MOU between CPA Australia and the FRC

1. Parties to Memorandum

1.1 This Memorandum of Understanding (MOU) is between CPA Australia and the Financial Reporting Council (FRC).

2. Purpose

2.1 CPA Australia and the FRC recognise that they each have a role to play in promoting a robust system of audit quality within Australia. Wherever possible and mutually beneficial, CPA Australia and the FRC will collaborate to ensure audit quality and will promote open discussion on issues relating to audit quality.

3. Role and Responsibilities of CPA Australia

3.1 CPA Australia’s objectives are to promote excellence and integrity in the delivery of professional accounting services, to educate members on their duties, and to prescribe standards and ethics of professional conduct. In pursuing its objective, CPA Australia takes an interest in legislative, economic and social matters affecting the accounting profession and affiliates with organisations with similar objects.

3.2 Under this MOU, the specific role and responsibilities of CPA Australia include:

• Providing the FRC with documentation concerning CPA Australia’s Quality Assurance reviews, in relation to audit quality, in particular:
  • The process of Quality Assurance Reviews; and
  • General outcomes from reviews undertaken, including the number of reviews and percentages of compliance and noncompliance.
• Subject to paragraph 6.2 below, providing the FRC with information concerning CPA Australia’s disciplinary process regarding auditors, including:
  • CPA Australia’s Constitution, by-laws and procedures relative to disciplinary processes;
  • General information about Australian auditors subject to disciplinary action by CPA Australia without identifying individual auditors; and
  • Whether CPA Australia has received a complaint regarding audit quality by an Australian auditor and any action taken by CPA Australia without identifying individual auditors; and
• Providing the FRC with information about relevant post graduate education dealing with audit quality.

4. Role and Responsibilities of the FRC

4.1 The FRC is an independent statutory body established by Part 12 of the Australian Securities and Investments Commission Act 2001 (ASIC Act).

4.2 The FRC has the following responsibilities:

• To provide broad oversight of the process for setting accounting standards in Australia;
• To provide broad oversight of the processes for setting auditing standards in Australia;
• To monitor the effectiveness of audit quality requirements in Australia; and
• To provide the Minister responsible for the FRC with advice and reports about the matters falling within the scope of its responsibilities.

4.3 The specific audit quality functions of the FRC include giving strategic policy advice and reports to the Minister and professional accounting bodies, in relation to:

• The systems and processes used by Australian auditors to ensure compliance with the provisions of the Corporations Act 2001 (Cth) dealing with the conduct of audits, the auditing standards and applicable codes of professional conduct;
• The systems and processes used by professional accounting bodies for planning and performing quality assurance reviews of audit work undertaken by Australian auditors;
• The action that Australian auditors who have been subject to quality assurance reviews have taken in response to the reports prepared as a result of those reviews;
• The action taken by professional accounting bodies to ensure that Australian auditors who have been subject to such quality assurance reviews respond appropriately to the reports prepared as a result of those reviews;
• The investigation and disciplinary procedures of the professional accounting bodies as those procedures apply to Australian auditors;
• The adequacy of the teaching of professional and business ethics by, or on behalf of, professional accounting bodies to the extent to which the teaching of those subjects relates to audit quality; and
• The adequacy of the provisions of the Corporations Act 2001 (Cth), the auditing standards and applicable codes of professional conduct in light of international developments in relation to audit quality.

4.4 Under this MOU, the specific role and responsibilities of the FRC include:

• Consulting with CPA Australia on issues of audit quality and ensuring that the advice, monitoring and reporting which the FRC undertakes is well informed and works effectively within the co-regulatory framework;
• Assessing and advising CPA Australia of the adequacy of systems and processes used by CPA Australia members to deal with issues of audit quality in light of information obtained by FRC;
• Providing CPA Australia with intelligence and de-identified data trends on operational matters;
• Providing CPA Australia with names of CPA Australia members where serious misconduct has been proven and deidentified trends on misconduct matters;
• Advance warning, where possible of any pending regulatory changes that may have a significant impact on the operations, activities or reputation of the accounting profession and its participants; and
• Advising CPA Australia on continuing steps to enhance audit quality.

