9 May 2025
I write to draw the ANAO’s attention to concerns regarding ASIC’s application of the term “supervising audits of companies” under Regulation 9.2.01(a)(ii) of the Corporations Regulations 2001 and section 1280 of the Corporations Act 2001. In practice, ASIC appears to interpret “supervision” narrowly to mean direct supervision of audit staff, excluding sole practitioners or small-firm auditors who oversee audits without employees. This interpretation is inconsistent with legislative intent and legal precedent.
The Administrative Appeals Tribunal has confirmed that “supervision” is broader than signing audit opinions or directly managing junior audit staff. In Nicholas Guy Birdseye v Australian Securities and Investments Commission, the Tribunal held that supervising audits includes responsibilities such as:
• Planning the audit
• Managing the engagement
• Reviewing audit findings
• Overseeing audit documentation and risk assessments
(Refer: [1126]–[1129] of the decision)
Importantly, this supervisory role encompasses the strategic and technical oversight required to form audit opinions, irrespective of whether subordinate staff are present.
In Re Higham (1987) 5 ACLC 352, the Queensland Supreme Court clarified that audit supervision extends beyond intensive fieldwork and includes:
• Ongoing review of audit strategy
• Liaison with the client
• Periodic review of the entity’s activities
• Resolution of audit-related issues (e.g. accounting treatment in financial statements)
• Preparation of final review notes
This case also recognised that a person may still satisfy the supervision requirement if only 10% of their time is spent on direct audit tasks, provided they exercise continuous oversight and hold overall responsibility for the audit.
Regulation 9.2.01(a)(ii) requires at least 750 hours supervising audits of companies in the 5 years prior to application. This is in addition to the 3000 hours of audit experience under a Registered Company Auditor (RCA) required under reg 9.2.01(a)(i). The term “supervising” must be interpreted in light of the broader auditing responsibilities described in legislation and case law.
Finally, audits of entities with company-like attributes (e.g. large incorporated associations or charities with ASIC-style reporting obligations) have been recognised as substantively equivalent for supervision purposes.
Therefore, ASIC’s refusal to recognise audit supervision conducted by sole practitioners or non-employer auditors is inconsistent with legislative standards and judicial interpretation. I respectfully submit that the ANAO recommend that ASIC align its assessment framework with the definitions established in Birdseye, Re Higham, and the Corporations Regulations, and recognise the full scope of audit supervision, including planning, engagement oversight, and technical review—even in the absence of subordinate staff.