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2011-2012

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

CORPORATIONS LEGISLATION AMENDMENT (AUDIT ENHANCEMENT) BILL 2012

EXPLANATORY MEMORANDUM

(Circulated by the authority of the Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP)

Table of contents
Glossary ................................................................................................. 1 General outline and financial impact....................................................... 3 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Auditor rotation requirements .......................................17 Annual transparency reports ........................................27 Auditor independence functions ...................................35 Audit deficiency notifications and reports .....................41 Communications with corporations, registered schemes and disclosing entities ..................................49 Regulation impact statement ........................................55 Statement of Compatibility with Human Rights ............95

Chapter 6 Chapter 7

Index......................................................................................................97

Glossary
The following abbreviations and acronyms are used throughout this explanatory memorandum. Abbreviation AAT AICD ADI APRA ASIC ASIC Act CLERP 9 CLERP 9 Act Definition Administrative Appeals Tribunal Australian Institute of Company Directors Authorised deposit-taking institution Australian Prudential Regulation Authority Australian Securities and Investments Commission Australian Securities and Investments Commission Act 2001 Ninth Phase of the Corporate Law Economic Reform Program Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 Corporations Act 2001 Canadian Public Accountability Board Companies Auditors and Liquidators Disciplinary Board European Commission European Union Financial Reporting Council Group of 100 International Federation of Accountants Public Company Accounting Oversight Board (of US) Audit Quality in Australia: A Strategic Review UK Financial Reporting Council United Kingdom United States of America

Corporations Act CPAB CALDB EC EU FRC G100 IFAC PCAOB Treasury’s audit quality paper UKFRC UK US

1

General outline and financial impact
General outline
The former Chairman of the Financial Reporting Council (FRC) released Treasury’s consultation paper Audit quality in Australia: A strategic review on 5 March 2010 for a two month consultation period. Stakeholders have responded positively to Treasury’s paper and to the consultative process that Treasury has undertaken. Stakeholders have recognised the timeliness of the paper because: • the global financial crisis presented new complexities, risks and uncertainties for auditors (such as the opinion an auditor must make whether it is appropriate for the financial statements to have been prepared on a ‘going concern’ basis and the uncertainties around valuation during periods of market stress). Treasury’s paper provided an opportunity to examine the impact of the uncertain economic environment on audit quality in Australia, including a ‘stress test’ on the robustness of the audit regulation framework and the performance of the audit profession; and • it is more than six years since the major audit reforms were introduced by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (the CLERP 9 Act) and the Treasury paper provided an opportunity to make a measured assessment whether Australia’s audit regulation framework remains in line with best international standards and is consistent with recent international trends in relation to auditor oversight. The methodology adopted in the Treasury paper was to identify the key drivers of audit quality in Australia and assess whether any measures should be taken to address any real or perceived threats to these drivers...
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