Corporations Act 2001

CHAPTER 2M - FINANCIAL REPORTS, SUSTAINABILITY REPORTS AND AUDIT  

PART 2M.4 - APPOINTMENT AND REMOVAL OF AUDITORS  

Division 3 - Auditor independence  

Subdivision B - Specific requirements  

Note: This Subdivision applies in relation to retail CCIVs in a modified form: see section 1232P .

SECTION 324CG   AUDITOR INDEPENDENCE - SPECIFIC REQUIREMENTS FOR AUDIT COMPANY  

Specific independence requirements for audit company

324CG(1)    
An audit company contravenes this subsection if:

(a)    the audit company engages in audit activity at a particular time; and

(b)    a relevant item of the table in subsection 324CH(1) applies at that time to a person or entity covered by subsection (9) of this section; and

(c)    the audit company is or becomes aware of the circumstances referred to in paragraph (b) ; and

(d)    the audit company does not, as soon as possible after the audit company becomes aware of those circumstances, take all reasonable steps to ensure that the audit company does not continue to engage in audit activity in those circumstances.

Audit company to notify ASIC

324CG(1A)    
An audit company contravenes this subsection if:

(a)    the audit company is the auditor of an audited body; and

(b)    a relevant item of the table in subsection 324CH(1) applies to a person or entity covered by subsection (9) of this section while the audit company is the auditor of the audited body; and

(c)    on a particular day (the start day ), the audit company becomes aware of the circumstances referred to in paragraph (b) ; and

(d)    at the end of the period of 7 days from the start day:

(i) those circumstances remain in existence; and

(ii) the audit company has not informed ASIC in writing of those circumstances.

Note: If the audited body is a public company, a registered scheme or a registrable superannuation entity, the audit appointment will be terminated at the end of the period of 21 days (or a longer period that has been approved by ASIC) from the day a notice under this subsection is given if the notice is not followed up by a notice under:

(a) subsection 327B(2C) (public company); or

(b) subsection 328E(5) (public company with crowd-sourced funding); or

(c) subsection 331AAA(2C) (registered scheme); or

(d) subsection 331AH(3) (registrable superannuation entity).

324CG(1B)    
If the audit company gives ASIC a notice under paragraph (1A)(d) , ASIC must, as soon as practicable after the notice has been received, give a copy of the notice to the audited body.

Strict liability contravention of specific independence requirements by audit company

324CG(2)    
An audit company contravenes this subsection if:

(a)    the audit company engages in audit activity at a particular time; and

(b)    a relevant item of the table in subsection 324CH(1) applies at that time to a person or entity covered by subsection (9) of this section.

324CG(3)    
For the purposes of an offence based on subsection (2) , strict liability applies to the physical elements of the offence specified in paragraph (2)(b) .

Note 1: For strict liability , see section 6.1 of the Criminal Code .

Note 2: Subsection (4) provides a defence.

324CG(4)    
An audit company does not commit an offence because of a contravention of subsection (2) in relation to audit activity engaged in by the audit company at a particular time if the audit company has reasonable grounds to believe that the audit company had in place at that time a quality control system that provided reasonable assurance (taking into account the size and nature of the audit practice of the audit company) that the audit company and the audit company's employees complied with the requirements of this Subdivision.

Note: A defendant bears an evidential burden in relation to the matters in this subsection, see subsection 13.3(3) of the Criminal Code .

Contraventions by directors of audit company

324CG(5)    
A person (the defendant ) contravenes this subsection if:

(a)    an audit company engages in audit activity at a particular time; and

(b)    a relevant item of the table in subsection 324CH(1) applies at that time to a person or entity covered by subsection (9) of this section; and

(c)    the defendant is a director of the audit company at that time; and

(d)    the defendant is or becomes aware of the circumstances referred to in paragraphs (a) and (b) ; and

(e)    the defendant does not, as soon as possible after the defendant becomes aware of those circumstances, take all reasonable steps to ensure that the audit company does not continue to engage in audit activity in those circumstances.

Director of audit company to notify ASIC

324CG(5A)    
A person (the defendant ) contravenes this subsection if:

(a)    an audit company is the auditor of an audited body; and

(b)    a relevant item of the table in subsection 324CH(1) applies to a person or entity covered by subsection (9) of this section while the audit company is the auditor of the audited body; and

(c)    the defendant is a director of the audit company at a time when the circumstances referred to in paragraph (b) exist; and

(d)    on a particular day (the start day ), the defendant becomes aware of the circumstances referred to in paragraphs (a) and (b) ; and

(e)    at the end of the period of 7 days from the start day:

(i) the circumstances referred to in paragraph (b) remain in existence; and

(ii) ASIC has not been informed in writing of those circumstances by the defendant, by another director of the company or by the audit company.

Note: If the audited body is a public company, a registered scheme or a registrable superannuation entity, the audit appointment will be terminated at the end of the period of 21 days (or a longer period that has been approved by ASIC) from the day a notice under this subsection is given if the notice is not followed up by a notice under:

(a) subsection 327B(2C) (public company); or

(b) subsection 328E(5) (public company with crowd-sourced funding); or

(c) subsection 331AAA(2C) (registered scheme); or

(d) subsection 331AH(3) (registrable superannuation entity).

324CG(5B)    
A person is not excused from informing ASIC under subsection (5A) that the circumstances referred to in paragraph (5A)(b) exist on the ground that the information might tend to incriminate the person or expose the person to a penalty.

