Former Securities Officer Calls for Revamp in Audit Committee’s Role After Allco Debacle
Alarmed by the recent failure of a KPMG auditor to properly report the accounts of Allco Finance Group, a former head of the Australian Securities & Investments Commission (ASIC) called for a reform in the way audit committee does its job, including a more transparent reporting and an deeper assessment of a company’s business.
Lee White, Institute of Chartered Accountants (ICA) executive general manager and a former ASIC chief, said that although Australia has seen lesser fallouts of the global financial crisis, the issue on the role of the audit committee to forecast risks to the business model has become more crucial in a time when the audit profession needs enhancement and closer look.
White recommended inclusion of the business model in assessing a company’s account in addition to its financial statement, with view on how debt funding in particular may impact that model. In this case, White added, auditors’ activities within companies must be included in the annual reports to enable transparency in how they carry out their role, giving investors and analysts an overview of the audit committee’s function.
This recommendation, according to White, would also enable the audit committee to establish priorities on where it should devote much effort and time assessing a company’s financial statement. “They could answer the plain question: ‘what did you use to understand the valuation?’ “ he said.
The Treasury solicited in March recommendations on how to increase the profile of the audit committee through new legislations. In its consultation paper, the Treasury raised the point of stipulating in the Corporations Act the role of the audit committee as part of S&P/ASX All Ordinaries Index requirements for all companies.