News emerged this week that the audit regulation inquiry will not hold any more public hearings despite the sabre rattling that the public was treated to repeatedly in the media over the past six months.
Members of the Parliamentary Joint Committee on Corporations and Financial Services, which first surfaced following a lot of noise and rumbling from the United Kingdom and repeated whining from the corporate regulator, held a public hearing earlier this year but then things stopped dead in their tracks.
Labor Senator Deborah O’Neill spearheaded the push for the inquiry in August 2019 but the general interest to pursue it appears to have declined.
It would be too easy to blame the coronavirus for the failure of people to continue getting excited about auditor independence. This is not just about pandemic paralysis causing the committee to drop the notion of further public hearings into audit regulation.
There is another topic that has the committee kicking tyres and that is litigation funding.
There are several things that the parliamentary committee must consider recommending, in order that they comprehensively do their job in the public interest.
The first matter is that the committee must hold regular hearings on matters related to auditing, assurance and current practices.
Auditing standards are laws passed by the parliament. A failure to have regular hearings on the auditing standard setting process, the practice of audit and the manner in which standards are enforced by professional bodies and the corporate regulator warrants periodic scrutiny by parliament.
The committee must have before it on an annual basis the regulator, the professional accounting bodies, the major accounting firms and other stakeholders to ensure that the auditing standards and other relevant Act, regulations and professional standards are sufficiently robust to protect the Australian community.
Auditing is a public interest activity and the parliament itself must treat it as an area that merits regular and robust inquisition. The current inquiry is nowhere near sufficient and Senator O’Neill’s committee must do better.
The Financial Reporting Council must meet in public so that the meetings of the oversight body are run in accordance with consistent principles that regulate the accounting and auditing standards board.
It is now more than two decades since the FRC was first formed by the Howard government.
It was a disgrace back when the legislation was first passed that the FRC was not required to meet in public.
Major directives were decided behind closed doors - directives which impact on technical outcomes in accounting and auditing standards.
The FRC should have been forced by law from the outset to ensure it conducted a due process into any topic on which it was to make a directive.
This was how the process of adopting international accounting standards was stuffed up in Australia. Constituents that did not like the idea were given ammunition to argue against adoption of the international suite of reporting standards when the FRC made the directive behind closed doors without a proper consultation process on the directive itself.
Mandating a direction that sets the course for technical standards and technical standard setting is not what oversight bodies do.
Opening those doors for the first time in 20 years will bring sunlight into a process that has been kept largely clandestine and closely held between the standard setters, bureaucrats and certain groups with the business community including the professional accounting bodies.
It should be unacceptable to everyone that the FRC continues to meet in private. There is little that needs to kept from the public eye on the FRC’s agenda.
The only agenda items that justify in-camera treatment are those related to the appointments of board members where there is the potential for FRC members to reflect on private details of individuals.
The committee should also recommend the formation of a separate body to register, regulate, inspect and discipline auditors in the same manner as the Tax Practitioners Board. The time has come to divest the ASIC of its responsibilities in the area and for there to be a single, independent authority that deals with this important area of capital market regulation.
The FRC must also be divested of its responsibilities in the area of auditor independence and the new authority as proposed above should be given the task of reporting to government.
A more general practice that the committee must contemplate is to establish a rolling inquiry into professions regulated under law that are involved in the raising of capital. This should include company directors, auditors, financial planners and others that have any role specified in the Corporations Act. Professional organisations representing these classes or regulated individuals must be brought before the parliamentary committee and asked what exactly they are doing in the public interest.