Corporations Act 2001

CHAPTER 2M - FINANCIAL REPORTS AND AUDIT  

PART 2M.4 - APPOINTMENT AND REMOVAL OF AUDITORS  

Division 3 - Auditor independence  

Subdivision B - Specific requirements  

Note: This Subdivision applies in relation to retail CCIVs in a modified form: see section 1232P .

SECTION 324CF   AUDITOR INDEPENDENCE - SPECIFIC REQUIREMENTS FOR AUDIT FIRM  

Contraventions by members of audit firm

324CF(1)    
A person (the defendant ) contravenes this subsection if:

(a)    an audit firm engages in audit activity at a particular time; and

(b)    a relevant item of the table in subsection 324CH(1) applies at that time to a person or entity covered by subsection (5) of this section; and

(c)    the defendant is a member of the audit firm at that time; and

(d) the defendant is or becomes aware of the circumstances referred to in paragraphs (a) and (b) ; and

(e)    the defendant does not, as soon as possible after the defendant becomes aware of those circumstances, take all reasonable steps to ensure that the audit firm does not continue to engage in audit activity in those circumstances.

Member of audit firm to notify ASIC

324CF(1A)    
A person (the defendant ) contravenes this subsection if:

(a)    an audit firm is the auditor of an audited body; and

(b)    a relevant item of the table in subsection 324CH(1) applies to a person or entity covered by subsection (5) of this section while the audit firm is the auditor of the audited body; and

(c)    the defendant is a member of the audit firm at a time when the circumstances referred to in paragraph (b) exist; and

(d)    on a particular day (the start day ), the defendant becomes aware of the circumstances referred to in paragraphs (a) and (b) ; and

(e)    at the end of the period of 7 days from the start day:

(i) the circumstances referred to in paragraph (b) remain in existence; and

(ii) ASIC has not been informed in writing of those circumstances by the defendant, by another member of the audit firm or by someone else on behalf of the audit firm.

Note: If the audited body is a public company, a registered scheme or a registrable superannuation entity, the audit appointment will be terminated at the end of the period of 21 days (or a longer period that has been approved by ASIC) from the day a notice under this subsection is given if the notice is not followed up by a notice under:

(a) subsection 327B(2B) (public company); or

(b) subsection 328E(4) (public company with crowd-sourced funding); or

(c) subsection 331AAA(2B) (registered scheme); or

(d) subsection 331AH(4) (registrable superannuation entity).

324CF(1B)    
A person is not excused from informing ASIC under subsection (1A) that the circumstances referred to in paragraph (1A)(b) exist on the ground that the information might tend to incriminate the person or expose the person to a penalty.

324CF(1C)    
However:

(a)    the information; and

(b)    the giving of the information;

are not admissible in evidence against the person in a criminal proceeding, or any other proceeding for the recovery of a penalty, other than proceedings for an offence based on the information given being false or misleading.

324CF(1D)    
If ASIC is given a notice under paragraph (1A)(e) , ASIC must, as soon as practicable after the notice is received, give a copy of the notice to the audited body.

Contravention of independence requirements by members of audit firm

324CF(2)    
A person (the defendant ) contravenes this subsection if:

(a)    an audit firm engages in audit activity at a particular time; and

(b)    a relevant item of the table in subsection 324CH(1) applies at that time to a person or entity covered by subsection (5) of this section; and

(c)    the defendant is a member of the audit firm at that time.

324CF(3)    
For the purposes of an offence based on subsection (2) , strict liability applies to the physical elements of the offence specified in paragraphs (2)(a) and (b) .

Note 1: For strict liability , see section 6.1 of the Criminal Code .

Note 2: Subsection (4) provides a defence.

324CF(4)    
A person does not commit an offence because of a contravention of subsection (2) in relation to audit activity engaged in by an audit firm at a particular time if the person has reasonable grounds to believe that the audit firm had in place at that time a quality control system that provided reasonable assurance (taking into account the size and nature of the audit practice of the audit firm) that the audit firm and its employees complied with the requirements of this Subdivision.

Note: A defendant bears an evidential burden in relation to the matters in this subsection, see subsection 13.3(3) of the Criminal Code .

