THE INTRODUCTION of legally enforceable auditing standards has so far had little impact on audit quality, with some in the profession saying it has merely resulted in a greater compliance burden and increased costs, according to a study released last month.
“According to the firms [surveyed], the additional significant costs of increased documentation, training, monitoring and reviews have not met the government’s desired objectives of ‘upholding public interest’ in conformity with [international auditing standards] and high quality [Australian auditing standards],” said a paper produced by academics from NSW and Sydney universities.
Under the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act (commonly known as CLERP 9), the Auditing and Assurance Standards Board (AUASB) was reconstituted as a statutory body issuing legally enforceable auditing and accounting standards.
The Australian auditing standards it issues became enforceable from 1 July 2006.
The authors of the study, Angela Hecimovic and Dr Nonna Martinov-Bennie at the University of Sydney, and Peter Roebuck from the University of NSW, said there was limited support, mostly from the regulators, for the assertion that the new rules had increased audit quality, but the consensus from industry and regulators was that there had been no impact on public and investor confidence in audits.
Auditors interviewed reported increases in audit costs of 10 to 30 per cent as a result of the compliance requirements, including substantial upfront costs in training, mapping of methodology, as well as documentation and the addition of an inspection by ASIC on top of reviews by the Audit Quality Review Board, set up in February 2006.
However, professional bodies interviewed – which included CPA Australia, the Institute of Chartered Accountants in Australia and the Institute of Internal Auditors-Australia –and regulators said these costs should have already been factored in when new Australian audit standards were introduced prior to them becoming legally enforceable.
One professional body said the fee hike was in part attributable to an overreaction to the new regime.
An audit firm also commented that the mandatory regime had increased costs because it had limited flexibility to prioritise their focus based on risk.
The regulators acknowledged that there had been lobbying from smaller audit firms arguing that the costs of the new regime would reduce their ability to compete, but said the costs of compliance had been minimal so far.
The authors of The Introduction of Legally Enforceable Auditing Standards and their Impact on the Auditing Profession in Australia conclude that they have found no strong support for the Australian Government’s introduction of the legally enforceable standards as an appropriate response to achieve an increase in the quality of audits.
But it emphasises that the study was conducted after the regime had been in operation for only one year and there has not been enough time since the changes were introduced to assess their full impact.