Audit News Briefing: 12 November 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

November 11, 2015

Accountancy Age

ICAEW granted local audit regulatory powers

The Financial Reporting Council's (FRC) granted to the Institute of Chartered Accountants in England and Wales (ICAEW) a Recognized Supervisory Body (RSB) status for local audit.

ICAEW Executive Director Vernon Soare said: "There is more scrutiny than ever on how public money is spent. Local audits promote confidence in the financial management of local bodies which provide vital services to their communities. The firms on the public audit register will have gone through a rigorous and thorough process to make sure they provide a high quality audit service."

Please follow link for details: http://www.accountancyage.com/aa/news/2434257/icaew-granted-local-audit-regulatory-powers

November 11, 2015

Accountancy Live

BIS offers sensible approach to complex EU Audit Directive

Auditor Regulation Consultation – coverage: mandatory audit firm rotation regime; and new restrictions on provision of non-audit services by auditors of PIEs.

The Department for Business, Innovation and Skills (BIS) confirms: The Financial Reporting Council (FRC) will be appointed as the single competent authority for regulation of UK audit; ‘10+10’ approach to maximum duration of an audit appointment; and proposed three-year grace period in applying the cap on non-audit services.

The consultation closes on 9 December 2015.

Please follow link for details: https://www.accountancylive.com/bis-offers-sensible-approach-complex-eu-audit-directive

November 10, 2015

Wall Street Journal

U.K.’s Serious Fraud Office Drops Case Against Olympus Corp., Gyrus Group

High-profile accounting scandal began from an expose in 2011by then ousted Olympus CEO Michael Woodford. Now, Britain’s Serious Fraud Office (SFO) has dropped its two-year case against Japan’s Olympus Corporation and U.K. subsidiary Gyrus Group Ltd., which it had charged with making misleading statements to auditors.

Please follow link for details: http://www.wsj.com/articles/u-k-s-serious-fraud-office-drops-case-against-olympus-corp-gyrus-group-1447163983

November 9, 2015

Accounting Today

IOSCO Backs Transparency Reports for Audit Firms

The Report: Transparency of Firms that Audit Public Companies.

Firm governance and elements of their system of quality control – these are the audit firm practices to be transparent about, as recommended by IOSCO. The worldwide association of national securities regulatory commissions noted that transparency reporting can foster internal introspection and discipline within audit firms and may encourage audit firms to sharpen their focus on audit quality, which would be of benefit to investors and other stakeholders.

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/iosco-backs-transparency-reports-for-audit-firms-76360-1.html

Audit Method: Sampling

Audit sampling as defined by ISA 530 is “The application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.”

The means available to the auditor for selecting items for testing are;

• Selecting all items (100% examination)
• Selecting specific items; and
• Audit Sampling

Audit sampling can be applied using either non-statistical or statistical sampling approaches.

Statistical approach has the following characteristics:

• Random selection of the sample items; and
• The use of probability theory to evaluate sample results, including measurement of sampling risk.

 A sampling approach which does not possess the above characteristics is called non-statistical sampling.

Steps in planning the sample are as follows:

• Determining the objectives of the test;
• Defining what errors or deviation are being sought;
• Identifying the population and sampling units; and
• Deciding the size of the sample.

Generally, larger the size of the sample, the more it will be representative of a population. Many audit firms would like to standardize the size of sample based on general and specific risk factors. Errors increase the imprecision of results from sampling. Therefore, if they are expected, a larger sample size is required. Finally in evaluating misstatements, the auditor, should exclude ‘anomalous’ error(s) which are misstatement or deviation that are demonstrably not representative of misstatements or deviations in a population from his projected misstatements. However, such errors may be considered when evaluating all misstatements within the sample and auditors shall obtain sufficient appropriate audit evidence to corroborate the fact that an error or deviation is anomalous.

Practice

Auditors need to consider the specific objectives to be achieved and the combination of audit procedures that is most likely to achieve those objectives. Audit sampling is applicable to both tests of control and substantive procedures.

Audit Firm: Governance Code

The market for large audits in the UK is dominated by four firms and the risk of the withdrawal of a major firm is a matter of continuing concern to the UK Financial Reporting Council (FRC) and many others. In January 2010 the FRC and Institute of Chartered Accountants in England and Wales (ICAEW) published the Audit Firm Governance Code.

It is applicable to those firms that audit more than 20 listed companies and it is applicable from financial years beginning on or after 1 June 2010. The Code currently applies to seven audit firms that together audit about 95% of the companies listed on the Main Market of the London Stock Exchange. For these firms, the code sets a benchmark for good governance which other audit firms may wish to voluntarily adopt in full or in part. It also codifies much existing good practice and links to matters that audit firms must comply with as regulated professional partnerships.

