Auditors

Auditing standards are set by the Auditing and Assurance Standards Board (AASB) with guidance from the Corporations Act 2001 (Cth). These standards are enforced by the Companies Auditor Disciplinary Board (CADB) upon investigation and recommendation by the Australian Securities & Investment Commission (ASIC). AASB, CADB and ASIC are all statutory bodies created by the Australian Securities and Investments Commission Act 2001 (Cth).

Auditors have duties including to keep their details up-to-date, maintaining auditor independence by identifying conflict of interest situations and meeting requirements for auditor rotation, ensuring audit quality by following auditing standards, publishing an audit transparency report, and complying with conditions of registration. Due to such important requirements of independence, the Corporations Act 2001 (Cth) imposes auditor rotations, cooling-off periods, and criminal punishments if standards are not met.

Immediate Action

If a dispute with an auditor or an auditing firm is only related to financial services or their advice then one option is to try to resolve the dispute internally through whatever dispute resolution process the firm has in place. However, depending on the severity of the auditor or auditing firm’s misconduct, it may be more appropriate to lodge a formal complaint with ASIC.

Formal Investigation

An overview of the process of lodging a formal complaint with ASIC involves a report of misconduct through a variety of channels including reports from members of the public. ASIC then determines whether it falls within their jurisdiction, with misconduct of auditors and auditing firms likely to be within this remit. The complaint is then assessed with reference to four questions to determine whether a formal investigation should be held. The four questions are:

  • What is the extent of harm or loss?
  • What are benefits of pursuing the misconduct, relative to the expense?
  • How do other issues, like the type and seriousness of the misconduct and the evidence available, affect the matter?
  • Is there an alternative course of action?

If these are answered in the affirmative, an investigation will be conducted to ascertain whether the suspected misconduct can be proved.

If misconduct can be proven, under Division 9.2 of the Corporations Act 2001 (Cth), ASIC can apply to CADB (the Board) to conduct a hearing. This is heard by a selected panel of the board (the Panel). Before the hearing, parties must be provided sufficient time to prepare evidence and submissions. Following the hearing the Panel will deliver a determination to the parties and, if satisfied there are grounds to exercise their powers, provide the parties with an opportunity to make submissions as to what orders are appropriate. A date to reconvene is set where these submissions, and submissions regarding appointment of costs, can be made. These hearings are private but fairly informal and do not follow the rules of evidence.

Consequences

Where the Panel is satisfied that a registered auditor failed to carry out their duties properly, there are a range of options available to them to deal with an auditor, including:

  • Cancelling or suspending the person’s registration;
  • Admonishing or reprimanding the person;
  • Requiring the person to give an undertaking to engage in, or refrain from engaging in, specific conduct; and
  • Requiring the person to give an undertaking to refrain from engaging in specific conduct except in specified conditions.

If an auditor fails to give an undertaking when required to do so, or contravenes an undertaking, the Board may cancel or suspend their registration.

Alternatively, if the matter is not referred to the Board, ASIC has a range of remedies (punitive, protective, preservative, corrective, compensatory, and negotiated remedies) it can administer. The suitability of each is determined against criteria of:

  • What is the nature and seriousness of the misconduct?
  • What was the post-misconduct behaviour of the offender?
  • What is the strength of the case?
  • What impact will the remedy have on:
    • the person or entity?
    • the regulated population?
    • the public?
  • Are there any mitigating factors?

How can we help?

Professional misconduct investigations can have serious implications for your career moving forward. Robertson O’Gorman is committed to assisting clients throughout the entire process, including at the ASIC hearing stage in the hearing stage in the making of oral and written submissions.