http://treasury.gov.au). CONTENTS FOREWORD ..........................................................................................................IV OVERVIEW.............. ...
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| Publié par | Nichor |
| Nombre de lectures | 40 |
| Langue | English |
Extrait
A UDIT I NSPECTION P OWERS
OF THE
A USTRALIAN S ECURITIES AND I NVESTMENTS C OMMISSION
C ONSULTATION P APER
S EPTEMBER 2005
© Commonwealth of Australia 2005 This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: The Commonwealth Copyright Administration Copyright Law Branch Attorney-Generals Department Robert Garran Offices BARTON ACT 2600 Or posted at: http://www.ag.gov.au/cca
Comments are sou ht on this consultation a er b no later than 18 November 2005. Submissions should be sent by mail, fax or email to: The General Mana er Corporations and Financial Services Division De artment of the Treasur Lan ton Crescent PARKES ACT 2600 Facsimile: 02 6263 2770 Email: auditpowers@treasury.gov.au Phone: 02 6263 3971 Confidentiality All submissions will be treated as ublic unless the author clearl indicates to the contrar . A re uest made under the Freedom o In ormation Act 1982 for access to a submission marked confidential will be determined in accordance with that Act. Copies of this paper are available on the Treasury website: http://treasury.gov.au ).
C ONTENTS
F OREWORD .......................................................................................................... IV
O VERVIEW ............................................................................................................ 1
P ART 1: C OOPERATIVE ARRANGEMENTS BETWEEN ASIC AND FOREIGN AUDIT REGULATORS ................................................................................. 3 1.1 US AND A USTRALIAN SYSTEMS FOR REGULATION OF AUDIT .......................................3 1.2 US R ECOGNITION OF A USTRALIAN AUDIT REGULATION SYSTEM .................................4 1.3 P ROPOSED LEGISLATIVE AMENDMENTS TO SUPPORT COOPERATIVE AUDIT REGULATION ARRANGEMENTS .........................................................................5
P ART 2: ASIC S D OMESTIC AUDIT REGULATION PROGRAMME ................................ 11 ’ 2.1 C LERP 9 AUDIT REFORMS .......................................................................................11 2.2 ASIC’ S D OMESTIC AUDIT FUNCTION .......................................................................11 2.3 ASIC’ S CURRENT AUDIT INSPECTION POWERS ........................................................11 2.4 C ONSISTENCY BETWEEN ASIC’ S FOREIGN AND DOMESTIC AUDIT INSPECTION AND INFORMATION GATHERING POWERS ..............................................12
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F OREWORD Effective and efficient capital markets need timely and accurate information about the corporations whose securities they trade. Audited financial statements play a key role in ensuring the reliability of information provided to the markets. Accordingly, together with robust accounting standards, the external audit process assumes critical importance in ensuring market integrity. Australia has recently taken steps to ensure that the audit function is not compromised by, for example, a lack of independence between the auditor and the client corporation. Responsibility for enforcing compliance with Australias audit regulation framework rests primarily on the corporate regulator, the Australian Securities and Investments Commission (ASIC). A number of Australian auditors and companies are potentially subject not only to Australias audit regulation framework, but also that of other countries, due to their relationships with overseas entities or their overseas activities. In particular, a number of Australias largest companies and audit firms are subject to the audit regulation of the United States. This consultation paper contains proposals for law reform in relation to ASICs powers for gathering information about how audit firms carry out the audit function. The proposals are primarily directed at avoiding unnecessary duplication between Australian and overseas audit regulation systems, particularly that of the United States. The paper also includes proposals to change ASICs inspection powers with the aim of reducing the regulatory burden for firms subject to inspections in purely domestic situations. The Government welcomes comments on the proposals. The Hon Chris Pearce MP Parliamentary Secretary to the Treasurer
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O VERVIEW The importance of the external audit role in ensuring the integrity and transparency of corporate reporting is widely recognised. In recent years, both in Australia and overseas, there has been an increased focus on the effectiveness of external audit regulation. Unlike some overseas jurisdictions, Australia does not have a separate audit oversight body. Rather, the functions that would be conferred on such a body are conferred on the corporate regulator, the Australian Securities and Investments Commission (ASIC) and, to a lesser extent, other bodies in the financial reporting framework such as the Financial Reporting Council (FRC) and the Auditing and Assurance Standards Board (AUASB). The functions of surveillance, investigation and enforcement of the responsibilities of companies and auditors in relation to financial reporting, including the enforcement of auditor independence requirements and compliance with