Audit Method: Quality Review

ISA 220, deals with quality control for an audit of financial statements. Engagement teams have a responsibility to implement quality control procedures that are applicable to the audit engagement and that are within the context of the firm’s system of quality control. The objective of the auditor is to implement quality control procedures at the engagement level that provide the auditor with reasonable assurance that:

• The audit complies with professional standards and applicable legal and regulatory requirements; and
• The auditor’s report issued is appropriate in the circumstances.

ISQC 1, deals with the firm’s responsibilities to establish and maintain its system of quality control for audit engagements. The system of quality control includes policies and procedures that address each of the following elements:

• Leadership responsibilities for quality within the firm;
• Relevant ethical requirements;
• Acceptance and continuance of client relationships and specific engagements;
• Human resources;
• Engagement performance; and
• Monitoring.

For audits of financial statements of listed entities, and those other audit engagements, if any, for which the firm has determined that an engagement quality control review is required, the engagement partner shall:

• Determine that an engagement quality control reviewer has been appointed;
• Discuss significant matters arising during the audit engagement, including those identified during the engagement quality control review, with the engagement quality control reviewer; and
• Not date the auditor’s report until the completion of the engagement quality control review.

Practice

The engagement partner shall take responsibility for the overall quality on each audit engagement to which that partner is assigned. The engagement partner should ensure that

• Appropriate procedures regarding the acceptance and continuance of client relationships and audit engagements have been followed;
• All ethical requirements are met;
• Independence criterion is met;
• Assignment of team members is appropriate;
• Overall direction, supervision and monitoring of the audit engagement is carried out.

Audit Firm: Impact of Brexit on Audit Firms in UK & Europe

On June 23, 2016, the UK voted to leave the European Union (EU) voluntarily. Amid the highest turnout at a UK-wide vote since 1992, with a 70% turnout rate, the Leave campaign received 52% of the referendum, compared to 48% received by the Remain campaign. The particulars of how the UK will leave the EU will be the subject of negotiations for at least the next two years.

Economists anticipate market and currency instability in the short-term, but the longer term implications will depend heavily on the details of how the UK unravels its participation in the EU. Economists are also anticipating several years of uncertainty, and uncertainty typically does not indicate positive signs for financial markets or economic indicators. Uncertainty among businesses would see a brake applied to investment and deal-making, which would hit one among the most lucrative of areas for accounting practitioners – transactional services market.

From one perspective, for the accountancy sector, the EU is maybe less important as the share of revenue generated by clients in other EU countries is just 4.2%. However, as key major companies and banks might relocate from London to Frankfurt in near future – this will mean a lot less money for accounting firms, but there may be a recovery later.

British relationships with the IASB, which lay outside the EU will remain unchanged. As the UK has always been a keen proponent of IFRS, thus it is unlikely that there would be any retreat to British accounting standards after Brexit. One more area on which accountants are focused are the potential tax implications. Taxation has remained a policy area over which EU member states retain close control. Now after the Brexit vote, EU laws on direct and indirect taxation will cease to apply within the UK, and Britain will regain the right to vary its VAT and excise duty rates beyond the restrictions imposed by EU legislation.

Workload is likely to increase for audit firms due to Brexit but their lucrative value-added services offerings may suffer as a result. Auditors would struggle to provide high-value advice to their clients, instead having to focus on technical questions borne out of the UK leaving the EU.

Additional Thoughts

Nobody can predict with certainty what is going to happen after the Brexit. It is an extraordinary event and determined by many unknown factors. The audit firms should consider what it will look like in the future and should assess their client base. To secure the longevity of the practice, audit firms need to ensure that their client base is well spread. 

References:

http://goo.gl/BV4xGs

http://goo.gl/e85sOH

Brexit chronicles

There are some interesting articles on Brexit. The FT and Economist provide the analysis and some predictions. Please see the links:

• Brexit and the City: Europe plots a bank heist
• Brexit business tracker
• Brexit and the City of London. From folly to Fragmentation

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