Corporations Act breaches 
as reported in ANT05/2008 
 
Q: Does an audit qualification for non-compliance with accounting standards require notification to ASIC under Section 311 of the Corporations Act? 
 
A: Yes, a notification to ASIC would usually be required in these circumstances. 
 
Under Section 311(1)(a) of the Corporations Act, an auditor is required to notify ASIC if the auditor has reasonable grounds to suspect a contravention of the Act and they believe that the contravention is either significant or, if not significant, cannot be adequately dealt with by inclusion in the audit report or by bringing it to the attention of the directors. 
 
ASIC’s Regulatory Guide 34 “Auditors Obligations: Reporting to ASIC “ (formerly know as practice note 34) provides detailed guidance on the application of this section of the Act. This guide states at paragraph 20 that one example of a likely significant breach is “a breach of accounting standards or the true and fair view requirement”. This is on the basis that compliance with accounting standards is required by the Corporations Act (section 296) and therefore a breach (or suspected non-compliance) of an accounting standard is a breach (or suspected breach) of the Corporations Act.  
 
Non-compliance with accounting standards is further discussed in paragraphs 33 to 35 of the Guide. This section states that an auditor’s obligations to include breaches of accounting standards under section 308(2) and 309(2) do not relieve auditors from their reporting obligations under s 311. The practice note considers that departures from accounting standards would generally be either significant or, even if not significant, it might not be dealt with adequately in the audit report or by drawing it to the directors’ attention and therefore should be reported under Section 311. 
 
The Technical Standards team wrote an article in Charter in April 2005, which summarised the reporting responsibilities under s311.