ASIC has released Consultation Paper 265, Communicating audit findings to directors, audit committees or senior managers (CP 265) seeking comment on its proposal to directly communicate specific financial reporting and audit findings identified from ASIC reviews of external audit files to directors, audit committees or senior managers of companies, responsible entities or disclosing entities.
The paper sets out ASIC’s proposed criteria for determining which findings from its reviews of audit files it would communicate to directors, audit committees or senior managers of the entities concerned, rather than reporting all findings.
The criteria are:
- Communication of material misstatement will assist in timely resolution of a matter;
- Finding of material misstatement from a previous year has not been addressed;
- Planned enforcement action against auditor;
- Auditor independence requirements not met;
- Failure by auditor to obtain reasonable assurance that a financial report is free of material misstatement across a number of key audit areas.
Under the ASIC Act ASIC must provide the auditor concerned with at least seven days notice before communicating the information.
ASIC currently communicates the findings from its inspection of audit files by only issuing confidential reports to the individual audit firms that are inspected.
The consultation paper also seeks feedback on whether ASIC should directly advise the board of directors of all audited entities if their audit files have been selected for review by ASIC as part of its routine audit firm inspections. This information would enable audit committees to ask the auditor for the results from ASIC’s audit inspections.
Background: Information Sheet 196, Audit quality: The role of directors and audit committees (INFO 196).
