Big auditors to tune up operations following ASIC fault report
Australia's biggest audit companies have agreed to lift their game after the corporate regulator issued a "final warning" to improve quality.
In December, the Australian Securities and Investments Commission released an audit inspection report showing the quality of audits produced by large and small companies had worsened considerably since January 2011.
Of the 20 companies inspected, the report found 18 per cent of the 602 audit areas reviewed did not perform all the procedures necessary to get a "reasonable assurance" that an audited financial report was not "materially misstated".
It also found auditors were not being sceptical enough when auditing companies' books, and that they were relying too heavily on the work of other auditors.
But ASIC confirmed on Thursday that Australia's six biggest auditors - PricewaterhouseCoopers, KPMG, Ernst & Young, Deloitte Touche Tohmatsu, Grant Thornton and BDO - had agreed to prepare "action plans" to improve the quality of their audits.
The companies will focus on things such as improving the "level of professional scepticism" and the "appropriateness of audit evidence".
However, the action plans, which they will implement and monitor themselves, will not consider the issue of rotating auditors from one company to another to help maintain independence.
Analysts have warned that auditors becoming too close to companies was an industry-wide problem, and contributed to poor quality.
ASIC commissioner John Price told a parliamentary joint committee in March that mandatory rotation of audit companies "should be considered".
"[But] I do not think ASIC has specifically said we think mandatory auditor rotation should be introduced," Mr Price said.
The issue was being discussed in Europe and Britain, he said, and any decision would have an effect on Australia's largest companies, which operate globally.
The head of audit policy at the Institute of Chartered Accountants, Liz Stamford, said ASIC recognised companies already did a lot of work trying to improve their audits.
"The fact that the focus of ASIC [is] on working with the firms, and recognising that the firms do a lot of work in this space ... is very welcome," she said.