The seven firms to which the code currently applies are:

• Baker Tilly LLP
• BDO LLP
• Deloitte LLP
• Ernst & Young LLP
• Grant Thornton LLP
• KPMG LLP
• PricewaterhouseCoopers LLP

The Code is designed to play four major roles:

• enhance the stature of firms as highly visible exemplars of best practice governance;
• enrich firms’ transparency reports;
• encourage changes in governance which improve the way that firms are run; and
• strengthen the regulatory regime by achieving transparent and effective governance without disproportionate regulation.

The FRC monitors the extent to which these firms comply with the Code. Regular reviews are conducted by FRC to check compliance by firms with all the provisions of the code.

Additional Thoughts

High quality corporate governance is mandatory to foster investment in the economy. Audit firms play the role of watchdogs in the economy and it is essential for them to implement sound governance practices within their own organizations. The Code in this regard will help the audit firms by more sharply defining the public interest, particularly by explicitly recognizing the importance of audit quality.

Audit News Briefing: 6 November 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

November 3, 2015

Accountancy Age

EU's plan gives opportunity to restore audit confidence

The Financial Reporting Council's (FRC) recent panel discussion: 'Enhancing justifiable confidence in audit through implementation of the EU Audit Regulation and Directive'.

FRC CEO Stephen Haddrill highlighted that the new legislation gave the profession the opportunity to "make sure the public can have confidence in the regulatory regime" while also ensuring that it implements the standards that underscore "the independence of the auditor and the auditor's freedom from influence from the company that they are auditing".

Please follow link for details: http://www.accountancyage.com/aa/news/2433138/eus-plan-gives-opportunity-to-restore-audit-confidence

October 29, 2015

Accountancy Age

Auditors to be hit with increased FRC levy demands as government funding ends

The government cuts all funding to the Financial Reporting Council (FRC) from 2016. While it provided funding of £2.7m since 2009 – currently, it contributes just £250,000. This is half the figure from the previous two years.

The FRC intends to consult the relevant accountancy bodies and major audit firms, on the ways and amounts needed to secure additional contributions to fund its expanded remit and plug the funding gap caused by the government.

The shortfall emerged as the FRC announced its 2016/19 strategy outlining its priorities for the next three years.

Please follow link for details: http://www.accountancyage.com/aa/analysis/2432613/auditors-to-be-hit-with-increased-frc-levy-demands-as-government-funding-ends

October 19, 2015

Accounting Web

U.S.: PCAOB Urges Auditors to Be Better at Assessing Risk

“Significant Priority” – this is how the Public Company Accounting Oversight Board (PCAOB) is urging audit firms to make in reviewing and improving their risk assessment processes.

“The procedures required by these (board’s risk assessment) standards underlie the entire audit process, including the procedures that the auditor performs to support the opinion expressed in the auditor’s report,” the U.S. audit regulator states in October 15 report. “For that reason, noncompliance with these standards can have serious implications for the audit of internal control over financial reporting or the audit of the financial statements and may affect whether the auditor performs enough work to support the auditor’s opinion.”

Notable examples of common deficiencies under those auditing standards include:

• Failing to perform substantive procedures specifically responsive to fraud risks and other significant risks identified.
• Not evaluating the accuracy and completeness of financial statement disclosures.
• Not testing the accuracy and completeness of information produced by the company.

Please follow link for details: http://www.accountingweb.com/aa/auditing/pcaob-urges-auditors-to-be-better-at-assessing-risk

Audit Firm: Recruitment

Are you a recent accounting graduate and want to get hired at any of the big accounting firms? Here are some tips that will prove to be helpful in your search.

Curriculum Vitae: An employer will first meet you on paper through your CV. Prepare a good professional CV that defines your career goal, your education, past experience (if any) and your skills and expertise. CV is a marketing tool for a job seeker and you should use that tool to the greatest effect.

Cover Letter: The purpose of constructing an effective cover letter is to demonstrate your suitability for an organization by identifying how your past academic background and employment make you a top candidate.

Interview: Before going for the interview research the firm and understand the organization and job description. Dress appropriately for the interview, generally this means business professional dress. As it is rightly said that your energy introduces you even before you speak so try to make a good first impression on the interviewer. Ask some intelligent questions during the interview when asked about having any questions from your research conducted earlier on about the company.

Follow up: After the interview send an email to the employer and thanks them for the interview opportunity. This will not only enhance your image as a good communicator but will also ensure that the employer keeps you in the queue for potential selection. 

