Richard Hill and Members of the Companies Auditors and Liquidators Disciplinary Board Australian Securities & Investments Commission JOINED PARTY
[2015] AATA 245
•24 April 2015
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2014/6345
General Administrative Division )
Re: Richard Hill
Applicant
And: Members of the Companies Auditors and Liquidators Disciplinary Board
RespondentAnd: Australian Securities & Investments Commission
Other PartyDIRECTION
TRIBUNAL: The Hon. Brian Tamberlin QC, Deputy President
DATE: 25 June 2015
PLACE: Sydney
The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, to alter the text of the decision in this application by:
(a)deleting the words “from 23 December 2014” from the decision on page 1 and replacing them with “from 24 July 2015”; and
(b)deleting the words “from 23 December 2014” from paragraph 52 of the reasons for decision and replacing them with “from 24 July 2015”.
..........................[sgd].........................................
The Hon. Brian Tamberlin QC, Deputy President
[2015] AATA 245
Division GENERAL ADMINISTRATIVE DIVISION File Number
2014/6345; 6346
Re
Richard Hill
APPLICANT
And
Members of the Companies Auditors and Liquidators Disciplinary Board
RESPONDENT
And
Australian Securities & Investments Commission
JOINED PARTY
Decision
Tribunal The Hon. Brian Tamberlin QC, Deputy President
Date 24 April 2015 Place Sydney The Tribunal affirms the decisions to suspend the applicant’s registration as an auditor, for a period of 12 months from 23 December 2014, and to impose undertakings on him as to future conduct and professional training.
The Tribunal directs the parties to file and serve submissions within 14 days as to the disposal of the remaining matters of costs and publication which have been stood over pending this decision.................................[sgd]........................................
The Hon. Brian Tamberlin QC, Deputy President
Catchwords
CORPORATIONS LAW – auditor’s registration – suspension of registration as an auditor – imposition of conditions on future conduct and professional training –previous conditions imposed by ASIC – whether applicant failed to comply with these conditions – whether applicant failed to perform adequately and properly the duties of an auditor – appropriate remedy – decision affirmed
Legislation
Corporations Act 2001 (Cth) ss 324DA, 324DB, 1292(1), 1292(9)
REASONS FOR DECISION
The Hon. Brian Tamberlin QC, Deputy President
24 April 2015
These reasons concern an application for review of the respondent’s decision dated 9 December 2014 to suspend the applicant’s registration as an auditor, for a period of 12 months from 23 December 2014, and also impose undertakings on him as to future conduct and professional training.
There is also an application to review decisions to award costs of the hearing before the respondent to Australian Securities & Investments Commission (“ASIC”) and as to publicity of the decision. The hearing of the review applications of these decisions has been stood over by consent, pending determination of the substantiative decisions to the suspension and undertakings impressed.
the issues
There are three issues arising in relation to the decision as follows:
(1)whether the applicant failed to comply with conditions of his registration as an auditor;
(2)whether the applicant failed to perform adequately and properly the duties of an auditor; and
(3)if the answer to either of the above questions is in the affirmative, what is the appropriate remedy?
legislative provisions
Section 1292 of the Corporations Act 2001 (Cth) (“the Act”) gives the respondent a discretionary power to cancel or suspend for a specified period the registration of the person as an auditor, if it is satisfied on an application by ASIC, that the person has failed to comply with a condition of the person’s registration as an auditor, or has failed to carry out or perform adequately and properly the duties of an auditor, or is otherwise not a fit and proper person to remain registered as an auditor: see s 1292.
Under s 1292(9), where the Board is satisfied that the person has failed to carry out any of the duties or functions under ss 1292(1), 1292(2)(d) or 1292(3)(d) or is otherwise not a fit and proper person, the Board may deal with the person by admonishment or reprimand. The Board may also require the person to give an undertaking to engage in or refrain from engaging in specified conduct, or require the person to give an undertaking to refrain from engaging in specified conduct except on conditions.
