Parliamentary Inquiry Into Audit Quality Online Tutoring

The need for the parliamentary inquiry

Audit quality is a global issue that requires global reforms in the recent years following the change in business environment, increasingly diverse and scalable business operations, more complex regulatory and reporting requirements, company transactions and business structures in the last few decades. To meet the enhanced demand created through this complexity, stakeholders’ expectations regarding audit have also changed and this has also caused in professional services firms being engaged in multidisciplinary assurance and non-assurance services at one for same clients, such as provision of non-audit advisory and consultancy, tax and policy advisory, technology and data science etc. The interaction of these services directly results in potential conflicts of interest (Parliament of Australia, 2020). In such situation, there are requirements to be met in the APES 110 Code of Ethics for Professional Accountants and there is a need to evaluate whether there is a need to regulate the competition in the audit and related audit and non-assurance services, as well as its effects on the audit quality (Lian, 2019).

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The report sought from the Joint Committee of Parliament is also set to determine the role of audits in detecting and preventing frauds and other deliberate misconduct in financial reporting. The role of regulators and performance, disciplinary bodies in the effective enforcement of regulation (Lian, 2019). The issue of audit quality was profoundly brought up when ASIC put the six biggest auditors on notice after the findings from its latest audit quality report for the 18 months period to 30 June 2018. The report indicated that no reasonable assurance was obtained as to true and fair view for 20% of the key audit areas reviewed by ASIC (Lian, 2019). These findings are also more fully stated in the report later presented before the Senate by the Parliamentary Joint Committee which indicated the deteriorating trend of audit quality in Australia. The adverse findings are illustrated in Table 1.1 of the report as follows (Parliament of Australia, 2020):

This followed from concerns earlier expressed by the Joint Committee on Corporations and Financial Services on the quality of audits undertaken in Australia which called for ASIC to conduct a period by period study of audit quality reviews. The Committee suggested that a “serious review” was well called for considering the Australian audit market and the various nature of audit and non-audit services being provided by few big firms in the industry. Two issues pointed out in the brief were: (1) concentration of audit market largely in the hands of big four firms; and (2) conflicts of interest arising from diversified operations of the big four firms (Lian, 2019).

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The big four firms have also expressed their concern in revisiting the ASIC’s approach to selecting audit files and areas for reviews. Therefore, eventually a parliamentary inquiry was raised calling for resolution of these matters and looking for ways to improve audit quality (Lian, 2019).

References

Lian, J. (2019). Senate establishes inquiry into audit quality. Accountantsdaily.com.au. Retrieved 12 May 2020, from https://www.accountantsdaily.com.au/business/13359-senate-establishes-inquiry-into-audit-quality

Lian, J. (2019). Auditors get a bad rap in new ASIC report. Accountantsdaily.com.au. Retrieved 12 May 2020, from https://www.accountantsdaily.com.au/tax-compliance/12576-auditors-get-a-bad-rap-in-new-asic-report

Lian, J. (2019). Australian audit market in line for ‘serious review’: Government committee. Accountantsdaily.com.au. Retrieved 12 May 2020, from https://www.accountantsdaily.com.au/tax-compliance/12660-australian-audit-market-in-line-for-serious-review-govt-committee

Lian, J. (2019). Nation’s largest auditors come forward with audit quality results. Accountantsdaily.com.au. Retrieved 12 May 2020, from https://www.accountantsdaily.com.au/business/13087-nation-s-largest-auditors-come-forward-with-audit-quality-results

Parliament of Australia. (2020). Regulation of auditing in Australia – Parliament of Australia. (2020). Aph.gov.au. Retrieved 12 May 2020, from https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/RegulationofAuditing