On 17 August 2021, former auditors of Halifax Investment Services Pty Ltd (Halifax), Mr Robert James Evett and EC Audit Pty Ltd (formerly Bentleys NSW Audit Pty Ltd) were convicted and sentenced to pay a fine of $10,000 and $40,000 respectively for failing to conduct audits in accordance with auditing standards.
Mr Evett and EC Audit are the first auditors in Australia to face criminal charges and to be sentenced under section 989CA of the Corporations Act. EC Audit and Mr Evett had previously pleaded guilty to the charges (21-163MR).
The charges relate to audits conducted by Mr Evett, as lead auditor, and EC Audit, as audit company, of the profit and loss statements and balance sheets of Halifax for three consecutive financial years ended 30 June 2016, 30 June 2017 and 30 June 2018.
The breaches of the auditing standards included that:
EC Audit failed to understand Halifax’s business and failed to design appropriate tests to identify material misstatements in the accounts, and
Mr Evett failed to take responsibility for the overall conduct of the audits and failed to ensure that staff with appropriate skills were conducting the audits.
In delivering the sentence, the Court noted the conclusions of an expert auditor’s report that:
had the audits of the financial statements been conducted in accordance with auditing standards, the material misstatements would have been detected and Halifax would have been required to cease trading until sufficient capital was raised for it to meet its financial services licence (AFSL) capital requirements; and
the effect of misstatements was that for each year the financial statements did not disclose that Halifax was not meeting its AFSL requirements, Halifax continued to trade whilst being prima facie insolvent.
ASIC Commissioner Cathie Armour said, ‘Auditors are important gatekeepers to the market and play a key role in ensuring financial reports are free from misstatements.
‘In taking this action against EC Audit, ASIC is sending a message to auditors to maintain a strong culture focused on audit quality and that any serious failure to comply with auditing standards will be prosecuted,’ concluded Commissioner Armour.
The Commonwealth Director of Public Prosecutions prosecuted the matter after a referral from ASIC.
