The corporations Legislation Amendment (Audit Enhancement) Bill 2012

The Corporations Legislation Amendment (Audit Enhancement) Bill 2012

Introduction

The ASIC Act was altered by the Corporations Legislation Amendment Act 2012, also known as the Audit Enhancement. ON 27th June, it was agreed that this act will be the Act 72 of 2012. Amendments in the act were also made on the same day. The Corporations Act 2001 was also amended which were applicable from 25th of July. The Audit Enhancement, also known as the Corporations Legislation Amendment Act 2012 implemented the legislative reforms that were mentioned in the Treasury's consultation paper, Audit quality in Australia: A strategic review that was released in 2010 on the 5ht of March. It requires publishing an annual transparency report that is required under few circumstances.

Discussion

In this bill, proposals are presented related to the auditing industry. The changes that are proposed are the ones that are frequent and that will help the auditors to increase their span of service. This rotation helps them in obtaining a two-year extension in the same, auditor's term. This currently is five years. In addition to this, the bill also includes the aspect of transparency and requires transparency reports to be submitted. This is important for the large auditors as it helps in maintaining clients and helps the clients in gaining information about their potential auditors. The responsibilities of the Financial Reporting Council is also amended which will help in reducing and eliminating the duplication of the operational roles between the Australian Securities and Investments Commission. If these changes are implemented, the powers will solely be with the existing powers of ASIC. ASIC is empowered under this bill to issue the audit efficiency reports. The bill aims to improve the auditing process.

The Part I of the first schedule deals with the auditor rotation. Under this bill, rotation of five years is still mandatory; however, rotation of a couple of years is allowed under certain circumstances. This extension is allowed only when the audit committee of the company is satisfied and thinks that it is appropriate to extend an extension. This is provided in the form of recommendation by the audit committee and is provided in writing. It is not necessary that the management of the company accepts the decision of the committee to extend the term of the auditor. An advantage of this measure is that it is beneficial for the business to maintain clients that will help them in growing their business.

This bill will also help in reducing the cost burden that is incurred by the regular rotation of the clients. When the audit firms remain for long with the clients, there is a danger that the situation may be jeopardized between the interests of the audit firm and the client. The industry evaluates the option of the extension of the time when an auditor remains with the client i.e. five to seven years; it preserves the main objective of the rule of rotation. The main objective is to retain the independence ...