Accounting bodies to support ASIC crackdown on audit reporting quality

Following the release of ASIC’s findings in its 2024–25 audit surveillance program, the professional accounting bodies have acknowledged and supported its commitment to enhancing the integrity of Australia’s financial reporting system.

The regulator’s report, released on 31 October, identified concerns in the quality of financial reports and audits and called on auditors to be more proactive in reporting breaches and addressing independence issues.

Kate O’Rourke, ASIC commissioner, said reliable financial information had become increasingly crucial as entities with unlisted assets played a larger role in the Australian economy.

“ASIC’s expanded program of work revealed that improvement is needed in delivering higher-quality financial reports and audits, and for auditors to be more proactive in ensuring their independence and in reporting significant contraventions to ASIC,” she said.

Its review noted that 18 entities made or agreed to make changes to their financial reports in relation to 19 areas of concern raised by ASIC, following the review of 254 company financial reports, 10 audit files at eight firms and 22 surveillances.

The review of 10 audit files found insufficient evidence and a lack of professional scepticism; inadequate testing of assumptions and valuation inputs; deficiencies in ownership verification and consolidation assessment; gaps in analytical procedures and cut-off testing; incomplete testing and going concern assessment, and issues with planning, supervision and independence compliance.

From its findings, which resulted in action against numerous registered company auditors, ASIC said it would continue to engage with the audit industry and expand its scrutiny of financial reporting and audit practices.

This would include the use of a full range of regulatory tools to enhance the regulator's audit quality and take enforcement action where appropriate.

As the regulator revealed it would look to crack down on the area, CPA Australia welcomed the transparency and the detailed insights into the areas for improvement across the profession.

Tiffany Tan, CPA Australia audit and assurance lead, said the accounting body acknowledged ASIC’s enforcement actions, such as the suspension and deregistration of auditors, as well as the imposition of conditions on audit registrations, as it “underscored the importance of accountability and adherence to professional standards”.

“While the findings are largely a continuation of themes seen in prior years, rather than a revelation of new or emerging risks, they reinforce the need for a sustained effort across the profession to improve audit quality,” she said.

“The profession has made progress, but there is more work to do. Improving audit and financial reporting outcomes is a shared responsibility. We encourage our members to engage with ASIC’s findings and use them as a prompt for continuous improvement.”

The accounting body also welcomed the regulator's emphasis on the role of directors, audit committees and preparers in ensuring high-quality financial information, as well as the call for audit firms to strengthen their internal processes and culture around audit quality.

“ASIC’s continued focus on sustainability reporting and its pragmatic approach to enforcement during the transition to mandatory climate-related disclosures,” Tan said.

“CPA Australia remains committed to working with regulators, firms and members to promote audit quality and uphold confidence in Australia’s financial reporting framework.”

Geraldine Magarey, CA ANZ group executive advocacy and international, said financial reporting and auditing were vital to trust and confidence in Australia’s capital markets and economy.

“While confidence in Australia’s financial reporting and auditors remains high, the surveillance results in ASIC’s oversight of financial reporting and audit 2024-25 show this cannot be taken for granted. Continuous improvement and vigilance are essential to uphold standards and public trust,” she said.

“Auditors, CFOs, and directors should pay close attention to ASIC’s risk-based findings and proactively map out how they will incorporate these insights into future reporting and assurance work. It’s helpful that ASIC has set out what it expects in terms of actions. This is a leadership opportunity to strengthen governance and quality.”