In a challenging economic environment, companies are continuing to review their spending to ensure that they are obtaining maximum value for their shareholders.  As part of this, many companies are reviewing their external audit arrangements and undertaking a competitive audit tender process to test the marketplace. 

Conducting an audit tender and replacing an auditor requires strict compliance with prescribed procedures, including obtaining the approval of shareholders.  That is to say  that companies who are intending to conduct an audit tender should consider commencing the process now in order to align with their annual general meeting (AGM).

In this Alert, Partner Simon Panegyres and Associate Ryan White consider the steps involved in the resignation and replacement of an auditor in the context of a competitive tender process.


The key steps involved are set out in the following diagram:

Click here to view the diagram.

Conducting a competitive tender can take approximately six weeks and is typically overseen by the company’s audit committee (where one has been established).  Selection of participants is clearly an important element of the tender process.  Companies should establish appropriate selection criteria (being mindful of any requirements of their audit charter) and may want to consider approaching firms with different profiles in order to obtain a fuller picture of what the marketplace has to offer.

It is also important to ensure that the incumbent auditor is notified of the company’s intention to have a tender of the external audit contract prior to completing the auditor’s report for the current financial year.

Having concluded the tender and (assuming that the existing auditor is not chosen) selected a preferred candidate, the company must obtain consent to act from the proposed auditor. This consent will be subject to the resignation of the incumbent auditor and the approval of shareholders at the next AGM of the company.  The proposed auditor must also be formally nominated by a shareholder either before the AGM is convened or not less than 28 days before the AGM.

The company must notify the incumbent auditor of the result of the tender and request the auditor’s resignation, to take effect at the next AGM (subject to receiving ASIC’s consent and shareholder approval).  The meeting materials for the company’s AGM are then prepared and will include a resolution for appointment of the proposed new auditor.  If ASIC’s consent has been given and shareholders approve the appointment, the change of auditor takes effect at the end of the AGM and notice must be given to the ASX.

Obtaining ASIC consent

The incumbent auditor must obtain the consent of ASIC before resigning.  This is a crucial element of the tender process and ASIC guidance indicates that it expects the application for consent to be lodged before the auditor’s report is signed for the current financial year and at least three weeks before the AGM. 

ASIC takes a cautious approach to granting consent.  Its overriding concern is to ensure that the independence and integrity of the audit function is preserved and ASIC will refuse to consent where the resignation arises out of “opinion shopping”, conflicts between the board and the auditor or other circumstances which ASIC believes are unacceptable.

Unless there are exceptional circumstances, ASIC will generally only consent to the resignation taking effect at the next AGM, meaning that companies looking to conduct an audit tender this year should start planning the process now.