ASIC has accepted a court-enforceable undertaking from registered company auditor Robert Johnson and audit firm Hardwickes, based in Canberra.
Following an ASIC investigation, Mr Johnson admitted he failed to ensure the audit of property development company, Consolidated Builders Limited, was conducted in accordance with ethical requirements outlined in the APES 110 Code of Ethics for Professional Accountants (including Independence Standards).
Mr Johnson audited Consolidated Builders for 32 years. The long association created a familiarity threat to his independence. Hardwickes also provided various non-auditing services to Consolidated Builders which further undermined Mr Johnson’s independence.
Hardwickes also admitted it failed to establish and maintain a system of quality control to ensure its personnel complied with the required auditing and ethical requirements.
Mr Johnson has undertaken to cancel his registration as a company auditor and will not re-apply.
Hardwickes resigned as Consolidated Builders’ auditors in March 2024 and will engage an independent expert to conduct a review of its audit practices. The review will focus on the design, implementation and operation of the firm’s system of quality management for audits, in accordance with Auditing Standard ASQM 1 Quality Management for Firms. Hardwickes will be required to report to ASIC on its remedial action plan.
ASIC’s Deputy Chair Sarah Court said, ‘Misconduct by gatekeepers such as auditors is an enforcement priority for ASIC in 2024. Independence is a fundamental duty of an auditor and we will continue to take action where registered company auditors fail to meet their independence requirements.’
Recently, ASIC announced that auditors’ compliance with ethical and independence standards will become a focus of ASIC’s expanded financial reporting and audit surveillance program (24-101MR).
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Background
When ASIC may accept a court enforceable undertaking
ASIC may accept a court enforceable undertaking to improve and enforce compliance with the law. Court enforceable undertakings are not always used as an alternative to other enforcement action, they can also be used to complement or enhance such actions.
ASIC will not usually accept a court enforceable undertaking:
- instead of pursuing criminal court proceedings,
- where the misconduct is deliberate or involves a high level of recklessness, or
- after a matter has been referred to an ASIC delegate or another specialist body.
ASIC generally requires that a court enforceable undertaking contains admissions that the party providing the undertaking contravened legislative provisions. If the party does not comply with the undertakings, ASIC will seek to enforce the undertaking through the court.
Further guidance on how ASIC uses court enforceable undertakings can be found in Regulatory Guide 100 Court enforceable undertakings (RG 100).
View ASIC’s Court Enforceable Undertakings register.
Court enforceable undertakings and registered company auditors
ASIC has responsibility for the surveillance, investigation and enforcement of auditing requirements in the Corporations Act.
Individual auditors registered with ASIC must carry out their duties as an auditor adequately and properly. Failure to do so may result in ASIC bringing an application against individual auditors to the Companies Auditors Disciplinary Board (CADB). If the CADB is satisfied, the CADB may cancel or suspend an auditor’s registration and/or require certain undertakings by the auditor.
In instances where individual auditors accept their failures, a court enforceable undertaking containing admissions of those failures and offering to cancel or suspend their auditor registration, and/or offer certain undertakings, provides an outcome of equal protective and deterrence value to that the CADB can otherwise order.
The CADB does not have jurisdiction to hear applications concerning audit firms.