Following ASIC's proactive auditor independence surveillance and subsequent investigation, ASIC has accepted three court enforceable undertakings for multiple auditor rotation breaches from registered company auditors connected with Hall Chadwick (NSW).
Drew Townsend, and former partners, Sandeep Kumar and Graham Webb, admitted that between 2019 and 2023 whilst they were auditors at Hall Chadwick (NSW), they acted as lead auditor on a combined 14 occasions across 8 listed companies when they were not eligible to do so.
Auditors are permitted to act as lead auditor of a listed company for five years. When certain requirements are met, an auditor may extend their role for up to two more years. Mr Townsend, Mr Kumar and Mr Webb did not meet the eligibility requirements to extend beyond five years on these occasions.
The auditors relied on Hall Chadwick (NSW) having a system of quality management in place to address compliance with the independence and auditor rotation requirements.
ASIC considered Hall Chadwick (NSW)'s system of quality management was deficient. The registered company auditor members of Hall Chadwick (NSW) subsequently admitted they failed to adequately and properly design, implement and operate a system of quality management to ensure its personnel complied with the relevant requirements, including those related to independence.
The current registered company auditor members of Hall Chadwick (NSW) have undertaken to engage an independent expert to:
- review Hall Chadwick (NSW)'s system of quality management for compliance with the relevant requirements, relating to auditor independence and conflict of interest obligations, and
- test the implementation of any recommendations made and remedial actions taken.
Additionally, ASIC has accepted undertakings from each auditor, for a period of time, to inform ASIC and submit evidence of compliance, when they wish to extend the eligibility term beyond five years.
Commissioner Kate O'Rourke said "It is concerning that the system of quality management at Hall Chadwick (NSW) failed to prevent and detect multiple breaches of the auditor rotation requirements by three audit partners. The ability to audit a listed company beyond five years is a privilege governed by strict requirements, designed to preserve independence, address conflicts of interest and uphold audit quality. ASIC will take action where auditor independence is undermined".
Background
ASIC is responsible for the registration and oversight of registered company auditors. Maintaining independence standards across the audit profession is fundamental to the integrity and confidence in our capital markets.
ASIC's proactive auditor independence surveillance focussed on auditors' compliance with independence and conflict of interest obligations, including auditor rotation, as announced in 24-240MR ASIC releases FY 2023-24 financial reporting and audit report and launches auditor independence surveillance. A report outlining the collective results of ASIC's surveillance will be released shortly.
Today, firms must have a system of quality management in place that complies with the relevant ethical requirements, in accordance with Auditing Standard ASQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements.
Court enforceable undertakings
A court enforceable undertaking is an administrative remedy to improve and enforce compliance with the legislation administered by ASIC. If the persons do not comply with the undertakings, ASIC will seek to enforce the undertaking through the court.
Further guidance on how ASIC uses court enforceable undertakings can be found in Regulatory Guide 100 Court enforceable undertakings (RG 100)
The court enforceable undertakings are publicly available on the register: Court enforceable undertakings register and Information Sheet 28 About the court enforceable undertakings register provides information about the court enforceable undertakings register.
View the court enforceable undertakings register for:
- Court Enforceable Undertaking - The registered company auditor members of Hall Chadwick (NSW), including Drew Townsend
- Court Enforceable Undertaking - Graham Webb
- Court Enforceable Undertaking - Sandeep Kumar
