Explanatory Memorandum
(Circulated by the authority of the Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP)Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Corporations Legislation Amendment (Audit Enhancement) Bill 2012
7.1 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .
Overview
7.2 The general purpose of the Bill is to enhance audit quality in Australia by bringing Australia into line with international best practice and by improving the operation of the audit regulation framework.
7.3 The key measures in the Bill:
- (i)
- enable listed entities to extend the existing five year auditor rotation period for up to two years subject to auditor independence and audit quality safeguards;
- (ii)
- introduce a requirement for the publication of an annual transparency report by an audit firm that conducts ten or more audits of large entities;
- (iii)
- abolish the existing auditor independence function of the Financial Reporting Council (FRC) to remove duplication with ASIC's ongoing audit inspection program and gives the FRC in its place a strategic policy advice function on audit quality;
- (iv)
- empowers ASIC to publish an audit deficiency report in relation to an individual audit firm, subject to a mandatory remediation period and a requirement that ASIC publish any response from the firm with the audit deficiency report; and
- (v)
- enable ASIC to communicate directly with an audited body in relation to significant matters that ASIC identifies during the Vcourse of ASIC's exercise of its statutory functions in relation to audit.
Human rights implications
7.4 The audit deficiency report provisions raise human rights issues in relation to procedural fairness.
7.5 These issues have been addressed in the Bill by:
- (i)
- providing for a mandatory six month remediation period before ASIC can publish an audit deficiency report;
- (ii)
- requiring ASIC, prior to the publication of an audit deficiency report, to take into account any submissions received from the audit firm about the audit deficiency identified by ASIC and any remedial action taken by the audit firm; and
- (iii)
- if ASIC decides to publish an audit deficiency report, requiring ASIC to publish any response received from the audit firm with the audit deficiency report.
7.6 The provisions are designed to provide a strong incentive for an audit firm to take remedial action to address an audit deficiency identified by ASIC in order to avoid the publication of an adverse report by ASIC. ASIC has argued that it must be able to publish audit deficiency reports in a timely manner in order to be effective. Accordingly, no further appeal rights in relation to ASIC's decision to publish an audit deficiency report have been provided.
Conclusion
7.7 The Bill is compatible with human rights because to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate.
The Hon David Bradbury MP, Parliamentary Secretary to the Treasurer