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A recent Treasury paper has "confused rather than clarified" the state of big four audit regulation, the accounting body's submission says.
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CA ANZ slams government’s ‘confused’ big 4 regulation paper
02 July 2024
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CA ANZ has criticised the government’s understanding of the accounting and audit industry and says a recent consultation paper has “confused rather than clarified” the sector’s regulatory framework.
The accounting body said the paper failed to articulate policy outcomes sought by the government, made questionable assertions about professional standards schemes and left out “fundamental” sources on audit regulation in its analysis.
“In its submission to Treasury’s consultation paper on the regulation of accounting, auditing and consulting firms in Australia, CA ANZ has expressed concern that the paper has further confused, rather than clarified, the regulatory ecosystem for its sector,” it said in a statement on Monday.
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In the consultation paper, the government outlined 17 issues for feedback in response to the PwC tax leaks scandal, including the adequacy of PwC, KPMG, EY and Deloitte’s governance practices and whether the current partnership limit of 1,000 for accounting firms was too high.
Also called into question was the audit sector’s competitiveness and oversight with the operation of professional standards and role of regulators like ASIC.
However, CA ANZ said the paper was “evidence of a reduction in clarity and awareness of the scope of government's role and expectations”.
Lost in the paper was an articulation or attempt to assess the policy outcomes sought, CA ANZ said, such as audit quality, financial reporting quality or confidence in the Australian capital markets and economy.
“At Treasury's roundtable on 5 June 2024, representatives explained that the focus of the work was on 'perceived risks' rather than actual issues that had occurred or shortcomings actually evident.”
It said the government’s preoccupation with “perceived” risks and weaknesses in the current framework, without considering strengths could unintentionally lead to policy outcomes that made audit regulation worse.
The paper’s analysis was also missing texts and sources CA ANZ said were crucial in understanding the development and operation of the current framework.
This included the Corporate Law Economic Reform Program Act 2004 and related explanatory memorandum, Treasury's Strategic Review of Audit Quality in Australia, and the Corporations Legislation Amendment (Audit Enhancement) Act 2012.
As a result, the paper glossed over the fact that standards and regulators already existed, but granted insufficient jurisdiction and resources to be effective.
“Existing audit independence standards are extensive and clear on how independence threats related to the provision of non-audit services should be either eliminated by prohibition, or effectively mitigated where necessary and appropriate,” it said.
In particular, CA ANZ believed the government had “not adequately allowed for ASIC to enforce these standards as the chief audit regulator”.
CA ANZ’s submission also pushed back on the suggestion of capping big four partnership numbers and incorporation.
It said the government’s discussion of the benefits of incorporation to bring entities within the purview of the Corporations Act’s governance mechanisms lacked consideration of the separate legal entity of companies, which limits the liability of owners and directors compared to partnerships.
The paper also attributed negative characteristics to partnerships that were not unique to the structure but would also apply for companies and other entities.
“The analysis is therefore leaning toward changing firm structure or incorporating, without consideration of how this would address specific risks or market failures, or potential draw backs,” CA ANZ
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