Deborah O'Neill (NSW, Australian Labor Party) Share this | Hansard source

I rise today to speak about the final report of the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the regulation of auditing in Australia.

This is a landmark report, and it offers a timely, bipartisan and credible road map to ensure our auditing industry is accountable, transparent and appropriately regulated. I'm reminded every time I turn a page of this report—and, indeed, by the concluding remarks that have been tabled here—that this inquiry was desperately needed and that the issues the inquiry uncovered needed to be seen in the clear light of day. I'm also reminded of the high-stakes nature of this issue. If the audit concerns revealed by this inquiry remain unresolved, they could shake our already rocky economy to its core.

Auditing underpins the stock market and the economy and, with more and more Australians depending on superannuation to provide for their retirement, the quality of audit is a matter that materially effects the financial wellbeing of every Australian and their family. The big firms that Australia knows—PwC, KPMG, EY and Deloitte—are at the core of the auditing profession. This report is about what we found when we investigated them, and other entities in the field as well, over the course of most of 2018. This inquiry exposed what journalist Adele Ferguson rightly described as an 'opaque and conflicted industry'. ASIC, although under a cloud at this time, has been vocal over years in calling for an investigation into the quality of audit due to escalating concern following their annual reviews revealing that audit quality was dropping.

The elaborate and systemic exploitation of ordinary Australians by major financial institutions revealed in the Hayne royal commission into banking was a wake-up call to many of us that something was deeply wrong in so many areas of our financial services industry. The conflicts of interests between the consultancy and the auditing businesses of many of Australia's largest professional firms deeply troubled me in that context. The evidence put on the public record in the course of this inquiry about how terribly corrupting financial incentives can be for far too many people and businesses, especially the biggest banks and corporates in the country, is not of the same scale in the audit industry, but we need to be mindful of the power of financial incentives to corrupt.

This report is an achievement. It's an achievement for my colleagues on the committee, who listened to many hours of evidence, read dozens of submissions and contributed in ways big and small. It is an achievement also for all the whistleblowers who bravely stood up and revealed practices and attitudes in the major Australian auditing companies that compromise any commonly understood definition of ethical business behaviour, integrity and professional audit scepticism. Their insight and generosity in sharing their knowledge with me on behalf of their fellow citizens marks them out as genuine servants of our democracy. Truth must be told. Companies that don't hear internal whistleblowers are short-sighted. I hope that more civic-minded Australians see that their truth-telling to parliament can make a profound difference that benefits millions of us. I thank them.

I personally ran into some strong headwinds when I initially moved to establish this inquiry. Indeed, I had to advance it and put it to a vote on the floor of the Senate. I'm happy to say it was carried that day on the voices, but I thank Senator Whish-Wilson and his team, Senator Lambie, Senator Griff, Senator Hanson, Senator Patrick and Senator Roberts for their commitment to supporting my motion, which enabled this committee to do its work. Without their initial support, I don't think the work of the committee that's been reported today would have been undertaken at all. I particularly thank my Labor colleagues, my own wonderful staff and the committee staff for their vital role in bringing forward this report. I also thank the chair of our committee, Senator James Paterson, and the other Liberal members of the committee for their endeavours as well.

Once the direction of the Senate for establishment of the committee was achieved, Senator Paterson approached the inquiry with a calm and steady hand during all of our hearings, private meetings and other deliberations, always happy to reach across the aisle when in the interests of the nation. It's a credit to Senator Paterson that he's worked carefully and collaboratively throughout this inquiry. I listened to his contribution this afternoon and I accord with him in his assessment of where we are. I note in particular his comments around the necessary changes to the implementation of recommendations 7 and 9, which are impacted by practical realities at this time. The report goes out under Senator Paterson's signature, and I hope he will be just as zealous as I will be in ensuring that the recommendations in this report are taken seriously by this government and that implementation occurs as soon as is practicable.

It's fair to say there were significant variations of practices by each of the big four, but the report reveals the necessity of the inquiry, the need to reform outdated and potentially dangerous conflicts of interest, the need to establish more oversight of the practices in the profession and the need to change the perverse and reckless behaviour that we saw in some of the big auditing firms.

This inquiry also found a deeply troubling culture at many of the auditing giants, including evidence of ineffective management of conflicts of interest. I also received in-confidence reports of sexual harassment across the entire sector. It also uncovered that Westpac's anticrime provisions were inadequate and that the board, having known about that failure for years, should have acted much sooner on the reports provided by their auditors. Westpac was subsequently investigated by AUSTRAC over 23 million breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act.

I remain concerned about the use of the CPS 220 reports, which are provided by auditors, about perceived and real conflicts of interest which auditors determine by their own reckoning. Their professional right to undertake work as both an internal auditor and an external provider of assurance services was something I simply couldn't believe they were saying on the record. There might be some technical alchemy of magic words that, with a wand and some swift hand movements, can be employed to continue to justify such practices, but decent, straight-talking Australians know what the word 'independent' really means. You can't be an outsider and an insider at the same time. It's time the sector accepted that fact and fixed the problem, and changed the perceptions as well.

This report has some key recommendations that I would like to speak to briefly: recommendations 3, 4 and 5. In my view, they go to the heart of why I brought this inquiry to bear. I was worried that auditors were too close to their clients and that information barriers declared in internal policy documents were in fact non-existent or severely compromised by lax consideration. It became clear that auditors were auditing their own firm's work. That is just beyond the pale. It cannot happen—not if we're going to have the integrity of financial reporting that we need in this country. I remain concerned, despite denials, that audits are being employed in some instances as loss leaders for far more lucrative consulting work.

The pandemic has shown that we cannot always take for granted that traditions will hold and that inertia and ennui will carry us safely into the future. We need to ensure that ethical practices and culture are not only assumed to be in place but also subject to critical review and, where necessary, regulated and carefully overseen. In Australia, we cannot risk an Enron style auditing failure, and this inquiry, I believe, has brought us back from the brink. Our economic prosperity cannot be rebuilt on falsehoods, on foundations made of sand, and an unreformed and unrepentant auditing industry will put all we seek to achieve here at risk.

I commend the report to the Senate and I give very strong voice to encouraging the government to get on with the job. I know that Senator Paterson will be sharing in my delight as it is implemented. I think we'll all get the benefit of that.