Regulation

Australia’s Big Banks Defend Spending Millions On Outside Auditors

Australia’s four biggest banks, along with large accounting firms, have joined forces to defend the use of independent audit firms as consultants.

According to a report in The Sydney Morning Herald, National Australia Bank’s outgoing chairman Ken Henry and other executives held discussions last week with its independent auditor, Ernst & Young, about the shortcomings in the bank’s risk management. EY has been the bank’s independent auditor for 13 years.

That news led to a Senate vote for the Parliamentary Joint Committee on Corporations and Financial Services to investigate conflicts of interest in auditing firms.

The investigation comes after all of the U.K.’s so-called Big Four accountancy firms — KPMG, PwC, EY and Deloitte — reportedly failed to reach audit quality standards set by the Financial Reporting Council, marking the second year in a row that the Big Four failed the auditing test.

“At a time when the future of the audit sector is under the microscope, the latest audit quality results are not acceptable,” said FRC chief executive Stephen Haddrill in a statement.

But Australia’s banks have defended the decision to shell out millions of dollars to independent auditors for additional consulting work. The country’s big four banks paid their auditors more than $110 million last year. Most of that was for auditing work, although each financial institution paid millions for other services.

Commonwealth Bank, which last year paid its auditor PwC $47 million, said the bank tested the independence of its auditors each year.

“We have strict policies and procedures in place that govern the independence and work of our auditors and these are regularly reviewed by the Board and the Audit Committee,” a spokesman said.

ANZ Bank, which paid KPMG $22.4 million in 2018, said its policy on independent auditing surpassed the requirements in both Australia and the United States. And Westpac, which paid PwC $27.5 million last year, also cited strict policies on engaging PwC for non-audit work.

The auditors also defended their position. “We have extensive independence processes and programs in place, for both audit and non-audit engagements, to ensure that independence requirements of EY member firms and their people are met, and are appropriately monitored,” an EY spokeswoman said.

KPMG added that it also had “robust” global policies on independence. “Effectively managing conflicts – perceived or otherwise – is a regular part of our business activity,” a spokeswoman said.

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