ASIC issues infringement notices to an auditor for failing to comply with independence standards

The Australian Securities & Investments Commission (ASIC) has, for the first time, issued infringement notices pursuant to the Corporations Act 2001 (Cth) (the Act) alleging that an auditor failed to comply with his audit rotation obligations.

Allegations

Following a voluntary disclosure to ASIC by the auditor pursuant to section 311 of the Act, ASIC stated that it has had reasonable grounds to believe that the auditor failed to conduct three listed company reviews in line with the Act, and the rules of the Australian Professional & Ethics Standard Board. Specifically, ASIC alleged that by his conduct the auditor contravened:

• section 324DA(2) of the Act which provides that an individual is not eligible to play a significant role in the audit of a listed company for more than five successive years or more than five of seven successive years; and
• section R540.5 of Part 4A of APES 110 Code of Ethics for professional accountants (including independence standards) which outlines that individuals shall not act in certain roles for a period of more than seven cumulative years.

ASIC has alleged that the auditor played a ‘significant role’ as lead auditor for the half-year reviews of A-Cap Energy, Cohiba Minerals, and Unico Silver during March 2023 despite having done so for the past five years.

Enforcement

ASIC issued three infringement notices totalling $20,625 on the basis that the auditor had failed to conduct each of the three listed company reviews in accordance with the auditing standards by not complying with the audit rotation provisions of the Act. This is ASIC’s first penalty in relation to an audit rotation breach.

Lessons learnt

ASIC’s latest enforcement action reinforces the regulator’s commitment to enforcement and demonstrates its willingness to seek substantial penalties for any breaches of financial services law. It is important that auditors comply with all their obligations including under the Act and the Code of Ethics.

If you would like further information, please do not hesitate to contact Susan Goodman.

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Authored by:

Susan Goodman, Partner
Jack Tipple, Special Counsel
Ahmed El-Jaam, Lawyer