3.1 Introduction

The ASIC Act provides that the FRC's functions include monitoring the effectiveness of auditor independence requirements in Australia and to give the Minister reports and advice about this matter. This part of the report has been prepared in accordance with section 235BA of the ASIC Act, which requires the FRC to give the Minister a report each year on the performance by the FRC of its auditor independence function.

Australia has comprehensive legislative and professional requirements concerning the independence of auditors. The principal requirements are:

  • Divisions 3 and 5 of Part 2M.4 of the Corporations Act, which set out the requirements that have to be satisfied by the auditors of those entities that are subject to the audit requirements of the Act;
  • Auditing Standard ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information;
  • Auditing Standard ASQC 1 Quality control for firms that perform audits and reviews of financial reports and other financial information, and other assurance engagements;
  • Section 290 of the Code of Ethics for Professional Accountants (APES 110)1; and
  • APES 320 Quality control for firms

Under the Corporations Act, all disclosing entities, public companies (except some companies whose members' liability is limited by guarantee2), large proprietary companies3 and registered schemes are required to prepare financial reports and have them audited. These audits must be conducted by auditors or audit companies registered by ASIC for that purpose.

To complement the legislative and professional requirements on independence of auditors, appropriate institutional arrangements have been put in place to monitor compliance with those requirements and, where necessary, take appropriate follow-up action. The principal organisations making up these institutional arrangements are ASIC, the ASX, The Institute of Chartered Accountants in Australia (ICAA), CPA Australia, the Institute of Public Accountants (IPA), APESB, the Companies Auditors and Liquidators Disciplinary Board (CALDB) and the FRC.

3.2 Systems and processes of Australian auditors

The ASIC Act requires the FRC to monitor and assess the nature and overall adequacy of the systems and processes used by audit firms to ensure compliance with auditor independence requirements.

During the period under review, the FRC performed this function by gathering information from ASIC under the terms of its MOU with that body, by reviewing reports published by the ICAA and by requesting information from the professional accounting bodies under the terms of its MOUs with those bodies.

On the basis of its work during the period covered by this report, the FRC has not become aware of any evidence to suggest that the systems and processes used by audit firms to ensure compliance with auditor independence requirements are not working effectively.

Report from ASIC

The MOU that the FRC has entered into with ASIC provides for periodic consultation and information sharing between the two bodies to assist them in undertaking their respective responsibilities under the law.

ASIC's 2010-11 report to the FRC summarises ASIC's observations and findings in relation to the independence systems and processes of selected firms where inspections were either in progress on 1 July 2010 or commenced after that date and were substantially completed by 30 June 2011. As in past years, the report by ASIC has constituted a key source of information for the FRC with respect to its responsibilities in this area during 2010-11.

In addition to the report to the FRC for the period 1 July 2010 to 30 June 2011, ASIC also issued a public report on its audit inspection program in June 2011 which covered the inspections of 21 firms completed in the period between 1 July 2009 and 31 December 2010. A copy of the public report is available on the ASIC website (www.asic.gov.au).

For the purposes of the report to the FRC on the 2010-11 audit inspection program, ASIC has divided Australian accounting firms into three broad groups:

  • larger national firms that audit numerous listed entities and are national partnerships and members of a global network with multiple offices;
  • other national and network firms that are national partnerships or individual offices that audit many listed entities and are members of a national or international network; and
  • smaller firms that audit a limited number of listed entities and have a small number of partners.

During the year ended 30 June 2011, ASIC completed inspections of 13 selected firms: three were larger national firms, six were other national and network firms and four were smaller firms. With the exception of the four smaller firms, the larger national firms and the other national and network firms inspected during the year have been previously inspected at least once, with a large number of these firms being inspected a number of times. Three of these inspections were conducted jointly with the PCAOB.

Collectively, the 13 firms inspected by ASIC audit approximately 74 per cent by number and 88 per cent by market capitalisation of the 300 largest entities listed on the Australian Securities Exchange (S&P/ASX 300).4

ASIC has informed the FRC that its inspection approach varies between different firms.

  • For firms that have been previously inspected a number of times, ASIC focuses on significant changes to independence systems, policies and processes and actions taken by the firms in response to its previous inspection observations and findings.
  • Firms visited for the first time are subject to a full-scope inspection comprising the review of key quality control systems, policies and processes.
  • In the case of smaller firms, ASIC's consideration of their compliance with the independence requirements of the Corporations Act is limited to high level enquiries with the firms' leadership and independence related matters specific to the audit engagement files selected for review.

