Auditing Industry Placed “On Notice”

The Australian Securities and Investments Commission warned the auditing industry, saying the quality of audits in the last couple of years has been deteriorating.

ASIC chairman Greg Medcraft said it is considering to requiring auditing firms to rotate the servicing of companies to avoid conflict of interest and becoming too close to them.

The move came after ASIC conducted an audit inspection covering the period starting January 2011. The commission also released the report documenting the level of quality of audits from small and large auditing companies.

The results showed that 18 percent of the reviewed audit areas did not thoroughly perform the procedures required to achieve “reasonable assurance.” As a result, the audited financial report was considered “not materially misstated.”

602 audit areas were reviewed with 20 auditing companies inspected.

The report also showed that auditors do not practice enough skepticism when going through the books. It appeared that auditors relied on the other inspections of auditors.

The release of the report coincided with the collapse of several companies like Banksia, Trio Capital and Centro. The auditing industry cane into the focus after it was revealed that auditors oversight and failure problems became an issue.

In Banksia’s case alone, the group’s auditors signed off the accounts just a few weeks before Banksia collapsed. Banksia held more than $660 million in investments.

The ASIC chairman said the auditing industry should improve its system. If it does not improve, Medcraft warned that ASIC would consider writing to the Treasury to discuss options for reform.