auditing standards, are vested in ASIC. To carry out its functions, ASIC engages in audit inspections. To assist in carrying out this function, ASIC may rely on its general inspection powers under Part 3 Division 3 of the Australian Securities and Investments Commission Act 2001 (the ASIC Act). These powers allow it to give a notice requiring production of specified books regarding the affairs of a body corporate, and to require certain persons to explain any matter about the compilation of the books or to which the books relate. Some Australian companies and auditors are also subject to the audit regulation requirements of the United States (US). This will be the case if, for example, an Australian company is registered with the US Securities and Exchange Commission (SEC) and has securities traded on a US market. Similarly, an Australian auditor may be subject to the US rules if they are involved in the audit of entities that are SEC registrants. As such, those companies and auditors would be subject to the oversight of the US audit regulator, the Public Company Accounting Oversight Board (PCAOB). Although the potential for dual audit regulation is currently an issue only in respect of the US, there is potential for similar situations to develop with other overseas jurisdictions. It would be undesirable for Australian auditors and companies to be exposed to two duplicative sets of audit inspection practices, one Australian, the other US. As a result, in the 200506 Budget, the Government allocated ASIC funding over three years to implement a proposed joint ASIC-PCAOB audit inspection programme. This consultation paper seeks comments on proposals to supplement ASICs general information gathering powers by powers specifically for use in the audit inspection context. In particular, the paper canvasses changes to ASICs powers in three related areas: to give ASIC sufficient powers to assist the PCAOB, and other overseas audit ! regulators, in carrying out their audit inspection functions so that Australian auditors may only be subject to a single co-ordinated compliance and inspection process covering both Australian and overseas requirements;
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to give ASIC consistent powers for use in the domestic audit inspection context, so that a 2-tier audit inspection framework is not created; and
to give ASIC information gathering powers that are better tailored to the audit inspection function, in order to avoid unnecessary work on the part of both ASIC and those subject to inspections.
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P ART 1: C OOPERATIVE ARRANGEMENTS BETWEEN ASIC AND FOREIGN AUDIT REGULATORS Parts 1.11.2 of the paper describe the background and rationale for the proposal to give ASIC powers to support entry into cooperative arrangements with foreign audit regulators. Part 1.3 sets out the proposed legislative amendments to give effect to the proposal. 1.1 US AND A USTRALIAN SYSTEMS FOR REGULATION OF AUDIT The audit function plays a key role in relation to the efficiency of capital markets. The independent auditor constitutes the principal external check on the integrity of financial statements. Auditor independence is fundamental to the credibility and reliability of auditors reports. Auditor independence can be compromised by bias, conflicts of interest or susceptibility to undue influence or pressure. United States The Sarbanes-Oxley Act 2002 (SOX Act) was enacted in the US in 2002 in response to a series of major financial scandals involving once prominent companies such as Enron, Worldcom, Tyco and others. These scandals had the potential to undermine investor confidence in the integrity of the US securities markets. Among its goals, the SOX Act sought to restore confidence in the accounting profession and improve corporate disclosure and financial reporting. The SOX Act substantially changed the US regulatory framework for corporations and auditors. Some of the SOX Act obligations impact not only on activities undertaken in the US but, where there is a relevant connection to the US (i.e. registration with the SEC), to the structures and operations of corporations and auditors elsewhere. Australian companies that seek to raise capital within US capital markets, or to have their securities listed on US markets, may be affected by these requirements. The SOX Act also has extensive ramifications for Australian auditors involved in the audit of entities regulated by SOX Act provisions. The PCAOB is the US regulator responsible for monitoring auditors compliance with US rules. Those rules apply to any auditor who prepares or participates in the preparation of audit reports for an entity that is registered with the SEC as an issuer of securities within the US. To comply with these rules, an auditor must register with the PCAOB, adhere to US rules applying to audits of US issuers, and submit to regular compliance inspections by the PCAOB. Australia Although Australia has not experienced the same level of concern in relation to financial reporting integrity as the US, there has been a degree of anxiety about the efficacy of the audit function and some aspects of financial reporting in the wake of a number of corporate collapses, including HIH. The major audit and financial reporting reforms contained in the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (the CLERP 9 Act) included: establishing the AUASB and giving auditing standards the force of law; !