Summary of ASIC's inspection findings

ASIC has informed the FRC that the firms it had inspected previously continued to maintain or improve their quality control systems, demonstrating their commitment to auditor independence and high quality audits.

Firms have implemented quality control systems to ensure compliance with the independence requirements of the Corporations Act and professional quality control and ethical standards. Although the extent and complexity of these systems vary depending on the size and nature of the firm, the implementation of quality control systems demonstrates that the firms understand their obligation to comply with these requirements.

ASIC has indicated that the results of its first inspection of a firm often indicate that some aspects of quality control have not been addressed or fully developed. Subsequent inspections of a firm almost always show a marked improvement in most, if not all, areas identified in the first inspection.

However, ASIC has also advised the FRC that it continues to have concerns about the number of findings at some other national and network firms about independence processes and, in particular, about contraventions of the rotation and independence requirements of the Corporations Act.

Larger national firms

Three larger national firms were inspected by ASIC during 2010-11. In ASIC's view, the firms inspected have established adequate independence policies and processes to facilitate compliance with auditor independence requirements of the Corporations Act and professional standards. Across the firms inspected, leadership remains committed to an appropriate tone at the top that emphasises the importance of audit independence. ASIC observed that this commitment continues to have a positive impact on maintaining a culture of audit independence and generally, there are few, if any, findings in this area for the larger national firms.

The larger national firms also require partners and senior staff to disclose their investments on interactive databases that are automatically matched with the firms' prohibited securities lists. ASIC has informed the FRC that, during 2010-11, the larger national firms continued to monitor how partners complied with these policies and systems.

ASIC also reported that, while the firms continue to identify instances of non-compliance with their own policies that include requirements that go further than the Corporations Act, the number of instances of non-compliance has not increased compared to prior years.

Other national and network firms

Six other national and network firms were inspected by ASIC during 2010-11. ASIC found that those firms that have been inspected more than once generally made improvements to their quality control systems. However, ASIC reports that it continues to have concerns about the number of findings at some firms in respect of their independence policies and processes and contraventions of the rotation and independence requirements of the Corporations Act.

In ASIC's opinion, independence is fundamental to the conduct of a quality audit and the leaders of these firms need to ensure that they give strong and clear messages about the importance of independence to set an appropriate 'tone at the top'. It is ASIC's view that, where relevant, firms should take appropriate action against personnel that contravene the independence requirements of the Corporations Act and the firms' own independence policies.

Specific observations made by ASIC as a result of these inspections include:

  • Independence policies and processes: ASIC generally found that the other national and network firms it inspected have policies and processes in place to facilitate compliance with the independence requirements of the Corporations Act and professional standards. However, it noted that the completeness and adequacy of the independence policies and processes varied across the firms inspected, reflecting the nature or maturity of the network structure of some of these firms. ASIC has informed the FRC that the independence policies and processes of these firms need improvement to ensure that their policies and processes are consistent with the Corporations Act and professional standards and are applied consistently across the member firms. Specific observations made by ASIC as a result of its inspections of Other National and Network Firms included that:
    • one firm does not have a policy requiring pre-approval for the performance of non-audit services. Another firm has policies and procedures about the approval of non-audit services but the policies do not appear to be monitored for compliance;
    • in one firm, the policy setting out the consequences for breach of independence requirements of the Corporations Act and the firm's policies and disciplinary measures should be more transparent to staff, while another firm needs to incorporate the consequences of breaching independence requirements into its policies;
    • two firms need to include familiarity threats created by long association for non-listed assurance clients in their independence policies;
    • one firm does not specifically include independence and commitment to ethical principles in its staff evaluation and compensation process. Including independence as an explicit factor in the staff evaluation and compensation process would provide a clear message from the firm's leadership about the overriding importance of independence;
    • one firm needs to improve its independence consultation processes to ensure that consultations are undertaken as appropriate and approvals are documented and communicated in accordance with the firm's policy;
    • one firm needs to consider defining clear responsibilities for the partner responsible for independence monitoring; and
    • one firm needs to:
      • amend its systems and processes to better monitor compliance with its policy prohibiting the promotion of audit clients by its wealth management division;
      • update its independence policies to remove quantitative thresholds for determination of materiality of indirect financial interests, which appear to create undue focus on the relative size of indirect financial interests in audit clients relative to other significant factors; and
      • improve the effectiveness of its auditor rotation monitoring by tracking previous partner involvements in listed audit engagements.
  • Testing independence systems: Four of the six other national and network firms inspected during the period do not test their independence systems and processes, including the provision of non-audit services, to ensure that they are meeting the requirements of the Corporations Act and professional standards. ASIC has expressed the view that, without an appropriate testing program, firms can only place limited reliance on the effectiveness of their independence systems and processes. However, it is of the view that where firms are testing their independence systems and processes, the communication of the results of the testing process to all personnel can send a strong and clear message about the importance of independence.