It is noted that once the jurisdiction is enlivened, the Board has a discretion as to the appropriate remedy under s 1292. In order for that discretionary power to be enlivened it is necessary for there to have been a failure to comply with a condition of registration or to perform adequately and properly the duties of an auditor.
BACKGROUND
The applicant has been continuously registered as a company auditor since 3 December 1982. ASIC has previously imposed conditions on his registration as an auditor following the decision of an independent ASIC delegate, who found that the applicant had breached ss 324DA and 324DB of the Act, which relate to rotation requirements for auditors of public companies. In a letter to the applicant dated 11 April 2011 ASIC imposed additional conditions on his registration as an auditor. The letter set out four conditions as follows:
“(a)You must complete 40 hours of professional education courses over the 2 years from the date of this letter.
(b)The courses must include education about auditor requirements under the Corporations Act, auditor independence and ethics.
(c)The courses must be completed in addition to the continuing training and development required by The Institute of Chartered Accountants in Australia.
(d)Within 1 month after the end of each of the 2 years, you must give to ASIC in writing details of the courses completed.”
The letter of 11 April 2011 also notified the decision made by the ASIC delegate following a hearing, which had previously been held in October 2010. The letter set out the reasons why additional conditions were being imposed on the applicant’s registration.
On 11 October 2013, ASIC wrote to the applicant stating that it had not received any correspondence relating to the completion of professional education courses and continuous training and development, and that paragraph (d) of the conditions imposed upon the applicant a requirement to provide it with details of the courses completed by May 2013 at the latest.
In its letter of 11 October 2013, ASIC asked the applicant for details of:
1.The courses you completed under paragraphs (a), (b) and (c) of the licence conditions, including the name of the course provider, date completed, hours of professional education and the content of the course. Where available the information provided should include course outlines and/or tax receipts for the training courses.
2.Evidence that the courses referred to in paragraph 1 where completed, in addition to the continuing training and development required by The Institute of Chartered Accountants in Australia.
The letter sought a response by 25 October 2013. There was no response by that date.
On 29 November 2013 the applicant sent an email to ASIC, however this did not provide the information they had requested. The letter relevantly reads as follows:
“I refer to your letter of 11 October 2013.
1. No listed public company audits have been conducted during the 2 years April 2013.
2. On this basis, the additional 40 hours has not been conducted given the reasons for the additional conditions related to the rotation requirements pertaining to listed companies. The additional courses would have placed an unreasonable cost and time burden on the auditor with no immediate opportunity to recoup the time and cost imposed.
3. In addition, the auditor was significantly involved in practice management activities, including by necessity overseeing the firm’s investment in the Port Moresby practice.
4. The auditor still wishes to pursue listed company activities and wishes to seek your permission to comply with those conditions within the next 6 months subject to availability of suitable courses.
5. The firm is also looking at internal restructuring which will result in subject to being registered, a new auditor Colin Lin in DFK who can provide for the rotational issues as they arise. Mr Lin is in the process of lodging his application.
I would like to discuss the above matters at your convenience.
Regards,
Richard Hill” (Emphasis added)
Following that letter there were three Annual Statements filed on behalf of the applicant with ASIC. These statements were dated 18 December 2013, 21 December 2012 and 8 December 2011 respectively.
The Annual Statement on 8 December 2011 stated that the applicant had carried out an audit of listed entity, which was inconsistent with the statement by the applicant in his email of 29 November 2013 that “no listed public company audits had been conducted during the two years April 2013”.
The Annual Statement filed on 21 December 2012 stated, at page 6, that the applicant had carried out an audit of another listed entity. This was again inconsistent with the statement made to ASIC on 29 November 2013.
Each of the three Annual Statements filed with ASIC in the relevant years also falsely stated that the applicant’s registration as a company auditor was not subject to conditions imposed by ASIC.
These statements were signed by the applicant.
