By Rob Nicholls, UNSW

SYDNEY: 21 November 2013 - Making a submission to a Senate Committee or any other Parliamentary committee provides business, individuals and industry associations with the opportunity to make their views known. Sometimes the views are completely self-serving and sometimes they are significant contributions to the matters under consideration by the committee. As might be expected, companies generally propose approaches that are in the interests of their shareholders. Industry associations and professional bodies typically make submissions that reflect the view of a majority of their members or a consensus position. It is also usual for submitters to argue that a law under review needs to be amended or repealed.

It is rare for submissions to argue that laws recently passed by the Senate, which is organising the Committee, are wrong or that the Parliament should amend legislation that has not yet gone into effect. It is much more usual for there to be some evidence, before the "I told you so!" submission is made.

However, accounting bodies have deviated from this usual practice in submissions to the Senate Committee investigating the performance of the Australian Securities and Investments Commission (ASIC). These bodies include CPA Australia, the Institute of Chartered Accountants Australia and the Insolvency Practitioners Association.

Earlier in 2013, a Joint Parliamentary Committee examined the adequacy of ASIC's powers as a part of its powers of statutory oversight of ASIC. The issue that faced the Joint Parliamentary Committee was evidence from ASIC of a decline in auditing standards provided by the accounting firms and accountants represented by the accounting bodies. The response to the views of both ASIC and the Joint Parliamentary Committee is that each of Deloitte, Ernst and Young, KPMG and PWC have established action plans and provide transparency reports.

If the Joint Parliamentary Committee was sceptical of the motives of CPA Australia and the Institute of Chartered Accountants Australia, how did they change their submissions to the Senate Committee on the performance of the Australian Securities and Investments Commission? Surprisingly, the answer is that the accounting bodies made the same arguments that had been rejected by the Joint Parliamentary Committee four months earlier.

CPA Australia repeated the complaint that ASIC does not engage with its lobbyists in the way that it would like. The reference made by Alex Malley, chief executive of CPA Australia, to ASIC Chair Greg Medcraft's use of the media was repeated and, with not a hint of irony, Malley's own OpEds in the Financial Review in November 2012 and The Australian in April and May 2013 were submitted to the Senate Committee as if they were evidence. If the material had been expressed as "we no longer have regulatory capture of ASIC", the message could not have been more clear.

The Institute of Chartered Accountants Australia took a slightly more opaque approach in repeating its claim that ASIC is not engaging with the Institute in the way that the Institute would like. "While there will always be a need to maintain a clearly delineated separation of function and accountability between ASIC and external stakeholders, we believe there is a pressing need for ASIC to engage in greater regular collaboration with industry and professional bodies in order to achieve the most effective and efficient regulatory outcomes possible".

Perhaps the most refreshingly honest lament came from the Insolvency Practitioners Association with its shocked note of "the change in ASIC’s regulatory focus from directors’ insolvent trading misconduct to the conduct of liquidators".

Regulators have a critical responsibility to minimise the risk of capture or, perhaps more importantly, the risk of the perception of capture. A similar risk is well understood by the audit profession and each of the transparency reports as part of the action plans referred to above has an aspect of culture of independence.

Deloitte’s message is that "the audit profession is also subject to increasing regulation, and we need to respond quickly and effectively by introducing new capabilities and approaches in response to new rules, standards and expectations".

Ernst and Young describes it as: "Our stance consistently has been that no single client is more important than professional reputation - the reputation of EY Australia and the reputation of each of our professionals".

KPMG refers to it as "Tone at the Top" and states, "We believe that strengthening a culture of professional scepticism and consultation is important to maintain the quality of auditing and promote the rigour and discipline of constant vigilance and continuous improvement".

PWC sets it out as a creed, "We believe that strengthening a culture of professional scepticism and consultation is important to maintain the quality of auditing and promote the rigour and discipline of constant vigilance and continuous improvement".

The "big four" make these statements as a reflection of the global changes in the expectation of quality and independence of the audit process. In contrast, the accounting bodies in Australia repeat arguments that have already been adjudicated. CPA Australia submits "Collaboration and constructive dialogue is critical to the achievement of continuous improvement in audit quality. Clarity and understanding of the audit role among key stakeholders and the wider community is a critical aspect of audit quality". Yet each of the four global audit firms uses transparency reporting to achieve these objectives without demanding that the regulator behave in a specific fashion.

Perhaps the audit sector would be better served by submitting to Parliamentary Committees the direct statements of its members in their transparency reports rather than employing the contradictory and repetitive approach taken by its professional associations.