Smaller firms

Four smaller firms were inspected by ASIC during the period covered by this report. ASIC has informed the FRC that its consideration of smaller firms' compliance with the independence requirements of the Corporations Act was limited to high level enquiries with the firms' leadership and independence related matters documented on the audit engagement file that was selected for review. ASIC has also informed the FRC that, in conducting its inspections and in determining its observations and findings in respect of the smaller firms, it is conscious of their size and nature.

ASIC found that most of the smaller firms inspected had a basic level of independence policies and processes in place. However, its inspections showed areas that could be improved to ensure that the firms are complying with the legal and professional independence requirements.

ASIC also observed that one smaller firm relied on a national database for independence and conflict checking when accepting a new client. However, the firm did not obtain positive confirmations from all partners and directors regarding potential independence threats and conflicts when assessing the acceptance of a new listed client.

Other auditor independence matters noted by ASIC

ASIC has also provided the FRC with information about other auditor independence issues that it became aware of outside its regular inspection program. In brief, these issues included:

  • Conflicts of interest: ASIC commenced an investigation of potential contraventions of the Corporations Act by a (Registered Company Auditor (RCA) from a smaller firm based on a complaint that the auditor held financial interests in and owed amounts to an audited body. The investigation is currently in progress and ASIC has advised that it will be considering potential regulatory action against the auditor in relation to the auditor independence contraventions and related audit quality aspects. In addition, ASIC has provided the FRC with an update on two conflicts of interest matters mentioned in its 2010 report to the FRC:
    • In one matter, immediate family members of an auditor (a partner of a smaller firm) held a substantial amount of shares in the company at the time that the auditor signed the audit report. This matter has been investigated by ASIC, which is currently considering its options.
    • In the other matter, a number of situations arose because financial interests were held in audited bodies and an audit client held shares in a company directly related to one Other National and Network Firm. ASIC reports that, in mid 2011, it undertook another inspection of the firm and that further discussions have been held with the firm regarding these matters.
  • Consent to resign as auditor: ASIC received 13 applications from auditors (six from smaller firms, four from other national and network firms and three from larger national firms) seeking consent to resign from an audit during 2010-11. In each of these cases, the auditor claimed to have lost independence as a result of one of the conflict of interest situations identified in the Corporations Act or professional standards. ASIC consented to the resignation of the auditor in seven cases. In the other six cases (five where an employee of the audit firm was/became a member of the audited body and one where an employee of the audit firm had an asset that is an investment in the audited body), the audit appointment ceased because of the expiry of the 21 day period specified in subsection 327B(2B) of the Corporations Act. ASIC has informed the FRC that firms need to be aware that creating a deliberate conflict of interest situation is an offence under section 324CM of the Corporations Act.
  • Auditor rotation requirements: During 2010-11, ASIC received two notifications of breaches of auditor rotation requirements from other national and network firms:
    • in one case, the quality control system within the firm identified the breach and the auditor was rotated off the engagement as soon as the firm was aware of the breach. The auditor's independence declaration in the financial report of the audited body for the subsequent period disclosed the breach and the remedial action taken by the firm; and
    • in the other case, the auditor was allocated some audit clients when another auditor ceased employment with the firm. The auditor's involvement resulted in a breach of the auditor rotation requirements under subsection 324DA(1) of the Corporations Act. ASIC has advised the FRC that this matter is being followed up as part of its current inspection of the firm.
  • Relief from the auditor rotation requirements: Under subsection 342DA(1) of the Corporations Act ASIC is able to extend the rotation period by one or two years on application by the auditor. ASIC will only grant an extension of the period in exceptional circumstances. ASIC has informed the FRC that during 2010-11 it received two applications from auditors seeking an extension of the rotation period under the Act
    • in one case, the auditor claimed unreasonable burden on the company and the auditor due to staff resignations and a need for specialist auditor experience associated with complex business transactions. The application was refused as no unreasonable burden was evident. In ASIC's view there were other auditors within the firm capable of performing the audit.
    • in the second case, the auditor, who was the only partner left in the firm following the resignation of one and the death of another, made application for relief from the auditor rotation requirements to allow him to act as lead auditor for another financial year. Relief was granted to this auditor as he had appointed an external quality control reviewer for all of his listed entity engagements.

