Registration model for audit firms must be proactive on non-compliance, says SMSFA

The SMSF Association said it would support proportionate reform to address identified gaps in the oversight and monitoring of firms that provide audit services.

"While quality management and professional obligations already apply, firm-level accountability should be strengthened through a targeted registration model that applies to all relevant audit firms, regardless of structure, and requires ongoing compliance with international quality management and independence obligations," it said.

However, it told the government the model should be scoped to avoid duplication with existing auditor registration. The new registration model, it said, should exclude authorised audit companies already registered with ASIC and subject to existing requirements, and SMSF auditors who do not audit reporting entities and are already subject to oversight from both the ATO and ASIC.

The submission said introducing a registration model in which firms that provide audit services to reporting entities must be registered and meet ongoing obligations at a firm level to remain registered would be an effective way to address some of the regulatory gaps that currently exist in audit services.

The conditions of registration, it said, should include compliance with quality management standards and independence obligations.

The association also stressed that any new obligations must be proportionate to the nature, scale and complexity of the firm, balancing improved compliance outcomes with the cost and complexity that will flow through to reporting entities.

It also expressed concern that the government’s regulatory responses to misconduct often focus on increasing penalties and consequences after harm has already occurred.

"While appropriate sanctions are important, prevention and early intervention are more effective in improving conduct and reducing public and market harm," the association said.

"They will also reduce resulting investigation and enforcement costs, which are ultimately borne by ASIC-regulated entities under the Industry Funding Model. For a new registration model to be effective, it must support proactive and ongoing monitoring that identifies non-compliance early, before issues become systemic or material."