Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to this | Hansard source

The Australian Securities and Investments Commission Amendment (Audit Inspection) Bill 2006 is intended to improve the cooperation between ASIC and the US Public Company Accounting Oversight Board for the purpose of audit inspections. The bill will also create a legislative framework so that ASIC can enter into similar arrangements as that with the PCAOB with other non-Australian audit oversight bodies.

Labor understands that ASIC, with written consent of the minister, may enter into an agreement or arrangement with a foreign audit regulator to assist the foreign regulator to ascertain whether Australian auditors have complied with audit requirements in that foreign country. We note that any such arrangement will have to be published in the government Gazette. To carry out the proposed arrangement with the PCAOB, ASIC’s audit inspection role and its information-gathering powers will be increased.

In recent years, both the US and Australia have experienced a number of corporate collapses such as Enron and HIH in their respective jurisdictions, which have resulted in regulatory responses to both financial reporting and corporate governance. In the US the Sarbanes-Oxley Act, as it was enacted in 2002, established the PCAOB to increase the regulation of company audits. This act was far more prescriptive than the more principles based response in Australia which was enacted through the Corporate Law Economic Reform Program 9.

Labor members who participated in the parliamentary joint committee inquiry on CLERP 9 looked particularly at whether reforms to Australia’s financial and reporting regime would promote transparency and accountability, which were objectives stated in its explanatory memorandum. Labor has been a proponent of initiatives to improve transparency in the audit regime. There is a strong recognition from almost all stakeholders that transparency in reporting and decision making is vital. Domestic and foreign investors in Australian companies also need to know that our audit process is reliable when making investment decisions. Major accounting and audit bodies, whose reputations depend on the quality of their work, also benefit from a good audit regime.

The requirements in the US are substantially the same as in Australia. For companies and auditor firms that are subject to both regulatory regimes, there is duplication and significant associated cost. This creates unnecessary economic inefficiencies. Where government can reduce either inefficiency or cost without eroding the principles of disclosure, it of course should. This bill presents such an opportunity.

The opposition supports this bill as it will make the reporting obligations of our largest operations more efficient and will reduce the overall cost of compliance for Australian companies and their subsidiaries subject to dual regimes. In turn, this will facilitate access to US investment capital for Australian business. At present there are 24 Australian companies registered to raise capital in the US and 36 audit firms registered with the PCAOB to audit these companies. In practice, though, there are five large accounting firms which perform most of the work for these companies. These 24 companies are significant contributors to the Australian economy. The opposition welcomes the streamlining of reporting requirements for Australian companies operating in both US and Australian jurisdictions. The costs associated with the changes to the audit regime will be borne by ASIC and will be folded into its functions of monitoring and compliance; $6.3 million will be dedicated over three years in the 2005-06 budget.

This measure is, after all, simply one part of a holistic approach to improving the quality of our audit regime and the ability of investors and other stakeholders to rely on the regime. Other reforms which were reviewed by the Parliamentary Joint Committee on Corporations and Financial Services include the introduction of the international reporting standards, auditor rotation, restricting the provision of non-audit services and declarations to indicate audit independence. The opposition notes that ASIC, the Australian Bankers Association, the Group of 100 and the Australian Shareholders Association have all indicated they broadly support the proposal for greater cooperation between the US and Australia’s audit regimes.

In the US there is recognition that many companies which are subject to their audit inspection requirements are operators in global markets and so they develop the capacity within their system to enable the PCAOB to rely on non-US oversight systems. The PCAOB has already entered into similar arrangements with Canada and the UK so that joint audit inspections can be conducted with local regulators, which streamlines the audit process. The PCAOB’s level of reliance is largely dependent on the standard of the local audit regime with which they engage. In its consideration of the CLERP 9 reforms, Labor strongly supported the key role of ASIC in improving Australia’s audit regime, as it is a statutory body which is independent of the audit profession. These arrangements were a major determinant for the PCAOB’s positive consideration of Australia’s audit regime.

The proposal which will allow mutual recognition between Australia and US audit regulators is a positive step and emphasises the credibility of our domestic regime. This is essential for Australian companies that are active participants in the global business market through cross-border holdings and other financial transactions.

The mutual provision by the US for our audit system may also have the effect of encouraging a stronger relationship on other corporate governance issues. In addition to the main amendments discussed, there is also a technical amendment in schedule 2 of the bill. Labor understands that this amendment clarifies the period in which the immunity from criminal liability under section 1455(5) of the Corporations Act for contravention of the previous auditing standard applies.

This change will mean that the current immunity applies to financial reports for the period ending on or before 29 June 2007 but not reports on or after 30 June 2007. This means that reporting periods starting after 1 July 2006 will be covered by the criminal provisions for breach of the auditing standards in line with the original intent. Clarification of this immunity will facilitate a smooth transition to the operation of this bill. In closing, the opposition believes that reliable auditing is fundamental for good corporate governance in this country and elsewhere. This bill is supported by the opposition as part of the ongoing initiatives to improve standards of financial reporting.

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

The government would like to thank the member for Hunter for his support of this bill and for his contribution to the debate today. The bill will provide a legislative framework to empower the Australian Securities and Investment Commission, or ASIC, to enter into cooperative audit agreements or arrangements with foreign regulatory bodies. The Australian Securities and Investments Commission Amendment (Audit Inspection) Bill 2006 will also enhance ASIC’s current audit inspection powers.

The framework in the bill will enable ASIC to enter into an audit arrangement with the US Public Company Accounting Oversight Board, or PCAOB, to facilitate the two bodies conducting joint audit inspections of Australian auditors that are registered with PCAOB. There is a clear recognition by the parliament that with the globalisation of capital markets and the cross-border activities of companies and audit firms it is in the public interest to foster closer cooperation between Australian regulators and their overseas counterparts. While PCAOB is the only overseas regulator with whom ASIC at this stage proposes to enter into a cooperative arrangement, the framework within the bill will allow ASIC to enter into arrangements with other foreign regulators in the future with the consent of the minister. The proposed joint inspection processes between ASIC and PCAOB will provide significant cost savings for audit firms in that the firms will only have to accommodate one joint inspection rather than two separate inspections by ASIC and PCAOB.

ASIC’s enhanced audit inspection powers will serve two purposes. They will facilitate the proposed joint audit inspection arrangement between ASIC and PCAOB. The enhanced inspection powers are also designed to reduce compliance costs and clarify uncertainty about the scope of ASIC’s existing powers to review audit firms which the financial reporting council identified in its 2004-05 audit independent report.

The bill also contains an amendment to address a technical issue relating to a transitional provision applicable to auditing standards in the Corporations Act 2001. The life of the auditing standards made by professional bodies was extended by regulation to 29 June 2007. The technical amendment will extend the current immunity against criminal liability under subsection 1455(5) of the Corporations Act to cover all financial reports for periods ending on or before 29 June 2007 that are audited using auditing standards made by the professional bodies. As the drafting of those auditing standards is not as precise as it would be for an instrument intended to have the force of law, it is appropriate that criminal liability should not apply where an auditor fails to comply with the auditing standards. I commend this bill to the House.

Question agreed to.

Bill read a second time.

Ordered that the bill be reported to the House without amendment.