3. Auditor independence

3.1 Anomalies arising from CLERP 9

CLERP 9 established a comprehensive regime on auditor independence implementing recommendations of the Ramsay report on Independence of Australian Company Auditors and some of the relevant recommendations of the HIH Royal Commission.

A number of anomalies and unintended consequences have arisen during the implementation of the new auditor independence requirements, such as in relation to:

• the prohibition on an auditor owing an amount of more than $5000 to an audit client (Item 15; subsection 324CH(1)); and
• the prohibition on an audit client owing amounts to the audit firm under a loan (Item 16; subsection 324CH(1)).

The profession has raised concerns that the prohibition on an auditor owing an amount of more than $5000 to an audit client is catching ‘ordinary course of business’ transactions between an auditor and audit clients. One example given is that an audit firm which audited Qantas would not be able to fly with Qantas unless it paid cash rather than operating an account on normal credit terms.

It is proposed that an ordinary course of business exemption be introduced via regulation to address this anomaly.

An issue that has arisen in relation to the prohibition on an audit client owing amounts to the audit firm under a loan is that while amounts owing by a bank under a cheque or savings account may not be regarded as a loan in a commercial sense, ASIC and the profession have advised Treasury that the common law interpretation of a loan includes deposit accounts held with a bank. This presents a considerable burden for auditors of banks and other financial institutions that offer cheque and savings account facilities to their customers. It involves the closing of all firm and audit team members’ accounts with the banks.

To address this concern it is proposed to clarify via regulation that cheque and savings accounts are not intended to be covered by the prohibition on loans by an audit firm to the audit client.

Consultation Issue Comments are sought on whether the changes to be implemented through regulation should be reflected in the Corporations Act itself.

 

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