The Australian Securities and Investments Commission (ASIC) commenced an audit inspection program in 2004, to assist in fulfilling its financial reporting and auditing requirements of the Corporations Act.
ASIC’s audit inspection program reviews compliance with audit quality and auditor independence requirements.
Which firms will be audited?
The inspection program covers all firms including smaller firms, with an emphasis on firms auditing publicly listed or public interest entities.
The audit inspection process
Key steps in the audit inspection process include:
Planning
The planning process consists of ASIC:
- Meeting with the firm to discuss the inspection process.
- Issuing notices to the firm requesting information relating to audit quality and auditor independence.
- Gaining an understanding of the structure and governance arrangements of the audit firm and information about its key clients.
Performance
The performance process consists of ASIC:
- Reviewing the notice material produced by the audit firm.
- Selecting a number of the firm’s audit clients based on risk.
- Conducting an on-site inspection to validate audit quality and auditor independence. This involves reviewing the audit work papers, conducting interviews with staff and key audit firm personnel.
Reporting
ASIC prepares a private and confidential report for the inspected firm, which includes the firm’s responses to ASIC’s findings. The results may also be published in a public report, which anonymises audit firms and clients.
Audit inspections of smaller firms
The audit inspection procedure outlined above applies to larger firms. For smaller firms, a more limited approach is taken consisting of ASIC reviewing one audit file and discussing the findings with the audit firm. These reviews are mainly conducted at ASIC’s offices.
What happens after the inspection?
ASIC raises potential issues with the auditor and audit firm and considers whether further regulatory action is necessary for instances of non-compliance.
International cooperation of audit regulators
With the globalisation of business, it is increasingly required for audits to be conducted across borders. ASIC cooperates with international audit regulators to share information, conduct joint audit inspections, and engage in other forms of cooperation as required. To date, ASIC has such arrangements in place with:
- The Public Company Accounting Oversight Board (PCAOB) of the United States.
- The Canadian Public Accountability Board (CPAB).
- The European Commission and European Union audit regulators.
- The Commission de Surveillance du Secteur Financier of Luxembourg (the CSSF).
Conclusion
ASIC is increasingly focusing on ensuring audit quality and auditor independence, as evidenced by its audit inspection program and cooperation with international audit regulators. All audit firms including smaller firms fall within the scope of the program. The emphasis however is on larger firms auditing publicly listed or public interest entities.
