ASIC recently announced that it will reduce the red tape involved in the process of a change of auditor.
In recent years, there has been an increased awareness of the important role auditor independence plays in good corporate governance. Many larger companies have addressed this issue by periodically reviewing their external audit engagements and, if necessary, running a tender process for the audit role.
If a public company determines it is appropriate to change its external auditor, theCorporations Act 2001 (Cth) (the Act) regulates how it must effect this change. Among other things, the Act provides that ASIC must grant its consent in order for an incumbent external auditor to resign.
On 18 June 2015, ASIC announced that will now consent to the resignation of an auditor atany time of the year if:
- ASIC has no concerns in connection with the resignation of the auditor, such as a concern where there is a disagreement between management and the auditor over an accounting treatment; and
- the change of auditor and the reasons for the change are communicated to members or in a disclosure notice, unless the change occurs at an AGM.
Previously, ASIC would only grant its consent if the auditor was resigning at the company’s AGM, other than in certain ‘exceptional circumstances’.
ASIC’s new approach is welcome in that it provides companies with greater flexibility around the timing of the tender and external auditor transition, which no longer need to be tied to the AGM. It also means that reporting entities that are not required to hold an AGM (eg because they are wholly-owned) have greater flexibility and clarity around implementing a change of auditor.
The new approach is broadly consistent with the approach adopted in other jurisdictions around the world, such as the UK and US.
Further details regarding the process surrounding the resignation, removal and replacement of auditors can be found in ASIC’s revised Regulatory Guide 26. The revised regulatory guide also sets out how to apply for ASIC consent to the resignation, removal and replacement of auditors of registered schemes, Australian Financial Services licensees and credit licensee trust accounts.