MOU between CA ANZ and the FRC

1. Parties to Memorandum

1.1 This Memorandum of Understanding (MOU) is between Chartered Accountants Australia and New Zealand (CA ANZ) and the Financial Reporting Council (FRC).

2. Purpose

2.1 CA ANZ 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, CA ANZ 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 CA ANZ

3.1 CA ANZ is a professional accounting body having a primary role to enhance and promote the reputation and role of Chartered Accountants which in turn will benefit the business community and the public interest.

3.2 Under this MOU, the specific role and responsibilities of CA ANZ include:

• Providing the FRC with information concerning CA ANZ’s Quality Assurance reviews, in relation to audit quality, 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 CA ANZ’s disciplinary process regarding auditors, including:
  • CA ANZ’s Constitution, by-laws and procedures relative to disciplinary processes;
  • General information about Australian auditors who have been subject to disciplinary action by CA ANZ without necessarily identifying individual auditors;
  • Whether CA ANZ has received a complaint regarding audit quality by an Australian auditor and any action taken by CA ANZ without necessarily identifying individual auditors; and
• Providing the FRC with information about relevant 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 quality of audits 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 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; and
• 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.
• The adequacy of the provisions of the Corporations Act, 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 CA ANZ 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 CA ANZ of the adequacy of systems and processes used by the CA ANZ members to deal with issues of audit quality in light of information obtained by FRC;
• Providing CA ANZ with intelligence and de-identified data trends on operational matters;
• Providing CA ANZ with names of CA ANZ members where serious misconduct has been proven and deidentified trends on misconduct matters;
• Advance notice, 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 CA ANZ on continuing steps to enhance audit quality.

5. Consultation

5.1 CA ANZ 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 Australian Privacy Principles in the Privacy Act 1988, CA ANZ 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 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 CA ANZ and share information in the development of any proposed policies, reports or recommendations relating to:

• Auditor Independence;
• A member of CA ANZ; and
• The Audit profession generally.

6. Information Sharing

6.1 To facilitate the performance of the FRC’s audit quality oversight functions, pursuant to section 225A of the ASIC Act, the FRC may obtain from CA ANZ information about or documents relating to:

• 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 CA ANZ relating to audit quality, 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 audit quality. However, CA ANZ recognises that occasionally the FRC may require more detailed information in order to test the quality of certain systems regarding audit quality and to fulfill the FRC’s functions and powers.

6.3 CA ANZ and the FRC acknowledge that if CA ANZ receives a request for information regarding audit quality from the FRC, CA ANZ 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, CA ANZ volunteers identifying information to the FRC to assist it in its duties, the FRC and CA ANZ acknowledge that CA ANZ would be obliged to comply with the Australian 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 CA ANZ.

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 CA ANZ 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 CA ANZ for longer than is required for the purpose for which CA ANZ provided the information.

7. Confidentiality

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 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 CA ANZ to the FRC relating to CA ANZ’s operations or regarding a member of CA ANZ and/or its clients.

8. Publicity

8.1 CA ANZ 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, CA ANZ 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 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 and will consult with CA ANZ prior to the publication and take CA ANZ’s comments into account.

8.2 Where either CA ANZ or the FRC passes on information to the other under this MOU which may lead to an investigation or publicity in relation to either CA ANZ, a member of CA ANZ, or the FRC, the parties will use their best endeavours to consult with each other prior to this occurring and take CA ANZ’s comments into account.

9. Reporting to the Minister

9.1 Under paragraph 225(2C) of the ASIC Act the FRC is required 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 CA ANZ or a member of CA ANZ and the FRC considers it appropriate, the FRC will endeavour to consult with CA ANZ prior to the issue of the report or advice and take CA ANZ’s comments into account.

Where appropriate, the FRC will also endeavour to provide CA ANZ, in advance, with a copy of such report or advice as provided to the Minister.

10. Disciplinary Action by CA ANZ

10.1 In respect of disciplinary action against a member of CA ANZ for a breach of professional and ethical requirements regarding audit quality, CA ANZ undertakes to:

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

11. Liaison Between CA ANZ and the FRC

11.1 To promote co-operation between the parties, regular liaison meetings will be held between CA ANZ 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. Amendments

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, CA ANZ and the FRC will each use their best endeavours to agree upon appropriate amendments or alterations as soon as possible thereafter.

14. Termination

14.1 CA ANZ 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.