Introduction
Since 1 July 2004, the FRC has been responsible for monitoring the effectiveness of auditor independence requirements in Australia and giving the Minister reports and advice about those requirements. In addition, the FRC’s functions include giving the professional accounting bodies reports and advice about aspects of their quality review programmes and disciplinary procedures. (See Appendix A for a detailed summary of the FRC’s auditor independence functions.)
2005-06 work programme
In 2005-06, the FRC performed its auditor independence functions in a manner broadly similar to the performance of its functions in 2004-05. During the year under review, this work addressed each of the core issues that comprise these functions: systems and processes of Australian auditors, quality review programmes and disciplinary procedures of the professional accounting bodies, the teaching of ethics by, or on behalf of, those bodies and compliance by companies with audit-related disclosure requirements. The FRC also gave consideration to international developments in the area of auditor independence.
The administrative arrangements which the FRC put in place last year to perform these functions were continued in 2005-06. These arrangements included:
- the Audit Independence Subcommittee, which dealt with day-to-day matters associated with the performance of the function with the assistance of the FRC’s auditor independence consultant; and
- the programme of regular meetings, and the exchange of information, with the bodies with which the FRC had entered into an MOU and selected accounting firms.
Further information about these arrangements, including the membership of the Subcommittee and the names of the MOU bodies, is contained in Appendix B.
To facilitate an expansion of the FRC’s work programme in the areas of quality review, disciplinary procedures and the teaching of ethics, the FRC arranged with the Treasury for the engagement of consultants to prepare reports to the FRC on various aspects of these matters. The names of these consultants also appear in Appendix B, while the key requirements of the Statements of Work for the consultancies appear in Appendices C to E.
The auditor independence work performed by the FRC during the period under review, including the findings and conclusions reached by the FRC in the performance of its functions and the actions (if any) that it took, are described in later sections of this report.
Appendix F lists the key matters arising from the 2004-05 independence report and the action that was taken by the FRC in respect of each of those matters during 2005-06.
2006-07 work programme
The FRC’s 2006-07 audit independence function work programme builds on, and, where appropriate, refines, the 2005-06 programme.
Apart from ongoing work associated with monitoring and assessing the nature and overall adequacy of the systems and processes used by Australian auditors to ensure compliance with auditor independence requirements, key matters included in the FRC’s auditor independence work programme for 2006-07 are:
- examining the consultants’ reports on the quality review programmes and disciplinary procedures of the professional accounting bodies and the teaching of ethics by, or on behalf of, those bodies, including consultations with the bodies and other stakeholders;
- reviewing, and analysing, the level of compliance by entities with audit-related disclosure requirements, primarily by considering the information provided to the FRC by the MOU bodies;
- considering areas in which some aspects of Australian auditor independence requirements differ from the requirements applicable in other jurisdictions with a view to submitting appropriate recommendations for consideration by the Government; and
- considering, in the context of Government initiatives aimed at the reduction of red tape affecting business, whether any scope exists for reducing the overlap of audit review responsibilities between the firms, professional accounting bodies and regulators.
A detailed outline of the work programme for 2006-07 is contained in Appendix G of this report.