5. Consultation

5.1 CPA Australia agrees to consult and share information – as far as is practicable and having regard to applicable laws – with the FRC in the development of policies relating to:

• Audit quality; and
• Professional requirements affecting auditors.

5.2 Subject to the Privacy Act 1988, CPA Australia agrees to communicate any information to the FRC that it discovers in the course of its activities which may tend to indicate a contravention of the audit quality provisions which:

• Reveal systemic problems or a culture of failing to comply with its legal and ethical obligations within a firm or group of firms;
• Appears to be a serious or deliberate contravention which is not minor or technical; or
• May result in substantial loss to investors or which may have a materially adverse effect on the integrity of the market.

5.3 The FRC agrees to – as far as is practicable and having regard to applicable laws – consult with CPA Australia and share information in the development of any proposed policies, reports or recommendations relating to:

• Audit quality;
• A member of CPA Australia; and
• The Audit profession generally.

6. Confidentiality

6.1 Section 237 of the ASIC Act, in part, provides that the FRC must take all reasonable measures to protect from unauthorised use or disclosure information given to it in confidence. However, it should be noted that the disclosure of information is taken to be authorised if the disclosure is required or permitted by a law of the Commonwealth or a prescribed law of a State or Territory, or is made to ASIC for the purposes of its performance of its functions under the corporations legislation (pursuant to paragraphs 237(2)(a) and (d)).

6.2 Recognising that information obtained in the course of monitoring audit quality issues may be confidential or market sensitive, the FRC agrees to keep confidential, as much as is practicable for the FRC to fulfill its functions and powers, any such information provided by CPA Australia to the FRC relating to CPA Australia’s operations or regarding a member of CPA Australia and/or their clients.

7. Publicity

7.1 CPA Australia and the FRC recognise that it is not desirable to publicise a matter where to do so may harm either party’s position or the reputation of a third party. While publicising identifying information would not normally be warranted, CPA Australia and the FRC recognise that it may sometimes be necessary for the FRC to make certain information public in order to protect the public interest and/or the integrity of Australia’s financial market. An example of such an instance may be where the disclosure of information is necessary to highlight or address systemic failures in the area of audit quality. In publicising any identifying information, the FRC would endeavour to only release details necessary for the FRC to fulfill its audit quality role and exercise its functions and powers.

7.2 Where either CPA Australia or the FRC passes on information to the other under this MOU which may lead to an investigation or publicity in relation to either CPA Australia, a member of CPA Australia, or the FRC, the parties will use their best endeavours to consult with each other prior to this occurring.

8. Reporting to the Minister

8.1 Under section 225(2C) of the ASIC Act the FRC is required, amongst other things, to report to the Minister and provide advice to the Minister on matters relating to audit quality. Where such a report or advice has or may have an impact on CPA Australia or a member of CPA Australia and the FRC considers it appropriate, the FRC will endeavour to consult with CPA Australia prior to the issue of the report or advice. Where appropriate, the FRC will also endeavour to provide CPA Australia, in advance, with a copy of such report or advice as provided to the Minister.

9. Disciplinary Action by CPA Australia

9.1 In respect of disciplinary action against a member of CPA Australia for a breach of professional and ethical requirements regarding audit quality, CPA Australia undertakes to:

• Inform the FRC of any disciplinary action taken against any member of CPA Australia in relation to a breach of CPA Australia’s audit quality requirements without necessarily identifying individual auditors; and
• Inform the FRC when, to CPA Australia’s knowledge, one of its members has been referred to the Companies Auditors Disciplinary Board in relation to a breach of audit quality requirements.

10. Liaison Between CPA AUSTRALIA and the FRC

10.1 To promote co-operation between the parties, regular liaison meetings will be held between CPA Australia and the FRC. These meetings should occur at least every six months.

11. Effective Date

11.1 This MOU is effective upon signature of the parties and will remain in effect unless and until terminated as provided below.

12. Amendments

12.1 This MOU may be modified or amended by written agreement between the parties. If it becomes apparent that it is necessary or desirable to amend or add to this MOU, CPA Australia and the FRC will each use their best endeavours to agree upon appropriate amendments or alterations as soon as possible thereafter.

13. Termination

13.1 CPA Australia or the FRC may terminate this MOU for any reason by giving the other party 30 days written notice of its intention to terminate this MOU.