LEGAL PRINCIPLES
The relevant legal principles which are applicable to the circumstances of this case are briefly summarised below:
(a)The principal purpose of the proceedings is protective rather than punitive and the guiding principle is protection of the public;
(b)The protection of the public includes ensuring that those who are unfit to practise do not continue to hold themselves out as fit to practise;
(c)The protection of the public includes deterrence;
(d)It also includes the maintenance of a system under which the public can be confident that practitioners will know that breaches of duty will be appropriately dealt with and that the regulatory regime applicable to auditors is effective in maintaining high standards of professional conduct.
(e)The impact of the Board’s orders on the practitioner is to be given limited consideration, as the prime concern of the Board is the protection of the public;
(f)Relevant matters include the respondent’s recognition and acceptance of the breaches of duty, attitude to compliance generally and willingness to improve. Genuine acceptance of failure, contrition and remorse are necessary requirements to rehabilitation; and
(g)If a respondent is not considered fit and proper, suspension is not appropriate unless the Board can be confident that the respondent would be fit and proper after the period of suspension.
breach of condition
As to the conditions (a) and (c) imposed by ASIC on 11 April 2011, the applicant says that these two conditions are ambiguous and confusing, and that this should be taken into account when deciding whether there has been a breach and also on the question of the nature and extent of measures which may be taken under the Act.
I do not accept this submission.
The conditions are clearly and simply expressed in plain language. The expression “course” in the present context, in its ordinary meaning, denotes a systematic or prescribed series of actions. It would include, for example, “a course of studies”, “course of lectures”, “a legal course” or “a medical course”: see Macquarie Essential Dictionary. The applicant contends that the reference to “course” includes informal unsupervised general technical reading as well as formal instruction. The contention is that the applicant carried out parts of the courses required and one component of the applicant’s efforts consisted of informal technical reading, which together should be treated as satisfactory compliance.
I do not accept the proposition that the expression “course” extends to the generalised reading and unspecified activities claimed to have been done by the applicant. It is evident in my opinion having regard to the reference in condition (c) to continuing training and development required by the Institute of Chartered Accountants in Australia (“ICAA”) that the expression refers to a formal, systematic education and not unsupervised “technical” reading.
Given that the applicant has been a registered company auditor since 1982, it is improbable, in my view, that he misunderstood the nature or type or extent of the professional education courses required by condition (a).
It is also clear that the 40 hours of professional education courses are to be undertaken in addition to compliance with the requirements of the ICAA. The applicant submits that there is some ambiguity in relation to the requirement that the courses must include education about “ethics”, in that it does not make it clear whether there must an entire course directed to “ethics” or whether “ethics” can be included in one of the other subjects. On my reading it is clear by reason of the use of the word “about” that there is no necessity to have a discrete dedicated course to ethics as opposed to it being included in one of the other professional education courses.
I note that the applicant took no steps to raise any question of ambiguity or problem with the interpretation or application of the conditions (a) and (c) at the relevant time.
In relation to the conditions as to professional education, the letter of 29 November 2013 from the applicant strongly supports the conclusion that the conditions have been breached and that he was aware of this. The substance of the letter is to admit that the 40 hours have not been conducted but that there was a reasonable basis for non-compliance having regard to the cost and time burden on the auditor, and his inability to recoup the time and cost imposed. His assertion that no listed public company audits have been conducted during the two years is an attempt to minimise the importance of that condition as a practical matter. The letter seeks to excuse his non-compliance as due to a lack of time having regard to his need to oversee the firm’s investment in Port Moresby. He also seeks an extension of time and permission to comply with the conditions within the next six months, if the courses are available. He also seeks to rely on a proposed restructuring.
The applicant sought to minimise the significance of the important admissions in this letter on the basis that it was written before he or his lawyers gave detailed consideration to the problem of construing the requirements. The letter speaks for itself and is an admission of the applicant’s failure to undertake the courses as required.
An attempt was made by the applicant to establish that, in fact, satisfactory courses of professional education had been undertaken and that the requirement has been substantially satisfied. In support of this contention he produced a schedule of time spent in “educational” activities. However, there were no primary documents which supported these assertions, apart from documents later drawn up in the office of the applicant. The records indicate that another member of the firm may have undertaken education but there is no substantial corroboration of the assertions that the applicant has taken the courses as required.
