A global body representing management accountants has called for a royal commission into the auditing and assurance discipline in Australia, following recent revelations that a Big Four firm has been fined by a regulator in the US for exam cheating that occurred in its ranks.
KPMG Australia was fined more AUD$600,000 because there was evidence of cheating among staff on tests designed to ensure staff members had the necessary knowledge to do their jobs.
The regulator, the Public Company Accounting Oversight Board, has a suite of powers and penalties to investigate and discipline auditors and accounting firms if it is found that their actions contravene auditing and professional standards.
Professor Janek Ratnatunga, the chief executive officer of the Institute of Certified Management Accountants, said the penalty that was given to KMPG by a US regulatory body was in part evidence of a stronger regulatory regime in the US designed to keep auditors and their engagement teams compliant with regulation.
KPMG was hit with a fine by the PCAOB because clients for which it does financial statement audits are registered in the US.
Ratnatunga said the Australian regime is nowhere near as strong as that operating in the US and that it needs review because the management accountants association believes neither the Australian Securities and Investments Commission nor the professional accounting bodies are doing their respective jobs well.
“Whilst the auditing profession in the USA moved from peer reviewed self-regulation to statutory regulation by the PCAOB in the wake of the accounting and auditing scandals in the early 21st Century, Australia’s regulators remain toothless tigers,” Ratnatunga said.
“The lessons learnt in the USA, however, have had little or no impact in the regulation of accounting standard setters and auditors in Australia.”
Ratnatunga said that there should be a way in which the professional accounting bodies that have members conducting audits are overseen independently and that the scrutiny should include reviews of training programs that they conduct to ensure their members are aware of new and developing areas of accounting and audit.
The first thing that ought to happen, according to Ratnatunga, is that a royal commission is held to properly examine the auditing framework, look at what needs to change, and for there to be another oversight body set up to regulate and take disciplinary action against auditors.
Ratnatunga said that a recent parliamentary inquiry into auditor regulation that issued a final report in November 2020 did not recommend the kind of change for which his organisation is advocating.