Auditor's obligations: Reporting to ASIC

Friday, 12 July 2013

The updated guidance includes additional examples of circumstances that are likely to be significant enough to warrant reporting to ASIC, including:

• modified audit or review reports

• related party transactions which operate to the detriment of the interests of members of an entity

• contravention of the Corporations Act minimum number of director requirements

• failure to keep books and records

• ongoing failures to comply with a compliance plan.

The above examples are in addition to circumstances mentioned in the previous version of RG34 Auditor's Obligations: Reporting to ASIC, including:
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• insolvent trading

• failure to comply with accounting standards

• fraud by officers or employees of the entity

• non-lodgement of financial reports.

Forensic accountants have in recent years been called upon to make comment on the failure of auditors to report significant contraventions to ASIC.  For example, the Centro class action considered the question of an auditor's responsibility to report possible non-compliance with the ASX’s continuous disclosure obligations.

Such significant contraventions often require forensic examination by accountants once detected by auditors - for example insolvency, fraud and failure to comply with accounting standards - and so these matters take on particular importance to forensic accountants.

Audit quality and regulation have been heavily in the spotlight recently, particularly after ASIC issued a ‘final’ warning to audit firms to improve audit quality ('Promise to improve after ASIC warning').