Regulation of accounting, auditing and consulting firms in Australia

The AICD’s submission was informed by engagement with directors, including two roundtables with Audit Committee Chairs and members held in June 2024.

The AICD’s key points were:

• Overall, directors consider that audit quality in Australia is strong, and that the current regulatory framework is fit-for-purpose.
• Directors are acutely aware of, and focused on, discharging their non-delegable financial reporting duties. Directors take active steps to form their own view on the completeness and accuracy of the financial statements.
• Additional requirements that are not proven to lift audit quality should not be imposed through regulation in circumstances where boards are increasingly overloaded as a result of the proliferation of financial and non-financial regulatory and reporting requirements. A strong evidence base must be presented before regulatory interventions are contemplated.
• The Audit Committee is an effective mechanism to bring director and board focus to the oversight of the financial reporting process. This includes oversight of mechanisms to maintain high audit quality and safeguard auditor independence. Directors are confident that existing regulatory requirements and governance practices safeguard auditor independence.
• The dominance of the largest four audit firms (‘Big-4’) in the market does not, of itself, have a negative effect on audit quality. In the absence of addressing capacity constraints within the Australian audit market, mandatory audit firm rotation or requirements to allocate a portion of audit services to non-Big 4 audit firms, as is the case in the UK, are unlikely to alleviate competition issues but could unintentionally decrease audit quality and increase audit cost.
• While the AICD is encouraged by ASIC’s recent focus on auditor compliance with quality and ethical standards, a formal response to the Financial Reporting Council (FRC)’s November 2023 Audit Quality Report (including recommendations for improving ASIC’s financial reporting and audit surveillance program), would be welcome.