ASIC’s focus revealed amid auditing’s tech evolution

Garreth Hanley:
This is With Interest, a business, finance and accounting news podcast brought to you by CPA Australia.

Tiffany Tan:
Welcome to With Interest I'm Tiffany Tan, audit and assurance lead at CPA Australia. Today, I'm thrilled to be joined by ASIC commissioner Kate O'Rourke, a leader with more than 25 years' experience across law, financial markets, and corporate governance. Over her career, Kate has driven economic reforms at treasury, steered policy responses during the COVID crisis, and shaped the frameworks that uphold trust, transparency, and accountability in business.

In this conversation, we'll dive into the evolving world of auditing and financial oversight, exploring how technology is transforming the way audits are conducted and the increasing pressure from accountants to adapt while maintaining ethical standards. We will also discuss how regulators and industry can collaborate to build confidence in Australia's financial system and the role professionals play in ensuring corporate governance keeps pace with change.

So much is happening in audit and assurance right now. It is an exciting space with its own set of unique challenges, and I'm looking forward to unpacking them with someone charged with such an important oversight role. Welcome to With Interest, Commissioner.

Kate O'Rourke:
Thank you very much, Tiffany. And please do call me Kate.

Tiffany Tan:
Thanks, Kate. Okay, so let's get started. From your vantage point at ASIC, how would you describe the biggest forces currently reshaping the audit and assurance landscape in Australia?

Kate O'Rourke:
Yes, it really is, like you said, in your intro, a very exciting time in audit and assurance. So when I think about the forces that are shaping our landscape, I really think of them in three different areas, technology, structural shifts in the economy, and regulatory changes. And I think together they really are upping the complexity of the landscape that we're all working in.

So in relation to technology, it's AI, AI, AI like we really have seen... It's extraordinary that the speed of change and what is enabled. So it's both opportunity and challenge, and it applies to us as a regulator, but for auditors, that technological change affects clients profoundly, but also how auditors and those who provide assurance do their own work.

So I think in that technology space, there's very strong forces. In terms of structural shifts in the economy, we've been at ASIC really closely monitoring the rise of private markets, private credit, and those sort of shifts between public and private. And I think auditors play a really important role.

What we've said is private credit, particularly done well, is fantastic for our economy, but doing it well takes work and assurance and trust in the kind of financial information in relation to private markets is really important. The other structural shift, of course, is the growth of our superannuation asset pool, which is amazing. We're up to four trillion, and it's the fourth largest pension pool for a country. Got 1% of the world's population.

It's really something amazing. But again, trust in the financial information there rests on the auditor's shoulders with registrable superannuation entities now preparing audited financial reports.

And then that third force that I mentioned was regulatory, always dear to the heart of a regulator. And the big one there is the climate reporting changes. So they are a very significant change to the regulatory settings that apply to people who prepare reports and those who audit them. So that's the third big force that I'd mention.

Tiffany Tan:
Obviously, auditors play a significant role in this. Keeping that in mind, it is clear that audit quality remains a core regulatory priority. What are the key areas where ASIC expect firms to lift their performance most over the next few years?

Kate O'Rourke:
This might be an opportunity just to remind your listeners where ASIC does fit in as the regulator. So we administer the Corporations Act as well as lots of other acts, but it's in the Corporations Act, the financial reporting obligations rest, the requirement for auditors to be registered. They want to [inaudible 00:04:12] audits, and then of course, the actual conduct provisions that apply to auditors.

So as the regulator, what do we do? We do supervision, surveillance, enforcement if we see misconduct. But we also do reports, regulatory guidance, and have information available to help people guide people to do the right thing, and we participate in policy debates as well. So I really would draw people's attention to our regulatory guidance and our reports. For answering your question about our key areas of focus, we put out three significant reports at the end of last year, numbers 816, 817, and 819.

If you look on our website, which really do set out both a backward-looking piece, what did we see when we looked at our surveillance and supervision and indeed enforcement work in both financial reporting and audit. But also what are we expecting that forward-looking piece as well. We do have enduring areas of focus in relation to asset values and non-financial impairment and property assets in relation to revenue and deferred revenue being properly recognised, provisioning, subsequent events.

There's some things that you'll see that are enduring areas of focus in reports and in audit. But then you'll also see that we've had specific areas. So I'd call out, we've looked carefully at auditor independence and people really working through both the specific statutory provisions that apply to auditors in relation to maintaining their independence and managing any conflicts of interest, but also the general ones as well. Because we really want auditors to be performing their work with the utmost integrity. So that's something to look out for.

We are actually increasing the number of audit files we'll be reviewing this year, and we've got two enforcement priorities. So each year, ASIC announces many enforcement priorities, but we've got two that are specific to this area. So one of them is financial reporting misconduct, including failure to file financial reports, and a second specific enforcement priority for ASIC this year is auditor misconduct. So there's a little bit of a taste of what we're focused on for 2026, but like I said, I'd really draw everyone's attention to those ASIC reports for more details.

