ASIC initiates legal action against auditors in First Guardian collapse

According to allegations by the regulator, the unqualified audit reports issued by Auditeo regarding First Guardian and its compliance plan for the 2020 to 2024 financial years were false or misleading.

The action is part of ASIC’s 2026 enforcement priority of seeking accountability for the collapse of First Guardian and related funds.

Signed by the founder and sole director of the Sydney-based audit firm, Ajm Didarul Islam Khan or, for specific compliance plan audits, Brian Robert Taylor, these reports allegedly contravened s1308(5) of the Corporations Act 2001 (Cth) by:

1. “Making and/or authorising statements which made each of the Compliance Plan Audit Reports materially false or misleading”.

2. “Failing to take all reasonable steps to ensure that each of the Compliance Plan Audit Reports was not materially false or misleading because of the statements”.

Among the allegations, ASIC claimed that Auditeo’s audit files do not demonstrate that any financial audit was in fact conducted for the 2021 financial year, despite Auditeo and Mr Khan issuing a report for that year.

Further, in the 2022 financial year, approximately $137 million of reported assets were entirely untested by Auditeo and Mr Khan, and in 2023 the untested amount increased to approximately $170 million.

Also, Auditeo and Taylor allegedly failed to consider the correct compliance plan that applied for part of the 2022 financial year and the entire 2023 financial year.

ASIC chair Sarah Court highlighted the implications of the alleged misconduct for a number of Australians.

“The alleged failures in this matter occurred before the collapse of the First Guardian Master Fund, with a devastating impact on investors,” Court said.

“Just six months after Auditeo issued unqualified audit reports in relation to First Guardian, liquidators were appointed.”

“More than 6,000 Australians were exposed to its collapse, with liquidators warning losses could be as high as $446 million.”

In addressing the broader implications of these failures, ASIC chair Sarah Court emphasised the vital role auditors play in the financial system.

“Auditors play a critical gatekeeper role in maintaining trust in our market and helping ensure investors receive an accurate picture of a scheme’s financial position.”

“When that role is not properly performed, the consequences can be severe,” Court said.

“Auditors providing reliable assurance that responsible entities are adhering to compliance plans is a fundamental aspect of that framework.”

“Auditor misconduct remains an ASIC enforcement priority.”