For years, improving audit quality has been a goal of the auditing profession, regulators, government and the public. Hopefully this inquiry will unlock why that goal remains an unfulfilled aspiration.
Parliamentary inquiry 'should look at how auditors are audited'
Hannah Wootton Reporter
AFR Sep 11, 2019 — 12.05am
A parliamentary inquiry into audit quality is likely to rely heavily on evidence from the ASIC's audit quality reports, according to a professor of auditing.
Robyn Moroney, a professor of auditing at Monash University, said the inquiry will also need to question the Australian Securities and Investments Commission's audit assessment methods.
ASIC is the only body able to access information on audits beyond that which is publicly available, making it inevitable it will be a key source of information for the inquiry.
But although ASIC publishes the headline findings of its now-annual assessments of auditors' work – and will soon name and shame firms that perform badly – it does not share the methods by which it makes these judgments.
“It’s a big black box in terms of what they look at and the process,” Professor Moroney said. "We don't actually know what methods they use in forming their quality assessments."
The inquiry also should seek evidence of why ASIC's quality reports did not seem to be translating into improvements in audit quality, she said. The regulator has found that about 20 per cent of audits deficient over the past three review periods.
“We’ve had these inspections for a number of years, [so] why has the problem, if not gone away, at least diminished over the years,” Professor Moroney said. “We don’t understand enough [about ASIC’s processes] to understand why … the inquiry is timely to review it.”
Greens senator Peter Whish-Wilson expressed concerns about the reporting system in March. "ASIC has a long way to go in making its reporting on auditing deficiencies a tool for change," he said after a senate committee looked at ASIC's audit inspection program.
The US audit watchdog, the Public Company Accounting Oversight Board, last week faced criticism from the non-profit Project on Government Oversight for similarly reporting consistently high numbers of audit issues from the big four but rarely taking enforceable action against them.
It is not revealed publicly who at ASIC carries out the audit quality reviews. The regulator told a Senate committee in March that its inspectors were “recently retired audit partners from big four firms who have no relevant conflicts of interest”, but later declined to name them.
ASIC did not respond when asked about its audit inspection process.
Some within the big four have privately questioned the regulator's methods of audit quality assessment.
Only Deloitte's head of audit, Jamie Gatt, has spoken out publicly. Mr Gatt told The Australian Financial Review in June that ASIC's approach when undertaking audit reviews was "not fit for purpose" and produced "significant volatility in results" and "inaccurate" reports.
Beyond ASIC's evidence
The parliamentary inquiry “will hopefully look at every side of the equation”, Professor Moroney said. ASIC’s evidence was “fundamental” but the firms also should be consulted.
Academic research could also be looked at, especially on determinants of audit quality and how to improve results, she said. Some academics also used what information was available to test audit quality themselves.
“Academics are independent. We’re not on anyone’s payroll, we don’t have any incentive," she said.
Evidence before courts, too, could help inform the inquiry. However, there is little court evidence on audit quality as auditors are rarely sued and when they are, the court cases are often settled early in proceedings.