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Australia plans stricter controls on auditors
Oct 5, 2001

The Australian government is considering banning auditors from joining the boards of companies they have audited within the previous two years as part of efforts to ensure their independence.

The move - which would bring local regulation closer to new requirements for auditors in the US - follows a string of recent high-profile corporate collapses in Australia, notably the failure of HIH, amid allegations that auditors should have been more rigorous before signing off on the companies' accounts.

Until late last year three of HIH's directors were former partners at Arthur Andersen, the company's auditor. HIH, once one of Australia's biggest insurers, collapsed earlier this year with debts of more than A$4bn ($2bn), becoming the country's biggest corporate failure.

Joe Hockey, minister for financial services andregulation, said on Thursday the government would consider implementing the recommendations of a report that found Australia needed to take more steps to ensure that auditors were independent. Mr Hockey commissioned the report, by a leading academic, following the collapses of HIH and One.Tel, the discount telecoms company. The report, published on Thursday, said that as well as the ban on auditors joining company boards for two years, the government should prevent close relatives of company directors from auditing that company.

It also recommended that auditors be required to disclose the value of other non-audit work done for a company and that stock exchange rules be changed to force all listed companies to have an audit committee.

The Institute of Chartered Accountants in Australia supported the report's main recommendations although it said the problem of auditors accepting directorships was not as great as imagined. "HIH is the first case where this has been highlighted," said Stephen Harrison, ICAA chief executive. "But no evidence has yet been presented to suggest that [the presence of former Andersen partners on the board] compromised Andersen's independence." The opposition Labor party has been pushing for more stringent regulation of auditors for some time, saying Australia should adopt the new requirements recently introduced in the US and being considered in the European Union.

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