Australian Government, Financial Reporting Council

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Appendix G

Auditor independence functions: 2007-08 work programme

Function

Approved work programme for 2007-08

Monitoring and assessing the nature and overall adequacy of the systems and processes used by Australian auditors to ensure compliance with auditor independence requirements.

Information concerning the performance of this function should continue to be provided by ASIC (under the terms of the MOU with the FRC).

In addition, the FRC will monitor the AQRB’s work in this area and consult, as necessary, accounting firms that conduct audits of listed entities.

Monitoring and assessing the nature and overall adequacy of:

(a) 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;

(b) 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

(c) 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.

The FRC’s work in respect of this function will flow from the reports of the consultants and the recommendations contained in those reports.

The FRC will be consulting with the professional accounting bodies and other stakeholders concerning the recommendations of the consultants.

Monitoring and assessing the nature and overall adequacy of the investigation and disciplinary procedures of professional accounting bodies as those procedures apply to Australian auditors.

The FRC’s work in respect of this function will flow from the reports of the consultants and the recommendations contained in those reports.

The FRC will be consulting with the professional accounting bodies and other stakeholders concerning the recommendations of the consultants.

Monitoring the overall compliance by companies, registered schemes and disclosing entities with the audit-related disclosure requirements of the Corporations Act and the accounting standards. (These disclosure requirements are listed in Appendix C.)

As part of its 2007-08 work programme, the FRC will review, and analyse, the level of compliance with audit-related disclosure requirements by considering the information provided by the MOU bodies.

Giving the Minister reports and advice about the matters referred to above.

Monitor developments on an ongoing basis and provide reports and advice on an ‘as required’ basis.

Giving professional accounting bodies reports and advice about matters related to their quality assurance reviews and disciplinary procedures as detailed above.

Monitor developments on an ongoing basis and provide reports and advice on an ‘as required’ basis.

Monitoring international developments in auditor independence, assessing the adequacy of the Australian auditor independence requirements provided for in:

(a) the Corporations Act; and

(b) codes of professional conduct;

in the light of those developments and giving the Minister, and professional accounting bodies, reports and advice on any additional measures needed to enhance the independence of Australian auditors

In 2007-08, the FRC should continue to perform this function by:

(a) monitoring media reports and information on relevant websites (this information is provided to all FRC members on a monthly basis); and

(b) meeting with appropriate bodies in other jurisdictions as part of overseas visits by the FRC chairman.

Promoting, and monitoring the adequacy of, the teaching of professional and business ethics by, or on behalf of, professional accounting bodies to the extent to which the teaching of those subjects relates to auditor independence.

The FRC’s work in respect of this function will flow from the reports of the consultants and the recommendations contained in those reports.

Consultation/negotiations with the professional accounting bodies and the APESB may be needed concerning the implementation of recommendations accepted by the FRC and agreed with these bodies.

Other matters.

(a) Non-Corporations Act audits (in particular, self-managed superannuation funds).

The 2007-08 work programme does not envisage any direct action in respect of this matter.

However, given the terms of the then PST’s letter of 15 May 2007, the FRC should monitor/consider any independence issues that arise in respect of non-Corporations Act audits so that it is able to provide appropriate advice to the Minister at the expiration of the 12-month period. The advice to the Minister could result in work in this area being programmed in 2008-09.

(b) Number of registered company auditors (RCAs) who are not members of a professional accounting body.

The FRC Secretariat has completed its analysis of the Register of Auditors. As a result of that analysis, supplementary information will be sought from ASIC and the professional accounting bodies.

(c) Issues associated with the provision of non-audit services.

The FRC Secretariat could undertake research on this issue during 2007-08. A schedule of audit fees paid by most of the top 100 companies has been obtained and an analysis of the data will be undertaken.

(d) Planning of work on analysing market confidence in auditor independence.

The FRC plans to undertake a stakeholder mapping of different segments of users of audited financial information; and a survey of their confidence that company-issued audited financial reports reflect actual business performance, the basis for this confidence, the confidence in the auditor’s independence from the company’s interests specifically, their view of any gap in confidence relative to the optimal level, and the level of understanding of the existing regulatory framework for auditor independence.

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