2. Quality review programmes of the professional accounting bodies
Under subparagraphs 225(2B)(a)(ii), (iii) and (iv) of the ASIC Act, the FRC is required to monitor and assess the nature and overall adequacy of:
- the systems and processes used by professional accounting bodies for planning and performing quality assurance reviews of audit work undertaken by Australian auditors to the extent that those reviews relate to auditor independence requirements;
- the action that Australian auditors who have been subject to such quality assurance reviews have taken in response to the reports prepared as a result of those reviews; and
- the action taken by professional accounting bodies to ensure that Australian auditors who have been subject to such quality assurance reviews respond appropriately to the reports prepared as a result of those reviews.
In its 2004-05 independence report, the FRC indicated that in 2005-06 it would be both monitoring the amount of resources allocated to the professional bodies’ quality review programmes to ensure a comprehensive review is conducted at the audit firms and reviewing the extent and quality of those reviews.
In April 2006, the Treasury, in consultation with the FRC, engaged Messrs Graeme MacMillan and Michael Cain of CiptaNet International Pty Ltd to examine the quality review programmes of the professional accounting bodies. The key requirements of the statement of work for this task are set out in Appendix C of this report.
The examination of the quality review programmes of the professional accounting bodies concluded that the programmes for reviewing members and firms that undertake audits comply with IFAC and Australian professional pronouncements, although the consultants qualified their findings because they did not review files and thus were unable to conclude that the processes and procedures had been followed.
The consultants have also noted the absence of a requirement for auditors in Australia to belong to a professional accounting body to be registered as a company auditor. The FRC has monitoring responsibilities over quality review, teaching of ethics and disciplinary arrangements of the professional bodies as related to independence, but in view of accountants not being required to be members of a professional accounting body to be registered as an auditor, it cannot provide oversight through the professional bodies over a segment of the auditing industry.
The consultants have also highlighted the concentrated structure of the Australian audit industry around the Big Four accounting firms, and recommend further research on the structure of the industry.
The consultants made a number of findings and recommendations in respect of matters examined by them during the course of their consultancy and these are summarised in Appendix C.
The FRC intends to examine the findings and recommendations of the consultants as part of its 2006-07 work programme, including consultations with the professional accounting bodies and other stakeholders.