ASIC Flags Widespread Failures on Auditor Independence

Key Takeaways

• Widespread Lapses: ASIC found many auditors unable to demonstrate compliance with independence and conflict-of-interest obligations.
• Fifteen Flagged: Breaches included rotation failures, prohibited relationships, and provision of non-audit services.
• Enforcement Actions: ASIC cancelled one auditor’s registration, fined Nexia Perth $78,250, and secured undertakings with Hall Chadwick auditors.
• No Self-Reporting: None of the auditors flagged had proactively reported potential breaches despite reminders.

Deep Dive

Australia’s corporate watchdog has delivered a stern warning to the audit sector after uncovering what it called “concerning” failures in compliance with auditor independence obligations.

The Australian Securities and Investments Commission (ASIC) released Report 817 Building trust: Auditor compliance with independence and conflict of interest obligations recently, following a review that examined 48 auditors and 19 audit firms selected through a risk-based methodology.

ASIC Commissioner Kate O’Rourke said independence is the bedrock of trust in the audit process. “Auditor independence underpins stakeholder trust and confidence in the audit process and the reliability of the financial information being audited,” she said. “Unfortunately, our review found that many auditors failed to meet the basic independence requirements, and others failed to identify and critically evaluate potential threats to their independence.”

The review revealed 15 likely breaches, including nine auditors who failed to comply with mandatory rotation rules, five who appeared to hold prohibited relationships with clients, and cases where prohibited non-audit services were provided. Troublingly, none of the flagged auditors had self-reported the potential breaches to ASIC, despite explicit reminders.

Consequences and Sanctions

ASIC responded with a series of enforcement actions:

• Cancelling one auditor’s registration for independence failures.
• Issuing a $78,250 infringement notice to Nexia Perth Audit Services Pty Ltd.
• Entering into three enforceable undertakings with auditors linked to Hall Chadwick (NSW) over rotation breaches.

ASIC said further inquiries into other potential breaches are already underway.

The report marks the second in ASIC’s expanded program to strengthen audit quality, following earlier work into superannuation audits. For 2025–26, the regulator plans to step up the number of surveillances, with a sharper eye on independence risks.

“Independence is fundamental to audit quality and integrity,” O’Rourke said. “A strong focus on independence not only builds trust, it fosters more rigorous challenge in the audit process, thereby enhancing the preparation of high-quality financial information.”

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