The Australian counterpart to our Securities and Exchange Commission, the Australian Securities and Investments Commission (ASIC), has begun an investigation into auditor independence issues that closely mirrors the auditor independence analysis that our SEC performed last year. The SEC process resulted in U.S. auditor independence guidelines which, among other things, require publicly held companies to report the amount of fees paid to audit firms for non-audit services.
The ASIC move follows closely in the wake of two highly publicized corporate crashes this year, both fraught with allegations of auditor relationships that were too close to be considered independent.
One case revolved around insurance giant, HIH, which collapsed earlier this year with debts of up to A$4 billion. Arthur Andersen provided audit services to the firm and also collected consultancy fees that totaled just A$100,000 less than the A$1.6 million audit fee.
The other case involved Harris Scarfe, a PricewaterhouseCoopers (PwC) client, a company which also failed. Harris Scarfe paid PwC consultancy fees of A$211,000 and audit fees of A$120,000. Directors of both of the failed companies had worked for the auditors before joining the companies.
As part of its mission to improve financial reporting and protect investors, the ASIC plans to conduct a survey of companies in an effort to determine how independent their auditors are. ASIC has been under pressure to follow the auditor independence trend established by the SEC last year.