House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Australian Securities and Investments Commission Amendment (Audit Inspection) Bill 2006

Outline

Cooperative arrangements concerning audit oversight and ASIC's audit inspection powers

Schedule 1 to this Bill will amend the Australian Securities and Investments Commission Act 2001 (the ASIC Act) and the Corporations Act 2001 (the Corporations Act) to facilitate the Australian Securities and Investments Commission (ASIC) entering into co-operative arrangements with foreign regulatory bodies relating to audit regulation and to provide ASIC with enhanced information-gathering powers in relation to audit inspections.

The amendments would enable ASIC to enter into a mutual co-operative arrangement with the United States (US) Public Company Accounting Oversight Board (PCAOB). To address the special issues raised by non-US audit firms, the PCAOB has developed a framework under which the PCAOB could fulfil its statutory mandate under the Sarbanes-Oxley Act (the SOX Act) by relying, to an appropriate degree, on a non-US oversight system. The PCAOB's approach towards the oversight of non-US audit firms endeavours to build upon the home-country's regulatory system. The more independent and rigorous a home-country system, the higher the PCAOB's reliance on that system. The single, joint inspection arrangement proposed under the cooperative arrangement between ASIC and the PCAOB will result in a reduction of the regulatory burden and eliminate duplicated processes relating to audit inspections.

The amendments in Schedule 1 to this Bill will:

empower ASIC, with the written consent of the Minister, to enter into an agreement or arrangement with a foreign audit regulator to assist the foreign regulator to ascertain whether Australian auditors have complied with audit requirements in that foreign country;

provide ASIC with enhanced audit inspection and information-gathering powers relating to ASIC's domestic and international responsibilities; and

ensure that ASIC can provide information to a foreign body which is not an agency of a foreign country, which will assist the foreign body to perform a regulatory function conferred on the body by a law of that foreign country.

Technical amendment to auditing standard provisions

Schedule 2 to this Bill will extend the current immunity against contravention of an auditing standard listed in sub-regulation 10.5.01 of the Corporations Regulations 2001 beyond 30 June 2006 to cover all financial reports for periods ending on or before 29 June 2007 that are audited using those standards.

Abbreviations

The following abbreviations are used in this Explanatory Memorandum.