Some of the key soft skills that employers these days are looking for are:

• Problem solving and analytical thinking
• Initiative and drive
• Team player
• Communication skills (written and verbal)

Some of the key technical skills employers look for in young graduates aspiring to join the auditing profession are:

• Financial accounting and reporting
• Tax strategy, planning and control 
• Risk management and internal control
• IT Skills

Additional Thoughts

Some very useful information can be obtained from the websites of the big Four firms about their recruitment process and policies.

• EY
• PWC
• Deloitte
• KPMG

Audit Method: Fraud

Accounting fraud has long been the buzzword in the industry due to its wider and deeper implications on the company, industry and the economy at large. Window dressing is a term used in accounting for presenting financial statements in such a manner that disguise the actual financial transactions and present them in a more favorable way. According to PWC Economic crime survey the five most commonly reported types of economic crimes are asset misappropriation, procurement fraud, bribery and corruption, cybercrime and accounting fraud.

Auditors are required to keep themselves up to date about all these fraudulent practices and should apply professional skepticism while conducting the audit of financial statements.

ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements addresses all the issues which an auditor has to deal with while conducting the audit. Under ISA-240, auditors are now required to evaluate the effectiveness of an entity’s risk management framework (internal control) in preventing misstatements whether through fraud or otherwise, in all audits. Furthermore, auditors are now required to be more proactive in their search for fraud. The auditor is responsible for maintaining an attitude of professional skepticism throughout the audit, recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor’s past experience of the honesty and integrity of the entity’s management and those charged with the governance. An overriding requirement of ISA 240 is that auditors are aware of the possibility of there being misstatements due to fraud.

The objectives of the auditor are:

a) To identify and assess the risks of material misstatement of the financial statements due to fraud;

b) To obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and

c) To respond appropriately to fraud or suspected fraud identified during the audit.

The ISA, however, recognize the fact that owing to inherent limitation of an audit, there is an unavoidable risk that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs.

Practice

 Misstatements in the financial statements can arise from either fraud or error. The distinguishing factor between fraud and error is whether the action that results in the misstatement of the financial statements is intentional or unintentional. In planning the audit, auditors must be alert to the possibility of fraud and assess the risk that fraud might occur. The auditor shall treat those assessed risks of material misstatement due to fraud as significant risks and accordingly, the auditor shall obtain an understanding of the entity’s related controls, including control activities, relevant to such risks.

Week-End: Accountant Stress Relief

Do you want to de-stress an Accountant? Does that CPA need soothing? Is the Financial Controller flustered?

Here are 20 financial words and phrases that will have accountants smiling at their spreadsheets and comforted by calculators:

• Favorable variance
• Authorized
• Fully Reconciled
• Checklists
• Profit
• Immaterial
• Clean audit report
• Fully compliant
• Segregation of duties
• Strong internal controls
• Peace and Quiet
• Fully supported journals
• Chart of Accounts
• Prudent
• Cross-referenced
• Within budget
• No surprises
• Audit Trail
• Matched Purchase Order
• Balanced

 See more at: http://www.workileaks.com/accountant-stress-relief.html

Audit News Briefing: 29 October 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

October 28, 2015

Accounting Today

U.S.: AICPA Releases New Auditing Standard and Interpretation on Sustainability Financial Statements

The subject interpretation is concerning the sustainability financial statements used by the government for long-term projections of social insurance programs. In the interpretation - an auditor may report on the basic financial statements, which include the statements of social insurance, changes in social insurance amounts, and long-term fiscal projections, in accordance with Generally Accepted Auditing Standards. The interpretation also provides an illustrative auditor’s report containing an unmodified opinion on the U.S. government-wide financial statements.

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/aicpa-auditing-standard-interpretation-sustainability-financial-statements-76230-1.html

October 26, 2015

Business Insider

Marvell Technology's auditor resigned and now the stock is crashing

On October 20, PricewaterhouseCoopers (PwC) resigned as auditor of a leading fabless semiconductor company – Marvell Technology. The company audit committee neither made any request, recommendation, nor approval of said resignation.

PwC advised Marvell that in 2016 it will need to expand the scope of its audit in four areas. (1) Entity level controls (2) Process and controls over establishment of significant and judgmental reserves (3) Process and controls over identification, communication and approval of related party transactions (4) The adequacy of financial reporting resources.

