New ASIC chairman Joe Longo has the opportunity to reflect on the structure of the corporate regulator and what territory it makes its own and what can usefully be hived off to new statutory authorities.
Let’s chuck a few things up in the air to be considered as a part of what the new chair and his colleagues are doing in reflecting on the best way to regulate accounting and auditing.
First we need to acknowledge a fundamental issue. Reviews shouldn’t just reorganise what you do at the current time. They can also look at whether it is best for a regulator like ASIC to be doing certain things in the first place.
This review of ASIC operations appears to be an ideal opportunity to assist the Federal Government in thinking seriously about creating a separate statutory body to conduct the registration, surveillance, and discipline of auditors that conduct audits under law.
That would mean a registration function similar to that of the Tax Practitioners Board. The TPB is a good model and ASIC could, in private discussions, reflect on whether registration is better handled by a body that has a sole focus on audit and assurance as a subject matter expertise.
This would mean the register of auditors would need to shift to a new body but that ought not to be a major problem given ASIC has plenty of other work to do.
A further benefit of creating a body dealing solely with the auditors and assurance providers is that audit firm inspections can be done by that body, relieving ASIC of the obligation.
Audit firm inspections still need to be done and not just to tickle auditors under heel in the Australian environment. Australia’s regulatory regime is monitored by overseas players and the United States is chief amongst those wanting assurance that Australia’s audit regulation has at least some of the functions of its authority, the Public Company Accounting Oversight Board (PCAOB).
Disciplinary matters could also be handled by a separate authority with a committee to hear complaints from regulators and others against specific practitioners or firms. A separate body would then lead to the function of the Company Auditors’ Disciplinary Board being folded into a new structure.
ASIC can concern itself with market trends and what it expects from audits from the perspective of protecting market credibility but the disciplinary functions as well as the others outlined above could be housed in a separate authority.
There is another advantage to establishing a separate auditing and assurance registration body. Controversy surrounding chairmen and members of bodies that have perceived conflicts of interest disappear overnight.
The Federal Government could take the various element of audit independence and audit quality discussions that involve the Financial Reporting Council away from the FRC and give it to a new body.
It would be a much better way to run that part of the regulatory process.
What people need to remember is that back when accounting firm Andersen collapsed and Enron did its big corporate bellyflop, the US Congress went into overdrive to try and fix problems in auditing and the accounting world.
Australia’s response was to not follow the US in setting up a separate body like the PCAOB but to bolt on different elements of the PCAOB’s work on to the work of bodies that existed.
It is time to review the piecemeal approach and deal with it with a single authority. The musings being undertaken by ASIC at the moment might offer an opportunity to clean house, rejig the structure, and move into a new era of audit regulation.