Auditor Independence Reforms: Audit Committee Members' Views

Recent national and international corporate collapses raised questions about the adequacy of corporate governance practices. Specifically, questions have arisen regarding the accuracy of financial reports, the adequacy of financial\ud disclosures and the role of auditing, all of which are important monitoring devices. The collapses of Enron and HIH Insurance specifically focused the corporate governance debate on the need for, and mechanisms to achieve, auditor independence. The responses have varied with stakeholders adopting a variety of, and at times conflicting, positions. The legislative response in the United States, namely the Sarbanes-Oxley Act 2002, has been strong, while in Australia the passing of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 in June 2004 aims (among other things) to strengthen auditor independence in-appearance. The unanswered question is whether the enactment and enforcement of legislation to strengthen auditor independence will make any difference to auditor independence in-fact as opposed to in-appearance and ultimately to the level and extent of corporate collapses. This article reports on the surveyed views of audit committee members on a range of auditor independence issues arising in the context of the corporate governance debate. It is likely that any legislative changes will impact upon the role and/or functioning of the audit committee. Consequently, the views of audit committee members are likely to make a valuable contribution to the current debate. We canvassed audit committee members’ views of reforms proposed in the CLERP 9 discussion paper (at\ud the time the survey was administered, the Draft Bill had not been released) and by other stakeholders. The responses suggest that audit committee members view positively the reforms aimed at strengthening auditor independence proposed, and subsequently enacted, in CLERP 9. However,\ud there is also a clear message that audit committee members do not view further legislative intervention as warranted or necessary. There also appear to be some conflicting views as to how the audit committee members see their role relative to the views of some commentators