A fundamental tenet of company auditing is that the auditor must be independent to the company’s directors and management.
Both the Corporations Act and codes of professional conduct require the auditor to be independent, both in fact and in appearance, when providing non-audit services to their audit clients. Australian Professional and Ethical Standard 110 Section 290 ‘Professional Independence’ requires the application of safeguards to reduce any threats created by the provision of non-audit services at an acceptable level.
To this end, under s.307C of the Act, the auditor must give the company’s directors, in relation to the half-yearly and the annual audits, a written declaration that:
“to the best of the individual auditor’s knowledge and belief:
there have been:
- no contraventions of the auditor independence requirements of this Act in relation to the audit or review; and
- no contraventions of any applicable code of professional conduct in relation to the audit or review; or
- the only contraventions of:
- the auditor independence requirements of this Act in relation to the audit or review; or
- any applicable code of professional conduct in relation to the audit or review;
are those contraventions details of which are set out in the declaration.”
and the Directors’ Report must note that the auditor’s declaration has been received and a copy is included in the financial report [on page X].
In addition, for stock exchange listed companies, the Directors’ Report (incorporated in the annual financial report) must, under s.300(11B), include under the sub-heading “Non-audit Services”:
- a statement whether the directors are satisfied that the provision of non-audit services by the auditor – or another person in the audit firm – is compatible with the general standard of independence imposed by the Act;
- a statement of the directors’ reasons for being satisfied that the provision of non-audit services by the auditor – or another person in the audit firm – did not compromise the auditor’s independence requirements of the Act;
- details of the amounts paid for non-audit services.
*Originally written by Company Secretary, an Australian virtual company secretary service.