Prosecution for failure to comply with auditing standards

On 8 June 2021, the first criminal charges were laid in Australia for failure to comply with auditing standards.

This highlights the recent focus of the Australian Securities and Investments Commission (ASIC) on ensuring audit quality and auditor independence through its audit inspection program.


The charges

Criminal charges were brought against an authorised audit company (Company A), and its director and registered auditor (Mr. A), for breaches of auditing standards. The charges were heard in the Downing Centre Local Court in Sydney.

Three charges were brought against both Company A and Mr. A relating to audits of the profit and loss statements and balance sheets of another company (Company B), for the financial years ended 30 June 2016, 30 June 2017, and 30 June 2018.

ASIC alleges that in breach of sections 989CA(1) and (2) of the Corporations Act respectively:

  • Company A failed to conduct each of the audits in accordance with auditing standards, and
  • Mr. A, as the lead auditor, failed to ensure that each of the audits were conducted in accordance with auditing standards.

The charges against both Company A and Mr. A were adjourned to 6 July 2021.

The Commonwealth Director of Public Prosecutions is prosecuting the matter.


What were the failures to comply with auditing standards?

Section 989CA of the Corporations Act states that if an auditor and/or audit company conducts an audit of a profit and loss statement and balance sheet, they must:

  1. Conduct the audit in accordance with the auditing standards, and
  2. Include in the audit report on the profit and loss statement, and balance sheet, any statements or disclosures required by the auditing standards.

“Auditing standard” means:

  • A standard in force under section 336, or
  • A provision of such a standard (e.g. a section or subsection).


Auditor independence and audit quality

Under the Corporations Act, auditors are legally required to be independent from the entities they are auditing, ensuring that there are no conflicts of interest, that auditor rotation guidelines are adhered to, and that breaches are reported to ASIC.

Auditors are also required to conduct due diligence on the audited entity to ensure that they have provided complete and accurate information to allow for a high quality audit to be conducted.


Potential penalties

The maximum penalty for the offences occurring before 1 July 2017 is a $9,000 fine for each charge against Mr. A and a $45,000 fine for each charge against Company A.

For the offences occurring on or after 1 July 2017, the maximum penalty is $10,500 for the charge against Mr. A and $52,500 for the charge against Company A.


The investigation into company B

The charges against Company A and Mr. A followed an ASIC investigation into Company B, an Australian financial services business, in 2019. The key events outlined include:

  • Company B was placed in administration in November 2018.
  • Company B entered liquidation in March 2019.
  • ASIC cancelled Company B’s Australian Financial Services Licence in January 2021.



ASIC has demonstrated its tough stance against breaches of auditing standards with the first criminal prosecution for such an offence in Australia. This will likely act as a deterrent against similar misconduct amongst auditors and audit companies.

Nyman Gibson Miralis provides expert advice and representation in all aspects of corporate criminal law.

Contact us if you require assistance.