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Consulting inquiry hands down final recommendations

Regulation

The inquiry into consulting firms has recommended limiting accounting partnerships to 400 partners and prohibiting the supply of both audit and non-audit services to the same client for large firms.

By Miranda Brownlee 12 minute read

The Parliamentary Joint Committee on Corporations and Financial Services Committee has tabled its final report for its inquiry into audit, assurance and consultancy industry, outlining 16 priority recommendations for immediate action and 40 in total.

Among the priority recommendations made by the Inquiry, the Committee has recommended that the Australian Government reduce the allowable size of partnerships for accountants to a maximum of 400 partners, to align with the limits of legal partnerships.

The committee said the 400 partner cap could be established with a suitable transition period of up to 5 years in order to minimise disruption to the sector.

"A review of progress to this end should be conducted after two years, if at that time the entity has not chosen to incorporate," the final report said.

The committee has also called for multi-disciplinary large accounting firms to be banned from supplying both audit and non-audit/consultancy services to the same client and their associated entities in both Australia and internationally.

Large multi-disciplinary accounting firms should also be required to implement operational separation of their audit practice from their non-audit practice, the committee said in its final report.

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"The principles of operational separation should be materially consistent with those applying in the United Kingdom or other global best practice," it said.

The committee has also recommended that audit, accounting and consulting partnerships with greater than 3,000 staff be required to implement the Corporations Act 2001 requirements for governance and accountability, if appropriate through the adoption of the Australian Securities Exchange Corporate Governance principles. 

"This should include the requirement for multidisciplinary partnerships to prepare their own general purpose financial reports, including remuneration disclosures and other obligations which may be applicable to partnerships," it said.

"The government should review the operation of this measure within 3 years, with a view to extending its scope to mid-size partnerships."

The committee has also recommended that the Australian government legislate to enhance the Australian Security and Investments Commission’s power to take enforcement action against audit firms, not just individuals, including for quality management standards.

It also wants the government to give further powers to ASIC to oversee audit to cover all partners within multidisciplinary firms regardless of which part of the firm they work in, as required in the UK Financial Reporting Council Audit Firm Governance Code.

It has also urged ASIC to e-establish a program of random audit inspections and to supplement its existing risk-based approach by also reviewing audit files where conflicts of interest arise from the big four firms providing other services to their audit clients.

The report noted that such conflicts will no longer occur once the operational separation of audit is implemented.

The committee also wants to increase the level of resources that it devotes to financial report inspections and audit inspections until there is a significant improvement in audit quality.

Miranda Brownlee

Miranda Brownlee

AUTHOR

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: miranda.brownlee@momentummedia.com.au
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