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Posts Tagged ‘RCA’

Reforming RCA Licensing: Addressing ASIC’s Interpretation & Expanding Audit Capacity

Posted on: July 25th, 2025

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.

Accessibility of ASIC Registered Auditor Status for Small Firms

Posted on: July 25th, 2025

I write to express concern regarding a significant and unresolved inconsistency between ASIC’s current application of the “supervised audits of companies” requirement and the interpretation endorsed by the Administrative Appeals Tribunal in Birdseye v ASIC [2006].

The central issue in Birdseye was the interpretation of the phrase “supervising audits.” Although the legislative framework has since been amended to include more prescriptive hour-based requirements, Regulation 9.2.01(a)(ii) continues to use the same key language: “supervising audits of companies.”

The Birdseye decision addressed the meaning of this phrase, concluding that “supervision” did not require the applicant to have supervised staff, but could instead include substantive oversight of audit engagements—such as determining audit scope, reviewing documentation, evaluating findings, and ensuring compliance with audit standards.

Similarly, in Murphy v ASIC [2013] AATA 810, the Tribunal reinforced that the key consideration is whether the applicant genuinely supervised audits—not merely participated in them or performed review tasks. Importantly, neither decision required supervision of employees or the employment of staff. The focus was, and remains, on the nature and substance of the applicant’s role in overseeing audit engagements.

Since the introduction of the revised Auditing Competency Standard in 2015 and ASIC’s Regulatory Guide 180 in 2016, however, ASIC’s application of this requirement appears to have shifted. The current approach routinely demands evidence of direct staff supervision—a position that is not supported by legislation or case law, including Birdseye and Murphy.

I bring over 20 years of diverse audit experience, including audits of large proprietary companies, public companies, AFSL holders, small proprietary entities, and self-managed superannuation funds. Yet, despite satisfying both the legislative intent and the practical experience requirements of s1280(2) of the Corporations Act 2001, my application has not progressed due to ASIC’s narrow interpretation of “supervision.”

With Australia facing growing demand for registered auditors—particularly with the emergence of sustainability and ESG assurance—the current licensing approach risks unnecessarily excluding competent professionals. I respectfully suggest that reform is urgently needed to ensure that the registration process aligns with both the legal framework and the practical realities of modern auditing.

Submission to the ANAO – ASIC’s Interpretation of “Supervising Audits of Companies”

Posted on: June 10th, 2025


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.

Treasury’s ANAO Finally Investigating ASIC’s RCA Licensing – A Small Firm’s Fight for Fairness

Posted on: April 16th, 2025

After more than two years of battling red tape, industry silence, and outdated licensing processes, the movement to reform ASIC’s Registered Company Auditor (RCA) registration system is finally gaining traction. Treasury, via the Australian National Audit Office (ANAO), has now launched a performance audit into ASIC’s regulation of company auditors — and I couldn’t be more relieved.

This has been a long road.

I began my RCA registration journey nearly two and a half years ago. For the past 12 months, I’ve actively been campaigning to expose the significant barriers faced by small firms trying to enter the audit profession in Australia. My campaign has included hundreds of hours of unpaid advocacy, writing to just about every institution that might listen.

A Letter-Writing Marathon

Since 2023, I’ve sent over 1,000 letters and emails — not a typo — to the following:

ASIC Chair and executive staff

Treasury representatives

Federal and state politicians

The Prime Minister’s Office

Industry regulators including the AASB and FRC

Professional bodies such as CPA Australia, CA ANZ, and IPA

Media outlets like the AFR, Accountants Daily, and Inside Small Business

Think tanks, environment groups, and public policy forums

And that’s just the short list.

Despite this mountain of effort, my applications to become an RCA have repeatedly hit roadblocks. The core issue? An outdated and anti-competitive licensing regime that seems to favor large audit firms and overseas-trained auditors — while making it near impossible for competent small-practice professionals to qualify.

Discrimination by Design?

The system is stacked. ASIC’s registration requirements are structured in such a way that they actively discriminate against sole practitioners and small firms. They rely heavily on traditional, hierarchical firm structures and ignore collaborative, project-based training models that are common in smaller practices. This is not only unfair — it’s economically short-sighted.

Treasury and ASIC appear to accept audit formats provided by large international firms while rejecting perfectly capable Australian applicants with years of practical experience. It’s a system that values form over substance.

Meanwhile, I’ve assisted with articles explaining why the one-on-one training in small firms often results in more robust and rounded auditors compared to conveyor-belt graduates in big firms. Unfortunately, those in charge of licensing have been slow — if not outright unwilling — to engage with these ideas.


ANAO Steps In – At Last

After multiple submissions to the ANAO in late 2024 — and after my articles were published in Accounting Times and Inside Small Business — the ANAO has finally opened its doors to these concerns. Their current review of ASIC’s RCA registration regime is a direct result of industry pressure and grassroots advocacy.

Encouragingly, once I named certain industry bodies in my submissions, some of them began to take the issue more seriously. CPA Australia and CA ANZ, among others, have now lodged submissions of their own to the ANAO — a sign that the tide may finally be turning.

A Ripple Becoming a Wave

In recent months, I’ve been heartened to see more accounting publications and professionals speaking out. The audit industry’s decline — especially among domestic RCAs — is no longer something we can ignore. With new sustainability and environmental reporting standards on the horizon, the need for a strong, sustainable pipeline of local auditors is more critical than ever.

Yet without reform, we risk creating an even greater reliance on imported labour and large firms, which will further sideline small Australian practices.
Where to From Here?

This fight isn’t over. If you’re a small practitioner, an aspiring RCA, or someone who simply believes in fair and open access to the profession, now is the time to speak up.

Make your submission to the ANAO. Contact your professional body. Share your story. The more voices behind this, the stronger our case for lasting change.

Thank you for the support from Accountants Daily.

https://www.accountantsdaily.com.au/regulation/20858-small-firm-accountants-face-major-barriers-to-auditor-registration