Ethics and Governance · Module 1: Accounting and society
The Auditor Who Stayed Quiet
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Chapters
- 0:00Collapse
- 0:16Register
- 0:30Report
- 1:00Discipline
- 1:21Consequences
- 1:44Recap
In short
A company auditor must be a registered company auditor (s 324BA) and must notify ASIC in writing of a significant contravention as soon as practicable and within 28 days (s 311). ASIC investigates, but the Companies Auditors Disciplinary Board decides whether to suspend or cancel registration (s 1292).
- Registration is granted by ASIC; acting as auditor requires it.
- A director's promise to fix a breach does not delay the 28-day notice.
- Courts usually find an auditor owes no duty of care to individual investors (Caparo).
Transcript
0:00Collapse
Jarrah Lending collapsed, and its investors' money was gone. Its auditor had seen the problem a year before. This is what she didn't do, and who came for her.
0:16Register
Year one. Dana becomes Jarrah's auditor. To sign the audit report, she must be a registered company auditor. ASIC grants that registration. She has it.
0:30Report
Year two. Dana finds client money moved to repay Jarrah's own loan. That's a significant contravention of the Act. The directors say they'll fix it next quarter. Pause. Can Dana wait for them? No. Under section 311, she must notify ASIC in writing, as soon as practicable, and within 28 days. She never does.
1:00Discipline
Year three. Jarrah fails, and ASIC investigates the audit. For failing her duties, ASIC can't simply suspend Dana itself. It applies to the Companies Auditors Disciplinary Board. ASIC investigates. The Board decides.
1:21Consequences
Year four. Her firm signs an enforceable undertaking with ASIC. New systems, an independent reviewer. Break it, and ASIC can go to court. Investors sue Dana too. Courts usually find no duty to individual investors. The audit serves shareholders as a body, not share buyers. That's Caparo.
1:44Recap
Register, report within 28 days, and know who decides. Screenshot this. Would you have reported in time? Tell us in the comments.
Try a question on this lesson
From the EstatePass Ethics and Governance bank. Answer it, then read the explanation.
ASIC concludes that a registered company auditor has failed to carry out an auditor's duties adequately and properly, and wants the registration suspended. To which body does ASIC apply for that sanction?
Sources
- Corporations Act 2001 (Cth) s 311, 324BA, 1280, 1292
- ASIC Act 2001 (Cth) s 93AA
- Caparo Industries plc v Dickman (1990)
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Any companies and people in our lessons are fictional. EstatePass is not affiliated with CPA Australia; lessons and questions are our own, written from public standards and legislation.