Background: ASIC’s Interpretation Since 2016
I raise concern over a significant and ongoing inconsistency between ASIC’s current interpretation of the “supervised audits of companies” requirement and the legal position established in Birdseye v ASIC [2006] and Murphy v ASIC [2013].
Both cases confirm that “supervising audits” does not require supervision of staff, but rather substantive oversight of audit engagements—such as determining audit scope, reviewing workpapers, evaluating findings, and ensuring compliance with auditing standards. Regulation 9.2.01(a)(ii) of the Corporations Regulations 2001 retains this same language, yet ASIC now routinely requires evidence of staff supervision—a requirement not supported by legislation or judicial precedent.
Since ASIC’s shift in 2016, following changes to the competency standards and Regulatory Guide 180, this narrower interpretation has imposed a barrier to registration for capable auditors in smaller firms who otherwise meet the legal test. With increasing demand for registered auditors—particularly in areas such as ESG and sustainability assurance—reform is urgently needed to bring ASIC’s licensing approach back into alignment with the law and the realities of modern auditing.
Misconceptions and Barriers for Small Firm Auditors
I am concerned that ASIC and the professional accounting bodies may not fully appreciate the diverse roles RCAs perform, particularly outside the context of large pubic listed entities. Over the past 13 months, during the course of my third RCA application, I have identified a number of misconceptions that contribute to unnecessary barriers for competent auditors in sole practices and small firms.
A commonly held belief appears to be that RCAs primarily service large public listed companies and that it is not possible to conduct an audit without staff. In reality, my mentor Richard and I conduct audits across a wide range of entities—including large and small proprietary companies, AFSL holders, and not-for-profits—without employing staff. We are both sole practitioners. Our experience demonstrates that audit quality can be achieved through direct involvement and professional judgement, rather than through delegation to staff.
This misconception has contributed to a structural imbalance in the audit industry. ASIC’s current interpretation of supervision requirements has created a de facto monopoly, where only large firms are positioned to meet the licensing criteria. This outcome is not consistent with the Corporations Act, nor with the case law. As audit manager on all engagements, I have been directly responsible for planning, executing, and supervising audits in accordance with Australian Auditing Standards. In a small-firm environment, this requires hands-on involvement across all stages of the audit—from risk assessment and fieldwork to final reporting. This model not only maintains audit quality but also promotes independence, integrity, and accountability—qualities essential to the profession.
Proposed Reform: A Second-Tier RCA Licence
To address this imbalance, I support the introduction of a second-tier Registered Company Auditor (RCA) licence that applies to all entities other than listed public companies. This alternative pathway would recognise the experience and capability of auditors who conduct engagements independently and to a high standard, without the need for staff supervision.
Holders of this second-tier licence would be authorised to conduct audits for a broad range of entities, including:
- Large proprietary companies (exceeding $20 million in assets, 100 employees, or $50 million in annual turnover),
- Small proprietary companies,
- Australian Financial Services Licensees (AFSLs),
- Unlisted public companies,
- Australian Credit Licensees,
- Foreign companies registered in Australia,
- Charities and not-for-profits registered with the ACNC, and
- Self-managed superannuation funds (SMSFs).
Eligibility could be based on demonstrated compliance with Australian Auditing Standards, a minimum threshold of relevant audit experience, and professional standing with a recognised body—without requiring the employment or supervision of staff. This framework would maintain integrity and quality while expanding access to the profession.
Public Interest Benefits and Policy Alignment
The introduction of a second-tier RCA licence would address several systemic and regulatory barriers that currently restrict access to the audit profession and limit competition. Under ASIC’s current interpretation, auditors must supervise staff to qualify for registration, which effectively excludes competent sole practitioners and small firm auditors who directly oversee audit engagements but operate without employees. This approach diverges from established case law—particularly Birdseye v ASIC and Murphy v ASIC—which confirm that supervision does not require staff oversight. As a result, the current system favours large firms and has contributed to growing market concentration, creating a de facto monopoly on RCA registrations and undermining diversity in the profession.
Reform would deliver significant public benefit. It would improve access to audit services, particularly in regional and underserved areas where small firms are better positioned to support entities such as charities, SMSFs, ACNC-registered organisations, and AFSL holders. It would also support the growing need for assurance in emerging areas like sustainability and ESG reporting. By broadening the licensing pathway, the profession would become more resilient and diverse, reducing systemic risk tied to overreliance on large firms. A second-tier licence with clearly defined scope and standards would preserve audit quality while mitigating risks of market exit, regulatory inconsistency, and continued misalignment with legislative intent.