1. Parties to Memorandum
1.1 This Memorandum of Understanding (MOU) is between the National Institute of Accountants (NIA) and the Financial Reporting Council (FRC).
2.1 The NIA and the FRC recognise that they each have a role to play in promoting a robust system of auditor independence within Australia. Wherever possible and mutually beneficial, the NIA and the FRC will collaborate to ensure auditor independence and will promote open discussion on issues relating to the independence requirements of Australian Auditors.
3. Role and Responsibilities of the NIA
3.1 The NIA is a professional body of accountants recognised for their practical, hands-on skills and a broad understanding of the business environment. The NIA’s general role is to ensure that the needs and requirements of its members, the profession and the business community are maintained and protected. 3.2 Under this MOU, the specific role and responsibilities of the NIA include:
- Providing the FRC with information concerning the NIA’s Quality Assurance reviews, in relation to auditor independence, in particular:
- The process of Quality Assurance Reviews; and
- General outcomes from reviews undertaken.
- Subject to paragraph 6.2 below, providing the FRC with information concerning the NIA’s disciplinary process regarding auditors, including:
- The NIA’s Constitution, by-laws and procedures relative to disciplinary processes;
- General information about Australian auditors who have been subject to disciplinary action by the NIA without necessarily identifying individual auditors;
- Whether the NIA has received a complaint regarding auditor independence by an Australian auditor and any action taken by the NIA without necessarily identifying individual auditors;
- Providing the FRC with the NIA’s Code of Ethics and any revisions to the Code of Ethics; and
- Providing the FRC with information about relevant courses dealing with auditor independence.
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 auditor independence 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 auditor independence functions of the FRC include:
- Monitoring and assessing the nature and overall adequacy of:
- The systems and processes used by Australian auditors to ensure compliance with auditor independence requirements;
- The systems and processes used by professional accounting bodies for planning and performing quality assurance reviews of audit work undertaken by Australian auditors to the extent to which those reviews relate to auditor independence requirements;
- The action that Australian auditors who have been subject to quality assurance reviews involving auditor independence requirements 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 involving auditor independence requirements respond appropriately to the reports prepared as a result of those reviews; and
- The investigation and disciplinary procedures of the professional accounting bodies as those procedures apply to Australian auditors.
- Monitoring the overall compliance by companies, registered schemes and disclosing entities with the audit-related disclosure requirements of the Corporations Act 2001 and the accounting standards.
- Giving the professional accounting bodies reports and advice about the matters relating to the FRC’s auditor independence functions in relation to these bodies.
- Monitoring international developments in auditor independence, assessing the adequacy of the Australian auditor independence requirements provided for in the Corporations Act and codes of professional conduct and in light of those developments, giving the Minister and professional accounting bodies reports and advice on any additional measures needed to enhance the independence of Australian auditors.
- Promoting, and monitoring 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 auditor independence.
4.4 Under this MOU, the specific role and responsibilities of the FRC include:
- Consulting with the NIA on issues of auditor independence 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 the NIA of the adequacy of systems and processes used by the NIA members to deal with issues of auditor independence in light of information obtained by the FRC; and
- Advising the NIA on continuing steps to enhance auditor independence.
5.1 The NIA 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:
- Auditor Independence;
- The Code of Ethics affecting auditors; and
- Professional requirements affecting auditors.
5.2 Subject to the National Privacy Principles in the Privacy Act 1988, the NIA 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 auditor independence 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 affect 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 the NIA and share information in the development of any proposed policies, reports or recommendations relating to:
- Auditor independence;
- A member of the NIA; and
- The audit profession generally.
6. Information Sharing
6.1 To facilitate the performance of the FRC’s auditor independence oversight functions, pursuant to section 225A of the ASIC Act, the FRC may obtain from the NIA information about or documents relating to:
- Its Code of Ethics and any proposed amendments to that Code;
- Its planning and performance of quality assurance reviews, to the extent that those reviews apply to audit work undertaken by Australian auditors; and
- Its investigation and disciplinary procedures, to the extent that those procedures apply to Australian auditors.
