ASIC commences major probe into audit complaints across big 4 firms

ASIC has commenced surveillance activity across the big four audit firms to examine internal complaints, including whistleblower complaints, received by the big four audit firms in connection with the external audit services they provide.

The surveillance will examine whether the firms have received complaints regarding auditor misconduct, such as the misuse or disclosure of confidential information. This will include whether the firms have received complaints regarding auditor misconduct, such as the misuse or disclosure of confidential information.

"ASIC is using its compulsory information-gathering powers to obtain relevant material," the corporate regulator said.

The surveillance forms part of ASIC's expanded focus on audit misconduct, which is currently an enforcement priority for the regulator.

In addition to its broader surveillance action across the big four firms, ASIC will also continue its significant investigation into the specific allegations of misuse of confidential client information at KPMG, alongside its broader surveillance

ASIC chair Sarah Court said the allegations concerning KPMG were serious and that ASIC would use the existing suite of limited powers available to it, while continuing to "engage constructively with the government's reform process".

"ASIC’s surveillance of the audit firms comes as Treasury consults on options to strengthen regulation of large accounting, auditing and consulting firms and canvasses reforms that could expand ASIC’s role in regulating large audit firms," said Court.

Court said the current law leaves significant gaps in ASIC’s ability to respond to firm-level misconduct.

“ASIC’s jurisdiction in relation to audit firms, as opposed to individual auditors, is limited," she said.

"We can generally only investigate certain individuals within a partnership, registered company auditors, and only in relation to their conduct of an audit. We have recently called for reforms to extend provisions of the Corporations Act to audit firms and to increase the sanctions available for breaches.”

Sarah Court previously informed the Parliamentary Joint Committee on Corporations and Financial Services that it had limited powers to investigate one of the misconduct matters brought to light by the KPMG whistleblower, as the individual involved was not a registered company auditor and therefore did not fall within ASIC's regulatory oversight.

The matter concerned an inappropriate remark in a team setting about the sharing of client information.

Court said if ASIC uncovered further information that suggests the matter could be linked to the provisions administered by ASIC, the regulator may then consider it in more detail.

The ASIC chair also previously told the Parliamentary Joint Committee that information about the conduct matters at KPMG was emerging rapidly through the government's inquiry and more broadly.

"We'll obviously be taking away from this committee both the correspondence to the committee, the correspondence to us that we've received, and the further broader context, and be working out the various ways in which ASIC may respond," she said.

In a statement to Accountants Daily, ASIC also said it considers current whistleblower protections deficient where disclosures relate to audit partnerships.

“Whistleblower protections should be extended to people seeking to make disclosures about partnerships such as KPMG. Strong protections are essential if misconduct is to be identified, escalated and addressed.”

The investigation into allegations of audit misconduct at KPMG by both the parliamentary joint committee and ASIC has triggered a raft of resignations at the firm, with former KPMG chair Martin Sheppard, KPMG chief executive Andrew Yates, head of audit Julian McPherson, and senior audit partners Eileen Hoggett and Paul Rogers all stepping down from their roles.

In a statement issued last month, the parliamentary joint committee said the specific allegations raised by the KPMG whistleblower continued to expose "significant systemic and structural flaws in the governance and operations of KPMG and the audit and consultancy industry”.

The committee also stressed the importance of the big four firms upholding ethical and professional standards in delivering their services, given how integral these services are to "ensuring the stability and integrity of Australia’s financial system and markets”.