29. June 2011 10:51
ASIC today released its report summarising the results of 21 audit firm inspections completed between 1 July 2009 and 31 December 2010.
ASIC Chairman Greg Medcraft said: ‘Australia’s audit regime is similar to the regimes in other major developed countries. However, ASIC’s inspections identified some important areas where firms need to focus their attention and make improvements.’
ASIC found for large firms 17 per cent of engagement files reviewed did not contain sufficient appropriate audit evidence and for other firms the figure was 31 per cent.
‘Generally where we concluded that audit engagement files did not contain sufficient appropriate audit evidence, this was based on shortcomings identified for specific key areas of the audit, rather than all areas of the audit,’ Mr Medcraft said. These areas included fair value measurement and impairment calculations.
The Chairman said ‘auditors have a key role in providing independent assurance on financial reports’.
‘As a gatekeeper, investors rely on auditors to make an important contribution to financial reporting quality and informed markets. The community’s expectation of high standards for auditors must be met,’ Mr Medcraft said.
‘Where sufficient appropriate audit evidence was not obtained in key audit areas, the financial reports audited may not be materially misstated. However, the auditor does not have a sufficient basis upon which to reach a conclusion in those audit areas and to support their overall audit opinion on the financial report.
Risk-based methods are used by ASIC to select firms, engagement files and audit areas for review.
Overall, ASIC identified three broad areas where improvements need to be made:
- the sufficiency and appropriateness of audit evidence on engagement files;
- the level of professional scepticism exercised by auditors in key areas of judgement; and
- evidence on audit engagement files about the nature, timing and extent of engagement quality control reviews.
‘To improve audit quality and to ensure auditors’ judgments are robust and well supported, leaders of firms should continue to send strong and consistent messages to partners and staff about the importance of these three areas,’ Mr Medcraft said.
‘Firms we have previously inspected continued to maintain or improve their quality control systems to facilitate compliance with the requirements of the Corporations Act 2001, Australian auditing standards, and Australian professional and ethical standards.’
ASIC has reported its detailed findings separately to each of the firms.
ASIC will continue to inspect firms that audit significant public-interest entities, monitor regulatory developments in auditing and collaborate with foreign regulators to minimise the regulatory burden on Australian firms.
ASIC has recently commenced inspecting audit engagement files under the new clarity standards focusing on those standards that had substantial changes. To ensure that the profession is well informed on a timely basis, ASIC intends to issue a media release on the initial overall findings from these reviews by mid-2012.
A copy of the report is available on ASIC's website.
The objective of ASIC’s audit inspection program is to promote high-quality external audits of financial reports of listed and other public-interest entities in Australia so that users can have greater confidence in financial reports.
ASIC publishes its public audit inspection reports periodically to better inform all firms, the investing public, companies, audit committees and other interested stakeholders in the financial reporting chain of findings and areas of focus.
Since the start of the audit inspection program ASIC has inspected all large national and network firms at least once, with a large number of these firms being inspected a number of times. ASIC has also made good progress in inspecting smaller firms.