Information asymmetry, where parties to a transaction have different information, is something we all experience.

Evidence suggests it is a problem in the construction industry, particularly in relation to apartment buildings. This is because the eventual owners have no insight into the construction process and must trust that buildings comply with the NCC, relevant legislation and Standards.

The Building Confidence Report (BCR) states that “proactive auditing is imperative to restore public trust. Governments need to be able to detect and regulate inadequate practices”. Auditing and compliance activities help to mitigate the issues caused by information asymmetry by identifying and addressing non-compliance during the design and construction of buildings.

Recommendation 7 of the BCR is ‘That each jurisdiction makes public its audit strategy for regulatory oversight of the construction of commercial buildings, with annual reporting on audit findings and outcomes’. It aims to increase transparency and accountability by publicly stating regulators’ intentions and their performance against them, and by publicly reporting greater information about auditing outcomes to reduce information asymmetry.

The benefits to increased transparency and accountability are not just limited to increased public confidence in the building industry. According to Ms Bronwyn Weir, co-author of the BCR and a member of the BCR Implementation Team’s Expert Panel, benefits for regulators and industry of a well-defined audit strategy include enabling “the regulator to work with industry to identify competency gaps and develop education strategies to lift compliance. By publishing the audit strategy and reporting against it, regulators can demonstrate their effectiveness and be held to account by stakeholders”.

With the assistance of state and territory building regulators, the BCR Implementation Team is developing a Publication Framework to assist States and Territories to report on auditing. It will provide building regulators with key principles that, when implemented, will ensure reporting on auditing supports an effective and efficient auditing and compliance system.

What you said about auditing

To help inform the development of the Publication Framework, a public survey - 'Reporting on the auditing of commercial buildings' - was open in June and July 2020. The survey sought views on reporting on auditing including:

  • How reporting of auditing information would impact compliance with the NCC, State and Territory legislation and Australian Standards.
  • How and when auditing information should be reported.
  • What measures of auditing activities and outcomes should be reported.
  • Perceptions of the benefits or disadvantages of reporting about auditing.

The survey received 199 responses, mostly from industry, which informed a high-level principles based framework.

Survey responses showed: awareness of State and Territory auditing strategies, activities and outcomes can be improved.

  • 42% of respondents reported they have a low level of awareness of auditing strategies.
  • 43% a low level of awareness of auditing activities.
  • 47% a low level of awareness of auditing outcomes.

This was despite 32% of respondents reporting they had either been audited at least once or conducted at least one audit within the last two years.

Survey respondents were positive about the potential impacts of reporting on auditing, with 86% responding they believe it would reduce non-compliance.

67% believe that reporting on auditing may assist the regulator to identify patterns of common instances of inadvertent non-compliance and provide additional guidance, clarification or training in response.

Respondents were equally positive about benefits, with:

  • 87% expressing reporting on auditing will benefit industry.
  • 87% expressing reporting on auditing will benefit building owners, tenants and users.

Respondents indicated an interest in learning more about auditing, with 66% indicating they would like engagement from building regulators about auditing in addition to formal written reporting.

83% indicated it is ‘very important’ or ‘important’ for auditing outcomes to be comparable across states and territories, showing an interest in using reporting on auditing to understand the state of the industry.

The BCR Implementation Team continues to consult on its work. Keep an eye out in the coming weeks for opportunities to provide us your views on the ABCB Consultation Hub.