Tiffany Tan:
Sounds like a big work plan for 2026 Kate for ASIC, and is pleased to report back that our members are actually looking through those reports, the three reports that you mentioned earlier, the historical information and stuff like that. So they are taking those findings to heart and try to implement internal procedures and control to improve on their work. And that's how the role of the auditors changing in terms of public trust. So transparency and responsibility to detect and prevent misconduct.

Kate O'Rourke:
That's very welcome to hear members have actively been engaging with those reports. I'm delighted to hear that. And for me, when I step back and think about the role of auditors, it's not that the roles changed, but the circumstances in which they perform in this really important role, like I said at the beginning, really have become more complex. And so I'd say the importance of the work of auditors has only increased.

So if we step back, what we are all working towards is accurate, accessible, and reliable financial information and sustainability information, climate information as well, because that's what makes our businesses work well, commerce work well, and our markets work well. We all rely on that information being correct. And so that relies on the people preparing them, having the right expertise and indeed the right resources within firms devoted to it. But then those auditing, that independent review of them doing it with skill, professionalism, and independence.

So like I said, I actually don't see the role changing, but gee, it's important. And it's really important if you come to the keyword, which is trust, trusting that we can rely on financial and climate information and auditors are just absolutely essential to that.

Tiffany Tan:
I would agree that the role of auditors hasn't changed, but when I speak to CPAs, I often hear that the scope of assurance is really expanding. How does ASIC view the growth of assurance over areas such as cyber resilience, sustainability reporting, internal controls, and broader governance disclosure?

Kate O'Rourke:
Yeah, they're really interesting areas, aren't they, that people's work and responsibilities are expanding into? And I think with challenge comes opportunity and opportunity to drive trust and to drive reliable information in relation to areas that might be newer. So I think with sustainability reporting, particularly, we are really acutely aware of how material this information is, both physical risk and transitional risk, risk and opportunity from climate change, and that capital markets are looking for reliable information in this space, which is difficult information to prepare an audit. No question about it, but that need for that information to make decision making, good decision making on those adaptation and mitigation issues that our economy is facing.

So when sustainability reports have high quality, consistent, and comparable climate-related information, then that makes those decisions easier. So I think that's very important development for us all. We've recognised both the importance of that information, but also the challenges of its preparation and its assurance through a lot of regulatory resources that ASIC's been preparing. So there's a regulatory guide if you're interested. It's number 280.

We've got a lot of FAQs on our websites, including in relation to our auditors fit in. And we are developing educational modules and they've started to be released. So that's in partnership with the AASB and with UTS, fantastic partners. So a little bit specific stuff in relation to sustainability, but I do acknowledge your question was broader and that challenges, those areas of cyber and otherwise really do stretch people both preparing those reports and auditing them. And I think in your question, you also referred to misconduct and issues around helping address that. So we've got Regulatory Guide 34, which really speaks to how people can report suspected contraventions of the law, if that's what auditors uncover.

Tiffany Tan:
Great resources that ASIC have. You've mentioned about AI. How do you see digital tools, including automation and AI enhancing audit quality, risk detection, and regulatory oversight?

Kate O'Rourke:
As I said in my opening, AI and technological changes are really extraordinary at the moment. And so this capacity for these tools to enhance quality risk detection and regulatory oversight are real, but we also need to see them as tools. They don't replace someone's judgement , they don't replace systems or governance. They really are just tools that can be used to enhance activities and decisions that are already being made.

So we do see quite a high level of use or hear about a high level of use, both in preparation of financial reports and indeed audit. And they really can improve the efficiency and the scope of work that's being done. Data can be collected and analysed more quickly. There can be anomalies identified and fraud detected. So some of those use cases are really powerful.

We at ASIC, I think your question talked about regulatory oversight as well. We see value and now it's starting to play with different AI opportunities as well from us on the regulatory side. But yeah, I just come back to the point that these are tools we need to have frameworks in which they're used, governance over the decisions that are being made. And testing, monitoring, and making sure if the tools that are being used aren't serving their purpose, that people work that out quickly and adjustments are made. So we want to have safeguards so there is safe use of new tools.

Tiffany Tan:
You mentioned about safeguards a few times, and you also talk about the governance of AI use. I understand that at the international level, the International Auditing Standard Board, as well as the Ethics Standard Board, they're looking into the governance for auditors, however they use the AI in their audit engagement. So of course, we understand that with new technology come new risk. So what safeguard, ethical standards, or governance structure does ASIC expect firms to put in place when integrating advanced analytics or AI into audit processes?

Kate O'Rourke:
That's really interesting to hear about those international developments. And I think one of the things I'd observe about the way that we're set up is under our regulatory frameworks and certainly how we think about practises in Australia is to try and be technology neutral and to try and adapt what we've already got. So I think I'd start by saying, I think that the safeguards, and standards, and indeed governance structures that auditors need to comply with are well established in the Australian environment.