In an attempt to support his case the applicant produced a statement by Mr Black, an experienced and reputable auditor, dated 27 July 2014, which purports to support his contentions as to compliance.
The contents of this document do not significantly advance the contentions of the applicant because Mr Black’s report is based on unverified statements and information provided to him, as to the activities undertaken by the applicant. The report is therefore based on unsubstantiated assumptions of fact and interpretations of law, together with subjective speculation as to what might be accepted as “compliance” with the conditions. Insofar as questions of legal interpretation of the conditions are concerned it is clear that Mr Black does not claim to have any legal expertise. By way of example, Mr Black states that the ICAA requirement that a minimum of 40 per cent of the 120 hours required be undertaken in each of the Audit and Tax topics was prima-facie not met by the applicant in respect of the audit component, as only 20 formal hours of audit training had been undertaken. He also ventures the opinion that it would be reasonable to count “technical reading” as opposed to formal study as satisfying the requirement without any factual basis to justify this assertion.
In considering whether there has been breach of the conditions, I consider that the admissions made by the applicant in his letter of 29 November 2013 clearly indicate that he had not complied with the conditions, yet he later sought to argue that he did. This approach indicates a failure to appreciate the need for strict compliance in circumstances where he has previously failed to observe the requirements of the Act.
In relation to condition (d) it was admitted that there has been no compliance. The applicant has taken no positive action to give any required details at the end of the first year period as to courses completed. This is consistent with there being no completed courses. It was the initiative taken by ASIC in writing to the applicant on 11 October 2013 which first raised the non-compliance.
The applicant seeks to diminish the significance of this non-compliance by submitting that somehow there was fault, blame or oversight on the part of ASIC by not investigating and following up compliance with the conditions. In my opinion this submission carries no weight. The obligation to comply is clearly on the applicant. It is essential that a regulatory body such as ASIC should be able to rely on professional auditors’ compliance with conditions of registration and that the public should be able to act on the basis that practising auditors complied with the requirements of regulatory bodies.
The furnishing of details of courses completed is an important condition which has admittedly been breached. This breach alone is sufficient to enliven the power of the Board to take action under s 1292.
Having regard to the foregoing, I am satisfied that there have been failures to comply with conditions of the applicant’s registration as an auditor such as to give rise to the discretion in s 1292(1).
duties as an auditor – was there a failure?
The respondent contends that the applicant failed to carry out or perform adequately and properly the duties of an auditor because in the Annual Statements that he lodged with ASIC in December 2011, 2012 and 2013, it was wrongly stated that his registration as a company auditor was not subject to conditions imposed by ASIC. Filing of this statement is required by s 1287A of the Act.
In each of the three Annual Statements the applicant declared that to the best of his knowledge and belief the information supplied in and with the statement was complete and accurate. In each case that declaration was false and misleading. ASIC contends that the applicant’s false statements were made either knowingly or negligently, and that the making of the false statement on several occasions constituted a significant failure on each occasion to carry out or perform adequately and properly the duties of an auditor. I agree.
The applicant contends that the requirement for the filing of an Annual Statement cannot be part of the “duties of an auditor” within the meaning of this s 1292(1)(d).
I do not accept this submission because the filing of the Annual Statement is the statutory duty imposed on an auditor. If that is not considered a duty of the auditor, one must ask what the proper characterisation of a duty is.
The applicant’s submission is unduly restrictive of the expression “duty of an auditor” without any textual or commercially sensible justification. There is no reason for reading down the expression “duties of an auditor”. The legislation is clearly designed to protect the public by ensuring the efficient operation of the regulatory system, such that the public can confidently rely on statements of a registered auditor.
