Should audit firms offer consulting services?
Now to the big one. The ASIC in its submission states that firms should not provide consulting services to audit clients. You should remember that these measures are proposed as issues to debate. In this instance, however, the ASIC has made a definite statement. That statement is that an auditor should not provide consulting services to its audit clients. The ASIC considers that by auditors providing consulting services will inevitably lead to audit firms maximising their financial returns from clients, resulting in a decline in independence.
In considering the above proposal from the ASIC, the experience of the Security and Exchange Commission in the United States of America should be remembered. They initially produced tough proposals relating to auditor independence which when later implemented, were watered down. The ASIC may consider that the toughest position possible is their best starting position in what will inevitably become a long and arduous negotiating period with the auditing profession over independence regulations.
The ASIC submission also deals with the issue of disciplinary proceedings. The submission notes a proposal by CPA Australia ‘that a new umbrella body be established which through an appropriate committee would investigate, monitor and provide discipline in relation to professional conduct’ (p. 5). The ASIC in its submission states very clearly that it sees itself as the ultimate enforcer of law and suggests that its role should be enhanced in any oversight function. Perhaps the aggressive stance on this issue resulted from an article in The Australian Financial Review, which stated that the Company and Auditors and Liquidators Disciplinary Board has suspended or penalised auditors who in the main were involved with the collapsed companies of the late 1980s. The accounting bodies took no action against the auditors involved (Buffini, 2002, p.69).
To continue with activities associated with the Joint Committee inquiring into the review ofindependent auditing by registered auditors,the chairman of the committee, Mr Bob Charles, was interviewed for a story that appeared in The Australian Financial Review. He states in this article that all reforms to the auditing profession were to be considered by the inquiry and that innovative solutions are needed to restore public confidence in auditing. The Chief Executive of the Australian Stock Exchange was quoted in this article as stating that in his opinion, the requirement that audit committees be mandatory for all listed companies would not solve the independence issue. He noted that One.Tel, HIH Insurance and Harris Scarfe all had audit committees. On this point some interesting questions arose from Robert Jaedecke's prepared witness testimony to the Subcommittee of Oversight and Investigation, inquiring into the collapse of Enron. Jaedecke was the chairman of Enron’s audit and compliance committee. Basically his testimony stated that management, auditors and other company advisers did not tell members of the audit committee about Enron’s problems. The questions that arise are to what degree can members of audit committees rely on management, auditors or company advisors to warn them of problems? Also, if members of the audit committee do have to conduct their own investigations, what is the nature and extent of these investigations?