I did acknowledge earlier that there's been significant regulatory change as we apply climate reporting, but that has been built on the foundations of financial reporting. So I hope that people are finding those foundations familiar and we are trying to be as clear as we can be in relation to that. So we've got the Corporations Act provisions, the AASB, and AUASB and the professional and ethical standards that are there.

And so, we need to adapt how those existing safeguards, and standards, and governance frameworks apply in this new environment. It gives a degree of continuity, it gives the foundations, but it does produce new challenges. So I think being really deliberate for firms, thinking about how existing requirements might apply and talking about it amongst people about what it might mean.

I think it's also a mindset issue. I referred earlier to one of our reports from late last year, which was on independence. And I think just the way people and particularly auditors think about independence really much more than just ticking boxes, but really that mindset of independence is another way of really trying to maintain, like I said, trust, continuity, and making the most of new opportunities.

Tiffany Tan:
As global standard setting accelerates, what major international trends in audit regulation and assurance innovation are emerging and how could stronger global alignment shape the future of Australia's audit framework and opportunities for harmonisation?

Kate O'Rourke:
You referred earlier to international developments, and certainly our team members stayed very close to and indeed play an important role in international bodies. Australia is keen to be connected and keen to be acting consistently with international standards when there are international standards, and sometimes there are some that apply to just parts of the world, and that's sometimes how it is.

So we want to reiterate that we do see the value of harmonisation when we can. I do know our standard setters are very integrated as well into international decision-making and work, and we at ASIC are connected to other regulators who administer the frameworks. So very close to our New Zealand Financial Markets Authority, really interested in the work that they're doing on audit quality connected to the UK and the way that they administer their auditor oversight. So there are deep relationships and connections, and then we need to respond to developments in international standards as they come. So that's something that we do.

Tiffany Tan:
It's really good to hear that harmonisation is really happening internationally with the regulators speaking to each other. You gave example of FMA in New Zealand and UK FRC. That's great. But I'm going to shift gear a little bit now. Like many areas of financial services, attracting and retaining talent is a persistent challenge. What capabilities will the next generation of auditors need and how can regulators, firms, and professional bodies like CPA Australia work together to build that future-ready workforce?

Kate O'Rourke:
It is an interesting shift, and I think it's an important one because the future of the profession and the future of the practise of the profession is very important to ASIC. We really value the engagement that we have both with professional bodies, with firms, and with individual auditors so we understand the challenges. And so we can help to the extent we can with the regulatory guidance or reports connect into challenges so that together we can maintain those high standards, which are just so important for our economy.

So I would be not as well placed as your members to talk about the technical skills that the next generation of auditors will need. But I think I can say we at the regulator really want the next generation of auditors to see the seriousness and the significance of the role of auditors and those who provide assurance.

As I have emphasised earlier in this discussion, things are getting more challenging. It's a great opportunity to work in those challenging spaces, but it's difficult. And so taking the role seriously, taking independence seriously and trust seriously is key. So for us, I think having professionalism, having scepticism, taking the importance of the exercise of their judgement seriously, and particularly when there's uncertainty and estimation, these are the challenging skills and I really support auditors continuing to develop them. So we'll, through our engagement, do our best to try and help, whether it be through guidance or otherwise people to continue to develop those skills.

Tiffany Tan:
I think the challenge is now to attract more talent into the profession. Obviously, we have lots of RCA or registered company auditors, but the number is dwindling. So hopefully the new generation of accountants or students thinking to do accounting degree will be looking into auditing as their career pathway. Now to close, what is your message to CPA Australia members about the opportunities and responsibilities they should prepare for as audit and assurance evolve over the coming decade?

Kate O'Rourke:
Well, my main message is it's a wonderful and interesting and exciting time to be working in audit and assurance. So many issues, so many opportunities and indeed responsibilities to be in the key part of our economy. So we at ASIC think very highly of the importance of audit in our economy. We really value the relationship that we have with the audit sector and want to work closely to continue the high financial reporting quality and audit quality that we are both all striving towards.

So yeah, we really encourage auditors to think deeply about their obligations and opportunities to really remain independent from their clients, obtain robust evidence, think hard about exercising their judgement , and really think about it, not just in a tick a box sense from a regulatory side, but it as a way of safeguarding their role and the trust that they bring to our economy.

Tiffany Tan:
Great message, Kate. That bring us to the close, but thank you so much for your time, Kate. It's incredibly informative and instructive on not only our members, but everyone out there in audit and assurance to hear directly from the commissioner about ASIC's view on the sector.

Kate O'Rourke:
My pleasure. Thank you very much for including me.

Tiffany Tan:
For our listeners eager to learn more, please check out the show notes for links to ASIC and additional resources from CPA Australia. Don't forget to subscribe to With Interest and share this episode with your colleagues and friends in the business community. As always, thanks for listening.

Garreth Hanley:
To find out more about our other podcasts, and CPA Australia, check the show notes for this episode, and we hope you can join us again for another episode of With Interest.