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! introducing a comprehensive auditor independence framework; ! strengthening the role of ASIC in relation to compliance with, and enforcement of, the audit process and financial reporting; and ! giving the FRC new monitoring and advisory functions in relation to auditor independence and a new role to oversee the setting of auditing standards. The FRC was also given information gathering powers to enable it to perform its monitoring function. Costs of regulatory duplication The costs of undergoing an inspection by an audit regulator include: the cost of locating and producing documents; responding to queries; being subject to on-site inspections; and responding to draft statements/reports on inspection findings. These costs will be incurred by audit firms subject to Australian inspections by ASIC and, for those firms which are also auditors for US market registrants, similar costs will need to be undertaken to meet PCAOB requirements. If the ASIC and PCAOB audit inspection processes were to remain separate and uncoordinated, there would be little scope to reduce duplication, costs and achieve efficiencies. 1.2 US R ECOGNITION OF A USTRALIAN AUDIT REGULATION SYSTEM ASIC has been liaising with the SEC and the PCAOB about the regulation of the affected auditors and companies. The discussions concluded that there is potential for coordination of the audit inspection processes associated with the two regulatory systems. The PCAOB has advised ASIC that it may recognise, to a greater or lesser extent, home jurisdiction audit inspection processes for the purpose of its own compliance and inspection requirements. At the highest level of recognition (informally referred to as Tier 1 recognition), home jurisdiction audit inspection processes in relation to US requirements will be recognised and substantially relied on by the PCAOB. If no recognition, or only a low level of recognition, is given by the PCAOB to the home jurisdictions system, the PCAOB would conduct full direct audit inspections for the purposes of monitoring compliance with the US rules. Australia is well placed to secure Tier 1 recognition for its audit inspection system. The reforms introduced by the CLERP 9 Act have significantly enhanced Australias audit regulation framework. In particular, the key regulatory role is played by ASIC, which is independent of the audit profession. This is a key determinant for PCAOB recognition of non-US based audit regulation regimes. The other key determinant is the scope and adequacy of inspection programmes undertaken by the non-US audit regulator. For Australian companies and auditors, this means the audit inspection programme operated by ASIC. The ASIC programme has been upgraded as part of the CLERP 9 implementation process. However, to obtain Tier 1 recognition, further modifications will be required to take account of PCAOB requirements.
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A number of other jurisdictions, such as Canada and the UK, are also involved in discussions with the PCAOB with a view to securing Tier 1 recognition of their respective audit oversight system. Benefits of PCAOB recognition for ASIC audit inspection processes Regulatory coordination and cooperation among the worlds securities and audit regulators is of great importance because of the expansion of global business, international capital flows and cross-border holdings and transactions. Eliminating duplicative inspection processes should result in cost savings for auditors. There will also be reduced complexity for both auditors and companies. The proposal would directly affect: ! audits of Australian companies that are US registrants (there are currently 28 such companies, including many of Australias largest); ! Australian auditors who are registered with the PCAOB (there are currently 24 such audit firms, with further registrations pending); and. ! Australian companies and their auditors which are subsidiaries of a US parent company, where the PCAOB requires compliance with the SOX Act audit requirements by the US parent company and its subsidiaries. A joint US-Australian audit inspection programme could also bring indirect benefits for Australian companies. The US capital markets are the most globally significant potential source for fundraising. An increased ability to gain cost-effective access to those markets reduces the cost of capital. Full recognition by the PCAOB of Australias auditor inspection programme will enhance the credibility and reputation of Australias capital markets. 1.3 P ROPOSED LEGISLATIVE AMENDMENTS TO SUPPORT COOPERATIVE AUDIT REGULATION ARRANGEMENTS It will be necessary to amend the Australian Securities and Investments Commission Act 2001 (ASIC Act) to ensure that ASIC is empowered to carry out the proposed functions under the USAustralian audit regulation programme and to facilitate information flows between ASIC and US regulatory authorities. The proposed amendments to the ASIC Act will provide a legislative framework to support ASIC entering into an agreement or arrangement with a foreign body in relation to audit regulation. They do not involve the extra-territorial application of a foreign law in Australia. Rather, they will empower ASIC under Australian law to seek information from an Australian auditor about the auditors compliance with an audit requirement applying to the auditor under a foreign law. The proposed amendments are designed to achieve four objectives: ! to empower ASIC to enter into arrangements with foreign audit regulators to carry out inspection functions to ascertain compliance with the relevant foreign audit requirements;
