Mr Murphy asked the Treasurer, upon notice, on 4 December 2003:

(1) Further to the answer to question No. 2277 (Hansard, 1 December 2003, page 23079), in respect of CLERP 9, within those reform proposals dealing with auditor qualifications, independence and services, what provisions in CLERP 9, if any, require an auditor or a person bearing that title to be a qualified accountant.

(2) Which recommendations within CLERP 9 will ensure the prevention of auditing failures such as the collapse of the HIH and FAI Insurance group.

(3) What provisions specifically deal with defective auditing procedures being performed by persons who are not qualified accountants.

Mr Costello (Treasurer) —The answer to the honourable member's question is as follows:

(1) The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Bill 2003 (CLERP 9 Bill) provides that an individual, a firm or a company may be appointed auditor of a company or a registered scheme for the purposes of the Corporations Act 2001. In each case, the natural person responsible for the conduct of a particular audit must be a registered company auditor.

The Corporations Act provides that the Australian Securities and Investments Commission must not register a natural person as a company auditor unless the applicant holds a degree, diploma or certificate from a prescribed university or another prescribed institution in Australia and has, in the course of obtaining that degree, diploma or certificate, completed a course of study in accountancy (including auditing) of not less than 3 years duration and in commercial law (including company law) of not less than 2 years duration.

(2) The Government notes that a number of factors contributed to the failure of HIH and FAI and that it is not possible to guarantee through regulatory means that no company will fail. However, the CLERP 9 Bill contains measures, including enhanced requirements about independence of auditors, disclosures about provision of non-audit services, revised requirements for the registration of company auditors and giving auditing standards the force of law, which, taken together, will provide capital market participants with a high level of confidence in the independence of the auditor and the auditor's report on the financial statements.

(3) The legislative provisions underpinning the revised auditing requirements provide that the natural person responsible for the conduct of an audit is to be a registered company auditor. The CLERP 9 Bill sets criminal penalties for people who consent to be appointed auditor, act as auditor or prepare an audit report if they are not a registered company auditor.