6.2 If the FRC requests information from the NIA relating to auditor independence, the FRC will clarify as precisely as possible the information or documents required. It is anticipated that aggregated information would generally be sufficient to discharge the FRC’s responsibilities regarding the oversight of auditor independence. However, the NIA recognises that occasionally the FRC may require more detailed information in order to test the quality of certain systems regarding auditor independence and to fulfill the FRC’s functions and powers. 6.3 The NIA and the FRC acknowledge that if the NIA receives a request for information regarding auditor independence from the FRC, the NIA will have qualified privilege in respect of a disclosure, pursuant to subsection 225A(3) of the ASIC Act. Additionally, a person responding to a notice from the FRC on behalf of a professional accounting body will also have qualified privilege in respect of a disclosure, pursuant to subsection 225A(4) of the ASIC Act. 6.4 Where outside of section 225A of the ASIC Act, the NIA volunteers identifying information to the FRC to assist it in its duties, the FRC and the NIA acknowledge that the NIA would be obliged to comply with the National Privacy Principles and may be required to first consult with the person from whom the information was received, depending on the nature of the information and the purpose for which the information was provided to the NIA. 6.5 In relation to information provided to the FRC other than in accordance with section 225A of the ASIC Act, the FRC recognises that the NIA may also be obliged to comply with the rules of natural justice and may be required to consult with a person likely to be adversely affected by a disclosure of the information, depending on the affect on the person and the use or disclosure proposed to be made. 6.6 The FRC will endeavour not to hold information provided by the NIA for longer than is required for the purpose for which the NIA provided the information.
7.1 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)). 7.2 Recognising that information obtained in the course of monitoring auditor independence 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 the NIA to the FRC relating to the NIA’s operations or regarding a member of the NIA and/or their clients.
8.1 The NIA 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, the NIA 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 particular information is necessary to highlight or address systemic failures in the area of auditor independence. In publicising any identifying information, the FRC would endeavour to only release details necessary for the FRC to fulfill its auditor independence role and exercise its functions and powers. 8.2 Where either the NIA or the FRC passes on information to the other under this MOU which may lead to an investigation or publicity in relation to either the NIA, a member of the NIA, or the FRC, the parties will use their best endeavours to consult with each other prior to this occurring.
9. Reporting to the Minister
9.1 Under paragraph 225(1)(d) of the ASIC Act the FRC is required to report to the Minister and provide advice to the Minister on matters relating to auditor independence. Where such a report or advice has or may have an impact on the NIA or a member of the NIA and the FRC considers it appropriate, the FRC will endeavour to consult with the NIA prior to the issue of the report or advice. Where appropriate, the FRC will also endeavour to provide the NIA, in advance, with a copy of such report or advice as provided to the Minister.
10. Disciplinary Action by the NIA
10.1 In respect of disciplinary action against a member of the NIA for a breach of professional and ethical requirements regarding auditor independence, the NIA undertakes to:
- Inform the FRC of any disciplinary action taken against any member of the NIA in relation to a breach of the NIA’s auditor independence requirements without necessarily identifying individual auditors; and
- Inform the FRC when, to the NIA’s knowledge, one of its members has been referred to the Company Auditors and Liquidators Disciplinary Board in relation to a breach of auditor independence requirements.
11. Liaison Between the NIA and the FRC
11.1 To promote co-operation between the parties, regular liaison meetings will be held between the NIA and the FRC. These meetings should occur at least every six months.
12. Effective Date
12.1 This MOU is effective upon signature of the parties and will remain in effect unless and until terminated as provided below.
13.1 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, the NIA and the FRC will each use their best endeavours to agree upon appropriate amendments or alterations as soon as possible thereafter.
14.1 The NIA or the FRC must give written notice to the other of its intention to terminate this agreement. The agreement will terminate 30 days after the date upon which the notice was given.