In each of the Annual Statements by an auditor the question is asked whether registration as a company auditor is subject to conditions imposed by ASIC. If the question is answered in the affirmative then it is necessary to give some further details as to compliance with conditions, dates of non-compliance, and the nature of the non‑compliance. The question was answered in the negative and further details were not given.
These are significant matters in relation to the effective enforcement and regulation of an auditor’s performance and activities and they go to the protection of the public.
The evidence shows that on the page following the box in which a cross appears, indicating a negative answer to the question, the applicant has signed the unequivocal statement declaring that the information supplied in and with the document is complete and accurate and it authorises ASIC to take action to verify that the statements and certifications made in the document are not false or misleading.
There have clearly been false and misleading statements in breach of the auditor’s duties.
In the present circumstances, I am satisfied that the incorrect statements were made and repeated as a consequence of substantial inadvertence by the Applicant. I consider that they were made as a consequence of insufficient control procedures extending over a period of several years such as to call for a significant sanction.
The applicant has sought to excuse the default by stating that one of his executive assistants completed the form without correction from the applicant and copied part of each form from the previous year’s form and he then signed it. I do not accept that this diminishes the significance of the inadvertence. It demonstrates a repeatedly serious disregard of his obligations and a failure to prevent the issue of a misleading document.
The applicant submits that the degree of fault is diminished because the false statements in effect were one single act of inadvertence rather than two or three. In my view there were at least two separate incidents in which the applicant signed the form making a false statement. It was not one single act. There were two distinct breaches and an ongoing failure to ensure the accuracy of statements or to take steps to correct the misleading nature of the assertions.
For the above reasons I am satisfied that the applicant has failed to carry out or perform adequately and properly his duties as an auditor in relation to the Annual Statements.
SANCTION
I am satisfied that the repeated failure to detect, correct or prevent false statements in the Annual Statements amount to serious inadvertence, and that the non-compliance with ASIC’s conditions was serious, particularly having regard to the fact that the requirements were imposed as a consequence of a previous breach by the applicant in relation to rotation. The context in which the conditions were imposed should have caused a competent and responsible auditor to be more attentive and careful to ensure compliance.
It is settled law that the main purpose of the power is protective rather than punitive and that such protection can involve deterrence designed to ensure that auditors will perform the duties properly and with due care in the public interest. It is essential to maintain the integrity of the regulatory system which is designed to protect the public by the identification, investigation and remedy of breaches of duty so as to maintain standards of professional conduct. If false reports are furnished, the integrity and reliability of the system will be undermined in that potential breaches will not be brought to the attention of the regulator and appropriate action may not be taken.
It is also necessary to take into account the impact of the orders on the practitioner, the nature, extent and relevance of character evidence, the consequences and losses sustained as a result of breaches and impact on the public interest. The character references as to the general repute of the applicant and as to his perceived ability are in his favour in deciding what action should be taken. I have taken these matters into account, however, notwithstanding the strength of the support they provide, I consider that in this case the need for protection and deterrence outweighs the other considerations. The implication of the suspension imposed below should in my view provide a substantial incentive for the Applicant to pay close attention to the need for compliance notwithstanding his inconvenience, lack of time or expense which he has pleaded as mitigating circumstances.
In the light of the foregoing considerations I am satisfied that the applicant has failed to carry out or perform adequately or properly perform the duties mentioned in s 1292(1)(d) and that the appropriate decision was to suspend the applicant’s registration as an auditor, for a period of 12 months from 23 December 2014 and also impose undertakings on him as to future conduct and professional training.
DECISION
The decision under review as to suspension and undertakings is affirmed.
I certify that the preceding 53 (fifty -three) paragraphs are a true copy of the reasons for the decision herein of The Hon. Brian Tamberlin QC, Deputy President ...........................[sgd].............................................
Associate
Dated 24 April 2015
Date of hearing 12 February 2015 Counsel for the Applicant Mr T D Castle Solicitors for the Applicant Sophie Grace Legal Pty Ltd Solicitors for the Respondent Australian Government Solicitor Solicitors for the Other Party In house Counsel for the Other Party Mr A Connolly
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