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Tuesday, 13 March 2012
Page: 2761

Mr PERRETT (Moreton) (19:41): I rise to speak in support of the Corporations Legislation Amendment (Audit Enhancement) Bill 2012. I thank the member for Casey for his contribution and I echo his comments in congratulating the member for Oxley, the Parliamentary Secretary to the Treasurer, for his elevation. It is well earned and well deserved and it is nice to know there is a safe pair of hands from next door to my electorate looking after some of the money. On a slightly different note, I received a text from my brother while I was sitting here. He has just taken my sister-in-law Katie to the hospital where I think they are about to produce a new Perrett. I wish them well in that endeavour. My brother Tim and my sister-in-law Katie are, I am sure, like everyone and would wish a new Perrett to come into the world.

I return to the Corporations Legislation Amendment (Audit Enhancement) Bill 2012. Australia's financial markets have earned a reputation as fair and transparent over many years through the great efforts of Australian governments, both Labor and Liberal. These markets are supported by confident and informed investors and consumers. The Corporations Act 2001 sets out a regulatory framework to ensure that fairness and transparency are maintained in our financial markets. The Australian Securities and Investments Commission was set up under this act as a trusted independent regulator. Among its many activities, ASIC maintains a register of companies and a register of auditors and liquidators. Many advanced economies have a system in place that requires mandatory auditor rotation. Auditor rotation helps prevent a situation where an auditor becomes too familiar with the client and the independence of an audit therefore could, on some occasions, be questioned. Currently under the act a listed company must rotate auditors at least every five years. This ensures that auditors do not cosy up to companies by giving favourable audits in order to secure their business for years into the future.

In some circumstances, however, an auditor rotation can impact negatively on the quality of the audit. For example, an auditor may have developed specific knowledge and experience which, if removed from the auditing process, would reduce the quality of the audit. This bill before the chamber will enable directors of a listed company to apply to extend the rotation period by up to two years. The company will need to prove the extension is about maintaining the quality of the audit and that it does not give rise to any conflict of interest. Directors will also be required to disclose any extension of the auditor rotation period to ASIC. The auditor will also be required to agree to the extension. This amendment will therefore provide greater flexibility for listed companies with the auditor rotation requirements and will bring Australia into line with international best practice.

This bill also introduces other measures to improve the auditing process. For example, the bill requires audit firms to publish an annual transparency report. This will apply to those firms that audit at least 10 Australian entities, including listed companies, listed registered schemes, authorised deposit-taking institutions and insurance companies. Because of the structure of most auditing firms, which are normally set up as partnerships, it is difficult to access basic information, such as ownership, governance and business structure. This amendment will ensure clients or potential clients can obtain factual information about these auditing firms.

I understand that the EU and the US already require audit firms to publish regular transparency reports. Transparency reports will be required to be published online on the auditor's website within four months of the end of the year and a copy will be required to be lodged with ASIC. The specific information required in the report will be developed by regulation. However, it will include items like the firm's governance structure, internal quality-control systems, independence practices, fees and the entities that are audited. Information may be omitted from the report if its disclosure is likely to cause unreasonable prejudice to the auditor.

This bill also amends the Australian Securities and Investments Commission Act 2001 to remove some duplication in the roles of ASIC and the Financial Reporting Council. The FRC will take on a role of providing the minister with strategic policy advice and reports in relation to the quality of audits conducted by Australian auditors. They advise on the systems and processes used by auditors to comply with their obligations. ASIC will exclusively take on the role of monitoring auditor independence requirements, removing the current duplication with the Financial Reporting Council. This bill will also give ASIC power to disclose an audit deficiency in relation to specified failures by an audit firm. This would be issued where ASIC believes it is a sign of flaw in the audit firm's quality-control system. Auditors will then have 21 days before the report is published to comment on the deficiency.

This is one of those occasions when government needs to apply the gentle stick of regulation. Removing the veil and shining a light on the practices of auditors will lead to a better, more independent audit system—something that, as I said from the outset, is crucial to a thriving and robust financial system. I commend the bill to the House.