324CG(5C)    
However, if the person is a natural person:

(a)    the information; and

(b)    the giving of the information;

are not admissible in evidence against the person in a criminal proceeding, or any other proceeding for the recovery of a penalty, other than proceedings for an offence based on the information given being false or misleading.

324CG(5D)    
If ASIC is given a notice under paragraph (5A)(e) , ASIC must, as soon as practicable after the notice is received, give a copy of the notice to the audited body.

Strict liability contravention of specific independence requirements by director of audit company

324CG(6)    
A person (the defendant ) contravenes this subsection if:

(a)    an audit company engages in audit activity at a particular time; and

(b)    a relevant item of the table in subsection 324CH(1) applies at that time to a person or entity covered by subsection (9) of this section; and

(c)    the defendant is a director of the audit company at that time.

324CG(7)    
For the purposes of an offence based on subsection (6) , strict liability applies to the physical elements of the offence specified in paragraphs (6)(a) and (b) .

Note 1: For strict liability , see section 6.1 of the Criminal Code .

Note 2: Subsection (8) provides a defence.

324CG(8)    
A person does not commit an offence because of a contravention of subsection (6) in relation to audit activity engaged in by an audit company at a particular time if the person has reasonable grounds to believe that the audit company had in place at that time a quality control system that provided reasonable assurance (taking into account the size and nature of the audit practice of the audit company) that the audit company and its employees complied with the requirements of this Subdivision.

Note: A defendant bears an evidential burden in relation to the matters in this subsection, see subsection 13.3(3) of the Criminal Code .

People and entities covered

324CG(9)    

The following table sets out:

(a)    the persons and entities covered by this subsection in relation to audit activity engaged in by an audit company; and

(b)    the items of the table in subsection 324CH(1) that are the relevant items for each of those persons and entities:

Table for audit companies

Table for audit companies

Audit company
Item	For this person or entity...	the relevant items of the table in subsection 324CH(1) are...
1	the audit company	4 7 10 to 19
2	a service company or trust acting for, or on behalf of, the audit company, or another entity performing a similar function	4 7 10 to 19
3	a director or senior manager of the audit company	1 to 7 9 15
4	a professional member of the audit team conducting the audit of the audited body	1 to 6 8 to 19
5	an immediate family member of a professional member of the audit team conducting the audit of the audited body	1 and 2 10 to 19
6	a person who:	10 to 12
		(a) is a non-audit services provider; and (b) does not satisfy the maximum hours test in subsection (10)
7	an immediate family member of a person who:	10 to 12
		(a) is a non-audit services provider; and (b) does not satisfy the maximum hours test in subsection (10)
8	an entity that the audit company (or a service company or trust acting for, or on behalf of, the audit company, or another entity performing a similar function) controls	15
9	a body corporate in which the audit company (or a service company or trust acting for, or on behalf of, the audit company, or another entity performing a similar function) has a substantial holding	15
10	an entity that an officer of the audit company controls or a body corporate in which an officer of the audit company has a substantial holding	16
11	a person who:	1 and 2
		(a) is a former officer of the audit company; and (b) does not satisfy the independence test in subsection (11)
12	a person who:	1 and 2
		(a) is a former professional employee of the audit company; and (b) does not satisfy the independence test in subsection (11)

Maximum hours test

324CG(10)    
A non-audit services provider satisfies the maximum hours test in this subsection if:

(a)    the number of hours for which the person provides services (other than services related to the conduct of an audit) to the audited body on behalf of the auditor during the period to which the audit relates does not exceed 10 hours; and

(b)    the number of hours for which the person provided services (other than services related to the conduct of an audit) to the audited body on behalf of the auditor during the 12 months immediately before the beginning of the period to which the audit relates does not exceed 10 hours.

In a prosecution for an offence based on subsection (1) , (2) , (5) or (6) , the prosecution must prove that the non-audit services provider did not satisfy the maximum hours test in this subsection.

324CG(10A)    

Paragraphs (10)(a) and (b) do not apply if:

(a)    the audited body is a registrable superannuation entity; and

(b)    the services are required or permitted to be provided under the prudential standards (within the meaning of the Superannuation Industry (Supervision) Act 1993 ).

Independence test

324CG(11)    
A person satisfies the independence test in this subsection in relation to an audit company if the person:

(a)    does not influence the operations or financial policies of the accounting and audit practice conducted by the audit company; and

(b)    does not participate, or appear to participate, in the business or professional activities of the accounting and audit practice conducted by the audit company; and

(c)    does not have any rights against the audit company in relation to the accounting and audit practice conducted by the audit company in relation to the termination of the person's former position as an officer of the audit company; and

(d)    has no financial arrangements with the audit company in relation to the accounting and audit practice conducted by the audit company, other than:

(i) an arrangement providing for regular payments of a fixed pre-determined dollar amount which is not dependent, directly or indirectly, on the revenues, profits or earnings of the audit company; or

(ii) an arrangement providing for regular payments of a dollar amount where the method of calculating the dollar amount is fixed and is not dependent, directly or indirectly, on the revenues, profits or earnings of the audit company; and

(e)    without limiting paragraph (d) , has no financial arrangement with the audit company to receive a commission or similar payment in relation to business generated by the person for the accounting and audit practice conducted by the audit company.

In a prosecution for an offence based on subsection (1) , (2) , (5) or (6) , the prosecution must prove that the person did not satisfy the independence test in this subsection in relation to the audit company.

324CG(12)    
In applying subsection (11) , disregard any rights that the person has against the audit company by way of an indemnity for, or contribution in relation to, liabilities incurred by the person when the person was an officer or employee of the audit company.