Austral Corporations Securities Legislation â€Myassignmenthelp.Com

Question: Discuss About The Austral Corporations Securities Legislation? Answer: Introducation When it comes to choosing potential members for the board of the company or for its audit committees, the retired audit firm partners prove to be an attractive pool. The retired or the former accountants and auditors come in this attractive pool as a result of their in-depth knowledge of not only the field, but also about the present scenario which is being faced by the companies[1]. There is a need for the financial statements of the companies to be audited properly so that it can be ensured that the financial statements of the company present a true and fair view as per the requirements laid down under the statutory law. And this can be done effectively by the people in this attractive pool. But, before a former auditor or accountant joins the board of the company, an independence test is to be fulfilled by them. In the following parts, this very independence test and its need has been elucidated. It is important that the financial statements of the company are properly audited as they depict the position of the company. The same is also significant for ensuring the proper functioning of capital market functions and for a proper corporate governance to exist in the company. If a financial statement is audited properly, it enhances such financial statements validity, helps the users of capital markets in making sound decisions and also helps in getting the costs of capital lowered. As the former auditors and accountants, who have been associated with different companies, are aware of its true position, they are usually given preference by the company to join the board of the company, so that they can ensure that the financial statements present the required true and fair position. This particular requirement has been set out under section 297 of the Corporations Act, 2001[2] as per which the financial statements of the company must present true and fair view of the companys fin ancial performance and position for the period for which the statement is being made[3]. However, before such former auditors are brought on board, the requirement of the independence of the auditors has to be fulfilled. In Australia, as a statutory requirement, a general standard of independence is applied. Under Part 2M.4[4] of Subdivision 3[5] of the Corporations Act, 2001, the requirement of the independence of auditor has been given. As per this act, there should be no conflict of interest; in other words, no such situation should take place where the auditor fails to, or deliberately chooses not to exercise impartiality when they conduct their audit, particularly with reference to the pertinent situations as are applied pursuant to section 324CD of this act[6]. Apart from this, the independence requirements covered under Divisions 3, 4 and 5 of Part 2M.4 and section 307C[7] of this act have to be fulfilled. The other three requirements are covered under APES 110 Code of Ethics for Professional Accountants, Auditing standard ASQC 1 Quality Control for Firms that Per form Audits and Reviews of Financial Reports and Other Financial Information, and Other Assurance Engagements; and Auditing standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, and Other Assurance Engagements[8]. The test of independence is more of a subjective test. An individual with rational care would have to infer all of the relevant information in a logical manner which is available to such person, who the auditor was being faced with in the particular situation and the relationship with the clients does not allow the auditor to be impartial. And only then, this test would be fulfilled. The objectivity has to be continuously applied on both appearance and mind level, and the key aspect which has to be looked after is the relevant situation which the auditor faced, along with the relationship of the auditor with the client. When this test is fulfilled, the confidence of the investors and creditors in the financial statements is enhanced. The issue regarding the independence test for the previous employees has gained popularity in the recent times particularly when the audit partners become board member of their client firm. This has been identified as a serious issue by the different stakeholders particularly because of the violation of independence by the auditor. In case such contravention takes place, it becomes a threat for the autonomy of the audit firm. This issue is not only related to the previous partners, but also goes on to the joining of audit client. The concern is specially raised when these partners decide to exercise their influence over the audit firms and create a sound and continued financial setup with their own audit firms[9]. The audit members, who resign from their audit firms, just for joining the board of the company, could ignore the due diligence which is required on their part, before they leave the audit process. Such individuals who resign from the audit board of the company would have the complete knowledge in the matter of the particular approach which is needed to approach the company due to their knowledge of the audit board of the company, along with its testing strategies. Upon becoming the board of directors of the company, such individuals hold the knowledge regarding the tricks which are needed for avoiding the testing strategy of the audit board and even their procedures[10]. All these reasons and more have led to the need of independence test to be applied when the former auditors and accountants are brought into the board of the company of such company in which the auditor had been an auditor in past. To ensure that the interests of all the stakeholders are properly safeguarded and an unfair control is not employed by such auditors and accountants, the independence test based on the statutory requirement stated above, has to be adhered strictly. References CCH Australia Limited, Australian Corporations Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations (CCH Australia Limited, 2011) Clarke F and Dean G, Indecent Disclosure: Gilding the Corporate Lily (Cambridge University Press, 2007) Corporations Act, 2001 (Cth) ASIC, Auditor independence and audit quality (2014) https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/auditors/auditor-independence-and-audit-quality/ Guy DM, and Zeff SA, Retired Audit Firm Partners on Boards: Independence Considerations (2017) https://www.ruf.rice.edu/~sazeff/PDF/Guy-Zeff-Feb02DM.pdf