3.3 Quality review programs and disciplinary procedures of professional accounting bodies

Under the ASIC Act, the FRC is required to monitor and assess the nature, overall adequacy and effectiveness of: the systems and processes used by the professional accounting bodies for planning and performing quality assurance reviews of audit work undertaken by Australian auditors to the extent that those reviews relate to auditor independence requirements; the responsive action taken by auditors who have been subject to such reviews; and the action taken by the professional accounting bodies to ensure that auditors are responding appropriately. In addition, the FRC is required to monitor and assess the nature and overall adequacy of the investigation and disciplinary procedures of the professional accounting bodies as those procedures apply to Australian auditors.

During 2010-11, the FRC continued to meet these requirements by seeking relevant information from the professional accounting bodies and reviewing publicly available material issued by those bodies.

During the year, the FRC did not become aware of any deficiencies in either the systems or processes used by the professional accounting bodies for planning and performing quality reviews of audit work, or in the overall adequacy of their investigation and disciplinary procedures.

Quality review programs


ICAA members who hold a Certificate of Public Practice (CPP) are required to undergo the Quality Review Program in accordance with the policies and procedures governing the operation of the Program. The ICAA has informed the FRC that the Program has been designed to assess whether members in public practice have the appropriate quality control policies and procedures in place to comply with professional standards and regulatory requirements.

All practices that sign off on audits requiring RCA registration are reviewed at least once every three years. All other practices (including those with an RCA but not conducting RCA audits) are reviewed once every five years. Information provided by the ICAA indicates that during the year ended 30 June 2011, it completed reviews of 432 practices with 78 per cent of the review reports recording either no departures from professional standards or departures from professional standards that are not classified as serious.

The ICAA divides the group of practices that conduct audits into two key types: those that conduct audits under the requirements of the Corporations Act; and those that conduct other types of audits. The reviews conducted during 2010-11 found that one per cent of the practices that conduct Corporations Act audits had no departures from professional standards. All other practices of each type had departures from professional standards, although these departures were not classified as serious for 72 per cent of the practices that conduct Corporations Act audits and 80 per cent of the practices that undertake other types of audits.

For the purpose of its quality review program, the ICAA divides its members' practices into five size categories: sole practitioners; practices with two to four practitioners; non-mid-tier practices with five or more practitioners; mid-tier practices; and Big 4. During 2010-11, the proportion of practices reviewed in each size category reflected the approximate distribution of practices by size across the ICAA as a whole. The only exception is for the Big 4 firms, which were reviewed by the Audit Quality Review Board (AQRB) for the three years to 2009, with those reviews being relied on by the ICAA. The ICAA has advised the FRC that, as the AQRB has completed its mandate, ICAA reviews of the Big 4 are resuming.

The ICAA has informed the FRC that, during the year, it continued to see a trend of members either specialising in audit, or resigning from all audit engagements as members recognise that auditing is an advanced technical skill. The ICAA has expressed the view that this trend reflects the increasing complexity and regulation of audit, requiring a significant investment of practice resources to maintain audit competence.

The ICAA also has informed the FRC that, although overall compliance with the auditing standards continues to improve, based on the results of the 2010-11 reviews its main concern continues to be a lack of documentation in relation to the audit opinion issued or insufficient documentation in a particular audit area.

In the area of auditor independence, the following areas of non-compliance with the requirements of APES 110 Code of Ethics for Professional Accountants were noted:

  • no documentation or inadequate documentation when considering threats to independence (9 per cent of the 432 practices reviewed);
  • appropriate safeguards were not adequately applied when carrying out auditing and accounting functions for a client (9 per cent of practices reviewed); and
  • auditing the self-managed superannuation fund of a partner in their practice (4 per cent of practices reviewed).

CPA Australia

CPA Australia has advised the FRC that as at 30 June 2010, 5,690 of its members held a CPA Australia Public Practice Certificate (PPC) while 1,087 held an ICAA Practice Certificate. All members who hold a PPC are subject to CPA Australia's Quality Assurance (QA) program. A total of 1,117 members are registered company auditors.