People and entities covered

324CF(5)    

The following table sets out:

(a)    the persons and entities covered by this subsection in relation to audit activity engaged in by an audit firm; and

(b)    the items of the table in subsection 324CH(1) that are the relevant items for each of those persons and entities:

Table for audit firms

Table for audit firms

Audit firm
Item	For this person or entity...	the relevant items of the table in subsection 324CH(1) are...
1	the firm	4 7 10 to 19
2	a service company or trust acting for, or on behalf of, the firm, or another entity performing a similar function	4 7 10 to 19
3	a member of the firm	1 to 7 9 15
4	a professional member of the audit team conducting the audit of the audited body	1 to 6 8 to 19
5	an immediate family member of a professional member of the audit team conducting the audit of the audited body	1 and 2 10 to 19
6	a person who:	10 to 12
		(a) is a non-audit services provider; and (b) does not satisfy the maximum hours test in subsection (6)
7	an immediate family member of a person who:	10 to 12
		(a) is a non-audit services provider; and (b) does not satisfy the maximum hours test in subsection (6)
8	an entity that the firm (or a service company or trust acting for, or on behalf of, the firm, or another entity performing a similar function) controls	15
9	a body corporate in which the firm (or a service company or trust acting for, or on behalf of, the firm, or another entity performing a similar function) has a substantial holding	15
10	an entity that a member of the firm controls or a body corporate in which a member of the firm has a substantial holding	15
11	a person who:	1 and 2
		(a) is a former member of the firm; and (b) does not satisfy the independence test in subsection (7)
12	a person who:	1 and 2
		(a) is a former professional employee of the firm; and (b) does not satisfy the independence test in subsection (7)

Maximum hours test

324CF(6)    
A non-audit services provider satisfies the maximum hours test in this subsection if:

(a)    the number of hours for which the person provides services (other than services related to the conduct of an audit) to the audited body on behalf of the auditor during the period to which the audit relates does not exceed 10 hours; and

(b)    the number of hours for which the person provided services (other than services related to the conduct of an audit) to the audited body on behalf of the auditor during the 12 months immediately before the beginning of the period to which the audit relates does not exceed 10 hours.

In a prosecution for an offence based on subsection (1) or (2) , the prosecution must prove that the non-audit services provider did not satisfy the maximum hours test in this subsection.

324CF(6A)    

Paragraphs (6)(a) and (b) do not apply if:

(a)    the audited body is a registrable superannuation entity; and

(b)    the services are required or permitted to be provided under the prudential standards (within the meaning of the Superannuation Industry (Supervision) Act 1993 ).

Independence test

324CF(7)    
A person satisfies the independence test in this subsection in relation to a firm if the person:

(a)    does not influence the operations or financial policies of the accounting and audit practice conducted by the firm; and

(b)    does not participate, or appear to participate, in the business or professional activities of the accounting and audit practice conducted by the firm; and

(c)    does not have any rights against the firm, or the members of the firm, in relation to the accounting and audit practice conducted by the firm in relation to the termination of, or the value of, the person's former partnership interest in the firm; and

(d)    has no financial arrangements with the firm in relation to the accounting and audit practice conducted by the firm, other than:

(i) an arrangement providing for regular payments of a fixed pre-determined dollar amount which is not dependent, directly or indirectly, on the revenues, profits or earnings of the firm; or

(ii) an arrangement providing for regular payments of a dollar amount where the method of calculating the dollar amount is fixed and is not dependent, directly or indirectly, on the revenues, profits or earnings of the firm; and

(e)    without limiting paragraph (d) , has no financial arrangement with the firm to receive a commission or similar payment in relation to business generated by the person for the accounting and audit practice conducted by the firm.

In a prosecution for an offence based on subsection (1) or (2) , the prosecution must prove that the person did not satisfy the independence test in this subsection in relation to the firm.

324CF(8)    
In applying subsection (7) , disregard any rights that the person has against the firm, or the members of the firm, by way of an indemnity for, or contribution in relation to, liabilities incurred by the person when the person was a member or employee of the firm.

Meaning of holding by firm in body corporate

324CF(9)    
For the purposes of item 9 in the table in subsection (5) , a firm is taken to have a holding in a body corporate if the holding is one of the firm's partnership assets.