Media contributions
1Media contributions
Title 'Big four focus' made ASIC scrap audit report card Degree of recognition National Media name/outlet The Australian Financial Review Media type Print Duration/Length/Size 784 words Country/Territory Australia Date 25/10/23 Description The corporate regulator stopped publishing an annual report card on audit quality partly because of media reports focusing too much on the poor auditing work done by the big four accounting firms.
The extraordinary admission was made during the Senate inquiry into consulting.
The Australian Securities and Investments Commission has scrapped one of the few completed recommendations of the 2020 Senate report into audit quality, which asked it to publish individual audit firm inspection results by the end of the 2021 financial year.
Accounting academics said the move, first reported in The Australian Financial Review in July, reduced transparency about audit quality and showed the regulator was a "toothless tiger" when it came to policing the big four accounting firms.
Greg Yanco, the executive director of markets at ASIC , said the audit inspection report was no longer being published because media reporting of earlier reports had been too focused on the audit quality results of the big four.
"If you look at the media on it, all the focus is on the numbers," Mr Yanco said at the most recent public hearing of the inquiry in response to questions from Labor senator Deborah O'Neill.
"It doesn't go back and talk about the work we do that's not audit-file related, that is about conflicts of interest, governance, root cause analysis. A whole lot of other work goes on that is not just looking at audit files."
Mr Yanco said ASIC 's new integrated report would focus on problems with financial reports rather than on the quality of an audit file.
"What is most important is good financial reports," he said.
ASIC unexpectedly scaled back its audit inspection program this year, cutting the number of risk-targeted audits reviewed from between 45 and 60 to just 15.
Its integrated financial reporting and audit surveillance report for the year to June, published last Wednesday, does not identify the audit quality results of individual firms. Instead, it states that "findings" were made about nine unidentified audit firms.
The audit quality report card was scrapped despite ASIC 's long-standing concerns about the quality of corporate auditing in Australia and the increased scrutiny of the big four firms triggered by the PwC tax leaks scandal.
ASIC 's last annual audit quality report card, published last October, found that Deloitte failed to do enough work on half the key audit areas reviewed, and KPMG fell short on 48 per cent of them. PwC did not do enough work in 17 per cent of key audit areas reviewed and EY was found wanting in 15 per cent of them.
A spokesman for the regulator said the "changes to ASIC 's program were made following an internal review conducted in 2022, which identified opportunities for a stronger and more effective approach".
"The new program will lead to better outcomes for consumers and investors, because it is targeted at improving the quality of the entire financial reporting chain - of which auditing is one component," the spokesman said.
ASIC will continue to issue media releases when a company restates its accounts or makes material adjustments to subsequent financial reports as a result of regulatory intervention.
However, these releases typically do not identify the auditing firm involved or whether the restatement or adjustment is because of deficient work by the auditors.
Macquarie Business School Emeritus Professor James Guthrie said the regulator had found problems with about a third of the 180 financial reports it had reviewed in its new integrated report. Twenty-five of those financial reports had to be adjusted after ASIC 's inspections.
Professor Guthrie said the surveillance regime "appears to be a toothless tiger, as the regulator has a very small pool to examine" of 180 financial reports out of roughly 1900 listed entities.
"At least in the past, when ASIC focused on audit quality, there was a discussion about audits, the big four, and material impacts on financial markets and financial reporting," Professor Guthrie said.
John Dumay, professor of accounting and finance at Macquarie University , said ASIC 's decision to summarise audit quality results showed the regulator had "a lack of will to ensure the top end of town is as transparent as possible".
Following inquiries from the Financial Review about the reasons behind the end of the audit quality report card, Mr Yanco told a separate parliamentary hearing that ASIC was now considering a new review of the operations of the big four, along with Grant Thornton and BDO , from next year.
But he conceded that the regulator needed to effectively ask the firms for permission before starting the new surveillance program.
Fairfax Media Management Pty Limited
Document AFNR000020231027ejap0001iProducer/Author Patrick Durkin, Ed Tadros Persons John Dumay