CPA Australia's QA program adopts a cyclical, risk assessment approach to selecting members for review. Member selection is defined by the following criteria:

  • members who receive an unqualified report ('accept report') are reviewed after four years except where they are RCAs, in which case they are reviewed after three years;
  • members who are required to provide assurances prior to acceptance of the report ('assurance report') are reviewed after three years; and
  • members who are subject to a further review because of non-compliance issues are reviewed in the following year.

Every type of public accounting service offered by a member is reviewed using a questionnaire specific to the particular type of service. All questionnaires and working papers that form the basis of a review program are updated regularly to reflect changes to auditing and assurance standards, professional standards and relevant legislation and regulations. CPA Australia has advised the FRC that the General Quality Control Questionnaire used in the QA program includes an in-depth section on auditor independence which was last updated in June 2010.

In 2010-11, the reviews conducted under CPA Australia's QA program found that 82 per cent of those reviewed were either fully compliant or had only minor departures from professional standards.

During 2010-11, 78 breaches of auditor independence requirements were identified, with the vast majority relating to audits of Self Managed Superannuation Funds (SMSFs). Of the members who breached the auditor independence requirements, 19 were identified as RCAs.

For the 2011 calendar year, over 830 members (including 125 RCAs) are expected to complete a QA review. In addition, 150 follow-up reviews (including 49 of RCAs) are expected to be completed.


The IPA has informed the FRC that it requires all members who are issued with a PPC to undertake a Quality Assurance Review (PPQA) every three to five years. Members who are Australian auditors must be reviewed every three years.

In the period 1 July 2010 to 30 June 2011, the IPA undertook over 500 PPQA reviews of PPC members. The IPA has advised that, to the best of its knowledge, none of the reviews undertaken during this period involved an Australian auditor.

The IPA has also informed the FRC that it has a policy that any joint members (that is, those who are a CPA Australia or ICAA member) who have been subject to a PPQA by their other body in the last two years are exempt from the IPA PPQA. The purpose of this is to avoid the member being excessively audited on the same issue.

In the last quarter of 2010, the IPA initiated a pilot program in relation to the PPQA system. This pilot involved systematising online some of the data collected from members in relation to their practice and client base. The pilot was successful and, for the financial year 2011-12, all reviews will be using the new format. While the new system utilises the pre-existing format, it captures the data from the reviews automatically in a digital format. Reviews are still undertaken in a face to face situation and members must provide proof of their compliance with professional and ethical requirements of the IPA. The IPA has advised the FRC that it anticipates the new system will assist it in reporting on members, including Australian auditors.

Disciplinary procedures

The professional accounting bodies have provided the FRC with the following information concerning disciplinary matters during the year ended 30 June 2011:

  • The ICAA has informed the FRC that during the year ended 30 June 2011 there were two disciplinary cases involving a breach of the ICAA's auditor independence requirements, both arising from referrals by the Australian Taxation Office and relating to the audit of self managed superannuation funds. One member had audited a fund where he was also the accountant of the fund, while the other member had audited his own fund in one financial period, and then entered into a reciprocal arrangement with a business associate to audit each other's funds. The first member was severely reprimanded and the second was reprimanded. Details of the cases are available on the ICAA's website.
  • CPA Australia has advised that its Disciplinary Tribunal made three adverse finding against members relating to auditor independence. All of these adverse findings related to audits of SMSFs. There were no disciplinary actions taken against RCAs in respect of auditor independence. The outcomes of all professional conduct complaints heard by a Disciplinary Tribunal have been published on CPA Australia's website.
  • The IPA reports that it has not taken any disciplinary action in 2010-11 against any members who have identified themselves as Australian auditors. The IPA also reported that it did not investigate any complaints about members who are Australian auditors in relation to a breach of the IPA's independence requirements.

None of the professional accounting bodies is aware of the referral of any members to the CALDB during the year ended 30 June 2011 for a breach of auditor independence requirements.

3.4 Teaching of ethics by the professional accounting bodies

The ASIC Act requires the FRC to promote, and monitor the adequacy of, the teaching of professional and business ethics by, or on behalf of, the professional accounting bodies to the extent to which the teaching of those subjects relates to auditor independence.

