ASIC moves against First Guardian auditors

The Australian Securities and Investments Commission (ASIC) has started court action against an audit firm linked to the First Guardian Master Fund, claiming its actions, and that of two practitioners, generated false or misleading reports prior to the fund’s failure.

ASIC has started proceedings in the Federal Court against Auditeo Australia Pty Ltd, its sole director and shareholder, Ajm Didarul Islam Khan, who was the lead auditor for the First Guardian financial audits, and Brian Robert Taylor, who was engaged by Auditeo as lead auditor for most of the First Guardian compliance plan audits.

The corporate regulator alleged unqualified audit reports on First Guardian and its compliance plan for the 2020 to 2024 financial years that were issued by Auditeo, and signed by either Khan or Taylor, were false or misleading and contravened section 1308(5) of the Corporations Act 2001.

ASIC also alleged Auditeo, Khan and Taylor failed to comply with auditing and assurance standards that applied to the conduct of the audits, did not obtain sufficient and appropriate audit evidence and did not perform the First Guardian audits with due care and skill.

Specifically, it alleged Auditeo’s audit files did not demonstrate any financial audit was conducted for the 2021 financial year, even though Auditeo and Khan issued a report for that year, and in the 2022 financial year about $137 million of reported assets were entirely untested by Auditeo and Khan, with the untested amount increasing to around $170 million in 2023.

Additionally, ASIC claimed Auditeo and Taylor failed to consider the correct compliance plan that applied for part of the 2022 financial year and the entire 2023 financial year.

Under the proceedings, ASIC is seeking civil penalties against Auditeo, Khan and Taylor for the alleged contraventions, which led to the making or authorising of statements in audit reports that made them materially false or misleading.

ASIC Chair Sarah Court said: “We allege audit opinions were issued despite there being no reasonable basis for those opinions and despite significant audit work required under auditing standards not being performed.

“The alleged failures in this matter occurred before the collapse of the First Guardian Master Fund, with a devastating impact on investors.

“Just six months after Auditeo issued unqualified audit reports in relation to First Guardian, liquidators were appointed. More than 6000 Australians were exposed to its collapse, with liquidators warning losses could be as high as $446 million.”