Why are Professional Standards a matter of Public Interest?
They add to quality of assurance services
What does audit regulation promote?
Comparability of FSs, which are audited to same standard.
Therefore, this improves the public confidence.
What do assurance engagements consider? (4)
- Ethics
- Risk Assessment
- Terms of Engagement
- ISQMs (International Standards on Quality Management)
What else are UK audits governed by?
- ISAs
- Companies Act 2006
What does the FRC stand for, supervise, and issue?
- Stands for Financial Reporting Council
- Supervises accountancy related issues
- Issues auditing standards in UK
Describe structure of FRC
- There is an FRC board
- There are 2 Governance Committees - People Committee, and Audit & Risk Committee
- There are 3 Business Committees - Conduct Committee, Supervision Committee, and Regulatory Standards & Codes Committee.
What is the FRC continuously rebranding?
Continuously rebranding APB (Auditing Practices Board) publications, some of which are still in force
How does FRC issue auditing standards?
Amending ISAs for any specific factors and issuing them as ISAs (UK)
What else does the FRC issue?
- Ethical standards for auditors
- Practice notes - how to apply ISAs to particular industries/circumstances
- Bulletins - guidance on emerging/new issues
- Standards for revies of interim FS completed by auditor of entity.
- Audit quality - thematic reviews
What is Harmonisation
Process of aligning global standards, so that companies are audited in a comparable way, regardless of location
What are the audit provisions that were introduced in 2014 by the EU Directive & Regulation?
- Improving quality of Audit and Reporting
- Mandatory re-tendering every 10 years
- Change of every firm every 20 years
- Ban on providing non-audit services (including tax advice) to public interest entities.
- Cap on fees for non-audit services.
What is Big Data?
Broad term for large/complex data sets
How are auditors responding to Big Data?
By increasing use of technology
What are IAASB’s key objectives with technology
Due to its disruptive nature, IAASB set objectives:
- Build processes/structures to support disruptive initiative
- Maintain/improve knowledge of disruption trends and implications for standard setting.
- Sharing initiative information with stakeholders to improve audit/assurance/reporting quality
Advantages of Big Data & technology?
Enhance Audit Quality
Help evaluate Management’s estimates
Wont replace auditor skill set
What are the Three main reviews for future of audit?
Kingman Review
CMA (Competition and Market Authority) Review
Brydon Report
Summarise CMA review
Recommendations:
- Robust regulatory oversight of committees to ensure priority of quality
- Mandatory joint audit
- Operational split between big 4 Audit and non-Audit to ensure quality
- 5 Year progress review by regulator
Summarise Kingman Review
Replace FRC with ARGA (Audit, Reporting & Governance Authority)
ARGA expected to:
- Regulate big firms
- Impose larger sanctions for corporate failure
- Require fast explanations from companies
- Issue report publications regarding conduct and management
Summarise Brydon Report
Recommendations:
- Redefine Audit purpose
- Create a corporate audit profession governed by principles
- Replace ‘True and Fair’ with ‘Present Fairly, in all material respects’
- Rolling A&A Policy
- Resilience & public interest statements
- Stakeholders to propose matters for audit
- Stakeholders to be covered by ‘public interest’
- Forensic Accounting/fraud awareness training for auditors
- Internal Control effectiveness reported to board
- Improve clarity on capital maintenance
- Improve auditor communication/transparency
- Extend audits to new area
- Extend audit concepts beyond FS
- Increase use of Technology
Following the reviews, and stakeholder feedback, what are the proposals made?
- ARGA to replace FRC, + more powers
- ARGA to continue to drive ongoing improvement of audit quality, via professional standards and improved qualification training by institutes
- large private companies (>750 employees and £750m turnover) to be classified as PIEs
- ARGA to develop UK Corporate Governance Code
- New reporting requirements introduced
- ARGA given power to force improvements to quality of corporate reporting & to investigate/sanction directors who don’t fulfil their Companies Act responsibilities
- Proposed to increase choice of available auditors, and ensure market is more resilient to unexpected volatility
- Review of all legislations 5 years after implementation.
What is a joint audit?
Multiple audit firms perform audit, produce audit report, and are liable for the audit of an entity.
Benefits and drawbacks of joint audit?
3 benefits - increased market competition, increased service quality, allows smaller firms to get involved in higher level audit.
1 drawback - more expensive for clients
2020 Review of Climate Change
- Little evidence that business models/company strategy has been influenced by climate change
- Users requesting for additional climate-related disclosures
- Firms need to ensure climate change is factored in internal quality monitoring processes
- Climate risks need to be further considered during audit planning and when conducting audit
What is ISSB
International Sustainability Standards Board