During 2010-11, the FRC monitored the adequacy of the teaching of ethics by obtaining relevant information from the professional accounting bodies. On the basis of the information supplied by the bodies, the FRC considers that the teaching of ethics by each of the bodies continues to be adequate.

3.5 Audit-related disclosure requirements

The FRC is required by the ASIC Act to monitor the overall compliance by companies, registered managed investment schemes and disclosing entities with audit-related disclosure requirements of the Corporations Act and the accounting standards. A summary of these requirements is provided in Appendix E.

The MOU that the FRC has entered into with ASIC provides for ASIC to give the FRC regular reports identifying matters arising from its financial reporting or auditor surveillance activities in relation to compliance by auditors and companies with the independence disclosure requirements in Part 2M.3 of the Corporations Act. The MOU with the ASX also provides for that body and the FRC to exchange information.

ASIC has informed the FRC that, as part of its financial reporting surveillance program, it examined independence declarations under section 307C of the Corporations Act for 480 listed entities for financial years ended on 30 June 2010 and 31 December 2010. Section 307C independence declarations were also examined as part of its audit inspection program. ASIC has reported that no independence issues were noted from these reviews.

In addition, ASX informed the FRC that its technical review of financial reports lodged with it included an examination of the form and location in the financial reports of the auditor independence declarations required under section 307C of the Corporations Act and disclosed by directors under subsections 298(1) and 306(2) of the Act. The ASX's June 2010 and December 2010 reviews found that the preferred format continued to be for the declaration to be presented as a separate attachment to the directors' report.

3.6 International developments in auditor independence

Paragraph 225(2B)(e) of the ASIC Act provides that the FRC is to monitor international developments in auditor independence, assess the adequacy of the Australian auditor independence requirements provided for in the Corporations Act and the codes of professional conduct in the light of those developments and give the Minister, and the professional accounting bodies, reports and advice on any additional measures needed to enhance the independence of Australian auditors.

The FRC undertakes this function through the monitoring and consideration of general media reports about audit independence issues, as well as material placed on the internet websites of key overseas oversight and standards setting bodies and other regulatory agencies.

During 2010-11, the FRC has observed with interest a range of developments in Europe and North America that have implications for both auditor independence and the broader issue of audit quality. The more significant of these developments include:

  • European Commission (EC) Green Paper Audit Policy — Lessons from the Crisis5: The EC's paper was issued in October 2010, with the objective of opening a debate on the role of the auditor, the governance and independence of audit firms, the supervision of auditors, the configuration of the audit market, the creation of a single market for the provision of audit services, the simplification of rules for Small and Medium Sized Enterprises and Practitioners and international co-operation for the supervision of global audit networks. The proposals in the paper could have global implications in relation to the regulation of audit firms and the way that those firms conduct their practices. The EC hosted a high level conference on its paper on 9-10 February 2011 and is currently analysing written submissions and the contributions made at the conference.
  • During 2010-11 the US PCAOB undertook a range of work on audit-related issues such as rethinking the relevance, credibility and transparency of audits. In August 2011, while this report was being prepared, the PCAOB issued a Concept Release on Auditor Independence and Audit Firm Rotation.6 The release seeks public comment on ways that auditor independence, objectivity and professional scepticism can be enhanced, including through mandatory rotation of audit firms.

The FRC will maintain a watching brief on these developments through the Audit Quality Task Force to determine whether there are any ramifications for Australia's auditor independence requirements.

1 In December 2010, the Accounting Professional and Ethical Standards Board (APESB) released a revised Code of Ethics for Professional Accountants (APES 110). The revised Code, which is effective from 1 July 2011, aligns Australia's professional requirements with international standards and includes Australian specific requirements relating to inadvertent violations and multiple threats to auditors' independence.

2 The Corporations Amendment (Corporate Reporting Reform) Act 2010 introduced a three tiered differential reporting framework for companies limited by guarantee.

3 An ASIC class order, CO98/1417 Audit relief for proprietary companies, relieves some large proprietary companies from having their financial reports audited.

4 The results of the analysis of audits undertaken by the firms is notably higher than that reported in the FRC's 2009-10 annual report because one of the national firms inspected during 2010-11 was not inspected during 2009-10. Source of data: Standard & Poor's website as at 28 July 2011.

5 The EC's Green Paper can be accessed at: http://ec.europa.eu/internal_market/consultations/docs/2010/audit/green_paper_audit_en.pdf

6 The PCAOB's Concept Release can be accessed at http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf

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