Please follow link for details: http://www.businessinsider.com/marvell-technology-auditor-resigns-2015-10

October 23, 2015

Accountancy Age

PwC wrestles Virgin Money audit from KPMG

Global financial services brand, Virgin Money, released an audit committee statement thru chairman Norman McLuskie: "KPMG has been  auditor since 2004 and we would like to thank them for their significant contribution as auditors and for their consistently high standards of professionalism in executing this role. We have undertaken a very thorough, open and transparent tender process, a description of which will be included in the 2015 Annual Report and Accounts." This is in view of their intention to appoint PricewaterhouseCoopers (PwC) effective 1 January 2016, subject to shareholder approval at its 2016 Annual General Meeting.

Please follow link for details: http://www.accountancyage.com/aa/news/2431800/pwc-wrestles-virgin-money-audit-from-kpmg

Audit Method: Interim Audit Procedures

Interim financial information or statement as defined in ISAs’ is “Financial information (which may be less than a complete set of financial statements) issued at interim dates (usually half-yearly or quarterly) in respect of a financial period”. IAS 34 Interim Financial Reporting outlines the recognition, measurement and disclosure requirements for interim reports.

The International Standards on Review Engagements (ISRES) 2400 and 2410 govern the interim review procedures. A review engagement is a limited assurance engagement that provides a moderate level of assurance that the information subject to review is free of material misstatement; this is expressed in the form of negative assurance. The difference between the report issued by auditor for a yearly audit and the report issued for quarterly or half yearly review is as follows.

Audit Report: The Auditor give an opinion as to whether the financial statements, taken as a whole, are fairly presented. This opinion is made after detailed tests are conducted of the accounting records. These tests include but are not limited to confirmation with outside parties, analytical procedures, inquiry of client personnel and a detailed study of the accounting records.

Review Engagement Report: In a review engagement for quarterly or half yearly period, the auditors’ express a limited assurance that they have not noted any items that would require adjustments that should be made to the statements in order for them to be in conformity with the accepted standards. The auditor must conduct a review and be satisfied as to the reasonableness of the statements through inquiry and analytical procedures.

In some circumstances, the auditor may determine that it is effective to perform substantive procedures at an interim date, and to compare and reconcile information concerning the balance at the period end with the comparable information at the interim date to:

(a) Identify amounts that appear unusual;

(b) Investigate any such amounts; and

(c) Perform substantive analytical procedures or tests of details to test the intervening period.

Practice

The Auditor while conducting a review engagement should still practice professional skepticism and should follow the fundamental ethical principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

Audit Firm: Audit Quality Indicators

The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation in USA established by Congress to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports. The Sarbanes-Oxley Act of 2002, which created the PCAOB, required that auditors of U.S. public companies be subject to external and independent oversight.

The PCAOB has recently issued a concept release on Audit Quality Indicators (AQI). It has sought the public comment on the content and possible uses of a group of potential "audit quality indicators." The indicators are a potential portfolio of quantitative measures that may provide new insights about how to evaluate the quality of audits and how high quality audits are achieved.

The 28 potential Audit Quality Indicators are:

AUDIT PROFESSIONALS

Availability	Competence	Focus
1. Staffing Leverage 2.Partner Workload 3.Manager and Staff Workload 4.Technical Accounting and Auditing Resources 5.Persons with Specialized Skill and Knowledge	6.Experience of Audit Personnel 7.Industry Expertise of Audit Personnel 8.Turnoverof Audit Personnel 9.Amount of Audit Work Centralized at Service Centers10.Training Hours per Audit Professional	11.Audit Hours and Risk Areas 12.Allocation of Audit Hours to Phases of the Audit

AUDIT PROCESS

Tone at the Top and Leadership	Incentives	Independence	Infrastructure	Monitoring and Remediation
13.Results of Independent Survey of Firm Personnel	14.Quality Ratings and Compensation 15.Audit Fees, Effort, and Client Risk	16.Compliance with Independence Requirement	17.Investment in Infrastructure Supporting Quality Auditing	18.Audit Firms' Internal Quality Review Results 19.PCAOB Inspection Results 20.Technical Competency Testing

AUDIT RESULTS

Financial Statements	Internal Control	Going Concern	Communication between Auditors and Audit Committee	Enforcement and Litigation
21. Frequency and Impact of Financial Statement Restatements for Errors 22.Fraud and other Financial Reporting Misconduct 23.Inferring Audit Quality from Measures of Financial Reporting Quality	24.Timely Reporting of Internal Control Weaknesses	25.Timely Reporting of Going Concern Issues	26.Results of Independent Surveys of Audit Committee Members	27. Trends in PCAOB and SEC Enforcement Proceedings 28.Trends in Private Litigation

Additional Thoughts

Quality control for audit is very important as only with an effective Quality control mechanism, the public interest can be served through independence, integrity, ethics, objectivity and quality performance. The aforementioned quality indicators can prove to be a useful benchmark for auditors to gauge their performance.

i-Monday: Steve's Way

i-Monday - is a new cool rubric of articles issued on Monday for my readers. The term i-Monday means - inspiration on  Monday. The articles are intended to give reader good examples of success or inspiration and will motivate you on Mondays :)  This week we remind Steve Jobs word to you.

“Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure — these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

From: Commencement address delivered by Late Steve Jobs, Ex - CEO of Apple for the 114th graduating class at Stanford University June 12, 2005

Picture reference: http://aarondanowski.com

Audit News Briefing: 23 October 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

October 21, 2015

Accountancy Live

Listed companies slow to adopt new UK GAAP as deadline looms

According to Deloitte research on annual reports of UK, listed companies are being slow to make the transition to the new UK GAAP financial reporting standards. This is despite the Cutting the Clutter campaign made by the Financial Reporting Council. Please follow link for details: https://www.accountancylive.com/listed-companies-slow-adopt-new-uk-gaap-deadline-looms

October 21, 2015

Accounting Today

What Star Wars Can Teach Us about Fraud and Recovery Audits

APEX Analytix’s senior vice president, global marketing & business development – Joseph Burke – recently featured a Star Wars inspired audit advisory on fraud and recovery.

Here are some excerpts:

• Lesson #1: “It’s a trap!” - Admiral Ackbar. Fraud runs rampant in organizations of any size.
• Lesson #2: “Fear is the path to the dark side.” – Obi-Wan Kenobi. Accounts payable professionals who let fear stand in the way of putting systems in place to detect duplicate payments and fraudulent losses are pulling their company down instead of raising it up.
• Lesson #3: “Do or do not. There is no try.” – Yoda. Many organizations attempt to handle recovery audits, overpayment detection and risk analysis in-house. What they’re finding is that they’re not getting the results they want.
• Lesson #4: “Someday I will be the most powerful Jedi ever.” – Anakin Skywalker. What does it take to create the most powerful of AP departments? Having a clean vendor master list is a powerful start.
• Lesson #5: “The force is strong in this one.” - Darth Vader. Isn’t this what you want your employees and customers saying about you? By putting best practices in place, you’ll have stronger internal employee relations and external supplier relationships.
• Lesson #6: “Hello, I am C-3PO, human cyborg relations. How might I serve you?” – C-3PO. There’s a sometimes unstated fear that duplicate payment and fraud detection technologies will replace a human workforce. The lesson from our goldenrod friend is that technologies are there to enhance, not replace, the workforce.
• Lesson #7: “You were the chosen one!… You were to bring balance to the force, not leave it in darkness.” – Obi-Wan Kenobi. We all have our secrets. In the AP world, for example, there are the dirty secrets of contract noncompliance and the disconnects in the procure-to-pay process that lead to big gaps in negotiated contracts and actual payment.
• Lesson #8: Luke… I am your father.” - Darth Vader. Never doubt that delivering the right punch of information can dramatically change the course of future events. Your punch should be broadcasting—both internally and externally—your intent to fight fraud and root out the source of errors in payments.

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/what-star-wars-can-teach-us-about-fraud-and-recovery-audits-76150-1.html

October 21, 2015

CGMA Magazine

U.S. Internal auditors receive modest raises

2015 Internal Audit Compensation Survey Study (published October 20, Tuesday) by the Institute of Internal Auditors (IIA) - Although internal auditors in the US and Canada generally received modest pay raises in the past year, the median salaries for many US internal audit positions decreased. Please follow link for details: http://www.cgma.org/Magazine/News/Pages/internal-auditor-salaries-201513222.aspx

October 16, 2015

Accountancy Live

PwC settles £1.6bn auditor negligence claim by subprime lender Cattles

As the case was due to be heard in the High Court in a trial starting this week and scheduled for up to four months – parties appeared before the judge to put forward their agreement. “Cattles, Welcome Financial Services and PwC confirm that they have resolved the claims between them. The terms are confidential,” PwC said in a statement.

Please follow link for details: https://www.accountancylive.com/pwc-settles-%C2%A316bn-auditor-negligence-claim-subprime-lender-cattles

October 12, 2015

Accountancy Live

Grafton Group ends KPMG 20-year audit relationship

In a Grafton Group statement: ‘The board would like to thank KPMG for their service as auditor to the group over a long period and looks forward to working with PwC in the future.’ PwC will take over as auditors with effect for the financial year ending 31 December 2016. Please follow link for details: https://www.accountancylive.com/grafton-group-ends-kpmg-20-year-audit-relationship