EXPLANATORY STATEMENT for
ASIC Corporations (AFSL Audit Opinion) Instrument 2015/586
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes ASIC Corporations (AFSL Audit Opinion) Instrument 2015/586 under section 992B of the Corporations Act 2001 (the Act). Section 992B provides that ASIC may declare that Part 7.8 of the Act applies to a person or a financial product, or a class of persons or financial products, as if specified provisions of Part 7.8 were omitted, modified or varied as specified in the declaration.
- Background
Regulation 7.8.13 of the Corporations Regulations 2001 specifies the information and matters required to be included in an auditor's report to be lodged with ASIC by an Australian financial services licensee (licensee) in accordance with subsection 989B(3) of the Act.
Subparagraph 7.8.13(2)(a)(i) of regulation 7.8.13 requires that the auditor's report to include a statement of the auditor's opinion on the effectiveness of the internal controls used by the licensee to comply with Divisions 2, 3, 4, 5 and 6 of Part 7.8 of the Act.
ASIC Form FS 71 Australian financial service licensee audit report, sets out, among other things, the form in which the auditor's report is to be prepared. When considering revisions to that form, ASIC noted that Division 4A of Part 7.8 had been inserted into the Act in 2009 but that a consequential amendment to regulation 7.8.13 had not been made. This was an oversight at the time. A consequential amendment to regulation 7.8.13 would have included Division 4A of part 7.8 in subparagraph 7.8.13(2)(a)(i) of regulation 7.8.13 along with the existing Divisions 2, 3, 4, 5 and 6.
2. Purpose of the instrument
The instrument makes the consequential amendment to regulation 7.8.13 that was missed when Division 4A was inserted in Part 7.8 of the Act. The instrument ensures that a licensee provide ASIC with an auditor's opinion on the effectiveness of the internal controls used by the licensee to comply with Division 4A as is required for Divisions 2, 3, 4, 5 and 6 of Part 7.8 of the Act.
3. Operation of the instrument
Section 7 of the instrument declares that Part 7.8 of the Act applies in relation to a licensee as if regulation 7.8.13 of the Corporations Regulations 2001 were modified or varied by, in subparagraph 7.8.13(2)(a)(i), after "4," inserting "4A,".
Section 8 of the instrument specifies that the declaration in section 7 applies in relation to financial years ending on or after 30 June 2015.
4. Consultation
Limited consultation was undertaken with the 'Big 6' accounting firms on a draft revised Form FS71, which had been prepared as though the instrument had been issued – that is the auditor's opinion on internal controls required under section 989B(3) of the Act, as specified in regulation 7.8.13, included control over Division 4A. No comments were received about this change.
Wider consultation was not undertaken as the change effected by the instrument reflects the intention of the legislation and is minor and technical in nature.
Overview
The ASIC Corporations (AFSL Audit Opinion) Instrument 2015/586 was enacted by the Australian Securities and Investments Commission (ASIC) under section 992B of the Corporations Act 2001. This instrument was introduced to address an oversight in the original legislation that led to a mismatch between Division 4A of Part 7.8 of the Act and the corresponding regulation 7.8.13 of the Corporations Regulations 2001. The oversight meant that auditors' reports did not include an opinion on the effectiveness of internal controls related to Division 4A, despite such a requirement existing for other divisions within Part 7.8. The instrument ensures that Australian financial services licensees provide a comprehensive auditor's opinion on their internal controls, thereby maintaining consistency and integrity in the regulatory framework.
The purpose of this instrument is to amend regulation 7.8.13 of the Corporations Regulations 2001 to include Division 4A in the auditor's report, thereby aligning it with the requirements of the Corporations Act 2001. The policy objective is to ensure that all relevant internal controls are assessed by auditors, promoting greater compliance and oversight within the financial services sector. The instrument specifies that this amendment applies to financial years ending on or after 30 June 2015. Limited consultation with major accounting firms confirmed the technical nature of the amendment and its alignment with legislative intent.
Scope and Application
The ASIC Corporations (AFSL Audit Opinion) Instrument 2015/586 applies to Australian financial services licensees under the Corporations Act 2001. Specifically, it modifies the auditor's report requirements for these licensees to include an opinion on the effectiveness of internal controls related to Division 4A of Part 7.8 of the Act, which was inadvertently omitted in a previous regulatory amendment. This instrument rectifies that omission, ensuring that licensees must now also report on their compliance with Division 4A's provisions, alongside the other divisions specified in the regulations. The instrument has a national reach within Australia, applying across all jurisdictions where the Corporations Act 2001 operates. It is effective for financial years ending on or after 30 June 2015, and no exclusions or exemptions are specified within the instrument itself, though the scope of application may be further defined through subordinate instruments or related regulations.
Key Provisions
The ASIC Corporations (AFSL Audit Opinion) Instrument 2015/586 operates to amend the existing regulatory framework by ensuring that an Australian Financial Services Licensee (AFSL) must provide an auditor's opinion on the effectiveness of the internal controls used to comply with Division 4A of Part 7.8 of the Corporations Act 2001 (section 7). This amendment rectifies an oversight that occurred when Division 4A was inserted into the Act in 2009, as the consequential amendment to Regulation 7.8.13 of the Corporations Regulations 2001 was not made at that time. The changes mandated by the instrument apply to financial years ending on or after 30 June 2015 (section 8).
Under the Corporations Act 2001, the primary obligation imposed on AFSLs by this instrument is to ensure that their auditor's report includes a statement of opinion on the effectiveness of internal controls related to Division 4A. This mirrors the existing requirement for Divisions 2, 3, 4, 5 and 6 of Part 7.8. The auditor's report must be lodged with the Australian Securities and Investments Commission (ASIC) in accordance with subsection 989B(3) of the Act (subsection 989B(3)). By mandating this inclusion, the Act ensures that the internal control effectiveness concerning all relevant regulatory divisions is transparently reported and verified.
Failure to comply with the requirements set out in this instrument could lead to regulatory consequences. While the instrument itself does not explicitly detail penalties for non-compliance, the Corporations Act 2001 provides a framework for penalties and enforcement actions. Non-compliance could result in administrative penalties, enforcement actions, and potentially civil or criminal proceedings depending on the severity and intent behind the non-compliance. The penalties can include fines up to the statutory maximum for corporations and, in serious cases, criminal penalties for individuals involved.
The instrument aims to ensure regulatory coherence and compliance by aligning the audit requirements with the legislative intent. By correcting the oversight from 2009, the instrument ensures that AFSLs are uniformly required to report on internal control effectiveness across all relevant divisions, thereby maintaining consistent regulatory standards and oversight.