Wednesday, 14 March 2012
Corporations Legislation Amendment (Audit Enhancement) Bill 2012; Second Reading
That this bill be now read a second time.
I seek leave to have the second reading speech incorporated in Hansard.
The speech read as follows—
CORPORATIONS LEGISLATION AMENDMENT (AUDIT ENHANCEMENT) BILL 2012
Today I introduce a Bill that will amend the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 to implement a range of reforms to enhance audit quality in Australia.
In 2010, the Treasury conducted a strategic review of audit quality in Australia. The review found that Australia's audit regulation framework is robust and stable, and that no fundamental changes are required.
However, the review identified a number of areas where improvements could be made to bring Australia into line with international best practice in audit regulation. This Bill will implement a number of changes to the audit regulation framework arising from the review.
Schedule 1 amends the Corporations Act 2001. It will provide flexibility for directors of a listed company or listed registered scheme to extend the five year auditor rotation period for up to two years. Directors will only be able to extend the auditor rotation period if the extension is consistent with maintaining the quality of the audit and does not give rise to any conflict of interest situation.
This amendment allows directors to extend the auditor rotation period where the retention of knowledge and experience would be beneficial to the quality of the audit but also ensures that auditor independence and objectivity are maintained.
Schedule 1 will also introduce a requirement for audit firms to publish an annual transparency report if they conduct audits of ten or more Australian listed companies, listed registered schemes, authorised deposit-taking institutions or insurances companies.
This amendment will increase the transparency of audit firms by ensuring that factual information about firms performing significant audits is available to existing and potential clients. The disclosures to be made in the report will be prescribed in the regulations.
Schedule 2 amends the Australian Securities and Investments Commission Act 2001. It will streamline the auditor independence work of the Australian Securities and Investments Commission (ASIC) and the Financial Reporting Council (FRC) by removing the existing auditor independence function from the FRC and, in its place, giving the FRC a role of providing the Minister and the professional accounting bodies strategic policy advice and reports in relation to the quality of audits conducted by Australian auditors.
The FRC will be relieved of the requirement to prepare an annual report on the performance of its auditor independence functions. The FRC's information gathering powers will be limited to obtaining information from the professional accounting bodies.
Schedule 2 will provide ASIC with the power to issue public audit deficiency reports on individual audit firms. ASIC will be able to issue a report in relation to specified failures by the audit firm that it identifies during the exercise of its statutory audit functions and reasonably believes indicates a significant weakness in either the Australian auditor's quality control system or the conduct of the audit, and may be detrimental to the overall quality of the audit.
A specified failure includes a failure by the auditor to comply with the auditing standards, a failure by the auditor to comply with the auditor independence requirements in the Corporations Act, a failure by the auditor to comply with any applicable code of professional conduct, or a failure by the auditor to comply with the provisions of the Corporations Act dealing with the conduct of audits.
Auditors will be provided with an opportunity to remedy an identified audit deficiency before ASIC prepares a report. Auditors will also be able to provide comments on an audit deficiency report, which ASIC must publish with the report.
This amendment aims to improve confidence in the capital markets through increased transparency in the audit process.
Schedule 2 will also allow ASIC to communicate directly with an audited body in relation to significant matters that it identifies during the course of the exercise of ASIC's statutory functions in relation to an audit. ASIC will be required to notify the auditor at least seven days prior to disclosing information to the audited body.
This amendment will ensure that directors have access to information necessary to fulfil their obligations.
Finally, I can inform the chamber that the Ministerial Council for Corporations was consulted in relation to the amendments and has approved them as required under the Corporations Agreement.
I seek leave to continue my remarks later.
Ordered that further consideration of the second reading of this bill be adjourned to the first sitting day of the next period of sittings, in accordance with standing order 111.