ASIC has announced that it will routinely communicate negative findings from its reviews of audit files to directors, rather than the current exception basis.
ASIC Commissioner Sean Hughes said, ‘Communicating our negative audit review findings to directors of entities audited will assist audit committees and directors to ask the auditor about the steps they are taking to improve audit quality, and to ensure that the audit is adequately resourced.’
‘Directors should support quality audits in the interests of investor and market confidence in the quality of financial reports’, said Mr Hughes.
ASIC will generally communicate audit quality findings and other matters from its review of audit files in our audit firm inspections to directors of the entities concerned where:
we have formed the view that an auditor has not obtained reasonable assurance that the entity’s financial report is free of material misstatement;
we have concerns that the auditor did not meet the independence requirements of the Corporations Act (including professional requirements), has not addressed the matter and/or has not adequately reported the matter in an auditor’s independence declaration; or
we consider any other matter should be drawn to the attention of the directors, audit committee or senior management of the audited entity.
ASIC Regulatory Guide 260 Communicating findings from audit files to directors, audit committees or senior managers (RG 260) has been updated to reflect these changes.
Routinely communicating negative audit quality findings from file reviews to directors (and, through them, audit committees) responds to calls from audit committee chairs of some larger listed companies. It was supported in all submissions received on Consultation Paper 352 Communicating audit findings to directors, audit committees or senior managers (CP 352).
ASIC’s responses to the submissions received to CP 352 are outlined in Report 730 Response to submissions on CP 352 Communicating audit findings to directors, audit committees and senior managers (REP 730).
The routine reporting of findings will commence with audit file reviews that will be covered by ASIC’s public inspection reports for the 12 months to 30 June 2023.