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! to provide ASIC with inspection powers to support the arrangements; ! to allow ASIC to provide information gathered to foreign audit regulators; and ! to require ASIC to notify and report on the arrangements. 1.3.1 Empower ASIC to enter into arrangements with foreign audit regulators Section 11 of the ASIC Act currently provides for functions and powers conferred on ASIC by or under the corporations legislation (defined in section 5 to mean the ASIC Act and the Corporations Act) and other functions and powers conferred by the States and Territories. ASICs existing functions do not extend to entering and giving effect to arrangements with foreign regulatory agencies in relation to carrying out inspections to ensure that Australian auditors comply with foreign laws. Proposal 1 Expanding ASIC’s functions to cover arrangements with foreign regulatory agencies It is ro osed to amend section 11 to em ower ASIC, with the consent of the Minister, to enter into an a reement or arran ement with a re ulator bod of a forei n countr under which ASIC would undertake measures to ascertain, or to assist that re ulator bod to ascertain, whether Australian auditors defined in section 5 of the ASIC Act com l with audit re uirements that are im osed b or under laws of that forei n countr or ado ted as rofessional standards in that foreign country. ASIC will be iven the function to conduct, or assist a forei n re ulator bod to conduct, an in uir into the olicies and workin ractices of an Australian auditor, so as to ascertain, or hel the re ulator bod to ascertain, com liance with audit requirements to which the agreement or arrangement relates. ASIC will also be iven the function to re ort back to a forei n re ulator bod , with which it has entered into an agreement or arrangement, all or any of the following: ! the measures em lo ed b ASIC in conductin , or in assistin in the conduct of such an inquiry; ! the information ASIC has obtained in conductin , or in assistin in the conduct of, such an inquiry; or ! the conclusions that ASIC has reached concernin the extent of com liance with audit requirements to which the agreement or arrangement relates. The ro osed le islation will make it clear that in erformin these functions, ASIC ma in uire into olicies and workin ractices of an auditor in eneral and or in their application to particular audits. 1.3.2 Better targetted audit inspection powers The PCAOB is required under the SOX Act to conduct a continuing programme of audit inspections to assess the degree of compliance by auditors with US audit requirements. Before it would be willing to conclude an agreement with ASIC, the PCAOB will need to satisfy itself that any audit inspection work that ASIC undertakes for the PCAOB in relation to Australian auditors will enable the PCAOB
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to discharge its own statutory responsibilities under the SOX Act. In this context, the PCAOBs statutory mandate requires it to: evaluate the sufficiency of the quality control system of the audit firm, and the ! manner of the documentation and communication of that system by the firm; and ! perform such other testing of the audit, supervisory and quality control procedures of the firm as appropriate. At present, ASIC is empowered under subsection 30(1) of the ASIC Act to seek books from an auditor in relation to a specific body corporate. In addition, ASIC may use subsection 37(9) of the ASIC Act, which gives ASIC the power to require the auditor to explain any matter about the compilation of the books or to which the books relate. The form of these information gathering powers, which predate the CLERP 9 Act, is not well adapted to the kind of inspection work envisaged under an arrangement with the PCAOB. That work is likely to involve a general examination of the processes and systems an audit firm has in place to meet its audit obligations generally, and not just in relation to the affairs of a body corporate. In this regard, more generic information gathering powers along the lines of that conferred on the FRC under section 225A of the ASIC Act would be more appropriate. Proposal 2 A new audit inspection and information gathering power It is proposed to amend the ASIC Act to give ASIC a discrete audit inspection and information gathering power, instead of having to rely on the general powers under section 30. A power would be conferred on ASIC to give an Australian auditor a written notice requiring the auditor to give specified information or to produce specified books to a specified member of ASIC or ASIC staff member at a specified place and time. Purpose tests The new power to request information or books would only be available if the request complies with one or more of a series of purpose tests. The power to request information and books would only be available for the purposes of: ! the performance or exercise of any of ASICs powers relating to an agreement or arrangement with a foreign regulatory body under which ASIC undertakes measures to ascertain, or to assist that regulatory body to ascertain whether Australian auditors comply with audit requirements that are imposed by or under laws of that foreign country or adopted as professional standards in that foreign country (overseas audit requirements); or ! ascertaining, or assisting in ascertaining, compliance with overseas audit requirements. Information and books that may be required The proposed legislation would expressly provide that ASICs notice requiring specified information or specified books may relate to: ! the policies relating to audit that the auditor has adopted or proposes to adopt, or the procedures relating to audit that the auditor has put in place or proposes
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