Audit News Briefing: 20 September 2015

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

September 10, 2015

Accountancy Live

Government has poor oversight of financial entities it controls - NAO

Due to double increase of up to 54, in the number of supposedly controlled financial institutions since year 2007, The National Audit Office (NAO) criticised the government for failure to effectively oversee the matter. NAO Head Amyas Morse, advised: “Financial institutions are becoming significant elements in the government balance sheet, creating a range of opportunities and risks but no one part of government is taking an overview. The government should adopt a portfolio management approach alongside the traditional departmental oversight model to provide heightened assurance over the portfolio.” Please follow link for details: https://www.accountancylive.com/government-has-poor-oversight-financial-entities-it-controls-nao

September 9, 2015

Corporate Crime Reporter

US: BDO Admits Wrongdoing, To Pay $2.1 Million to Settle Audit Fraud Charges

The US member audit firm of the BDO International network, BDO USA has been fined $2.1m (£1.37m) by US regulator – Securities and Exchange Commission (SEC), for ignoring red flags and issuing ‘false and misleading’ unqualified audit opinions about the financial statements of staffing services company General Employment Enterprises (GEE). Charges were also filed against five firm partners with fraud charges against GEE’s then-chairman of the board and majority shareholder. “Audit firms must train their audit and national office professionals not only to recognize red flags but also to have the resolve to refuse signing off on an audit if there are unresolved material issues. BDO failed to do that here, even though these issues were elevated to the highest levels of its audit practice,” SEC Director Andrew Ceresney explained. Please follow link for details: http://www.corporatecrimereporter.com/news/200/bdo-admits-wrongdoing-to-pay-2-1-million-to-settle-audit-fraud-charges/

September 9, 2015

Accountancy Live

Requirements for accounting skills and tougher independence for bank audit committees

In accordance with the government's implementation of the 2014 EU audit legislation, Financial Conduct Authority (FCA) consultations are being held to aid in the amendment of their existing rules under the Disclosure Rule and Transparency Rule (DTR) Sourcebook. Under new proposals, stricter rules around independence and requirements for technical accounting skills are on the cards for the audit committees of public interest entities (PIEs). The EU audit legislation must be implemented in the UK by 17 June 2016. The deadline for feedback on the FCA consultation is 5 November 2015 and details are available here: http://www.fca.org.uk/news/cp15-28-quarterly-consultation-paper-no-10

Please follow link for details: https://www.accountancylive.com/requirements-accounting-skills-and-tougher-independence-bank-audit-committees

Audit Firms: Audit Market

The large listed audit market is dominated by the Big Four accounting firms; this has led to concerns about the lack of competition and choice in the audit market. With only four possible firms, because of reputation and expertise, to choose from there might be a lack of competition. The high degree of concentration in the audit market became obvious when the Price Waterhouse and Coopers & Lybrand merged in 1998 (Big six to Big five) and the demise of Arthur Andersen in 2002, following its involvement in the Enron Scandal (Big Five to Big Four).

There is a genuine concern about the impact of concentration in the audit market and, in particular, the potential impact of a major firm failure on capital markets. The problem would for sure become very serious significantly if the Big 4 audit firms were to become a Big 3.

The Big Four audit firms audit all but one of the FTSE 100 companies. In the perception of most large listed companies, the Big Four are better placed to offer two key components of the audit product: value-added services on top of the audit itself, and insurance against catastrophes and reputational risk. The Big Four are also perceived to have greater capacity and international coverage to deliver the third key component: the technical audit itself (Oxera, 2006, p.1). Reputation is an important driver of choice, favoring the Big Four, whether this is based on real or perceived differences.

For mid-tier firms there are various entry barriers. They lack the expertise, manpower and funding to compete with the Big Four firms. Big Four firms have

•                a credible reputation with large companies, their investors and other stakeholders.
•      appropriate resources and expertise in place to carry out large company audits,   including relevant sector-specific skills.
•     an effective capability to secure timely and reliable audit opinions on overseas subsidiaries for audits of companies with significant international operations.

Additional Thoughts

Large accounting networks are necessary to perform quality audits of the financial statements of multinational companies. Most stakeholders agree that additional choice in the audit market would be beneficial but should this be left to market forces or should regulatory measures be adopted? Taking away or limiting a company’s ability to choose its best provider would not enhance objectivity, skepticism, or the public interest. Reforms should be made to encourage more natural competition in the audit market such as reforms that govern firms’ access to capital, reform of regulation around auditor liability, reforms to apply ban on restrictive big four clauses in audit proposals. Measures that are designed to artificially limit the scope and outreach of existing large global networks are inappropriate and will likely to limit a company’s choice of auditor, reduce competition and restrict continuous quality improvement.

Audit News Briefing: 10 September 2015

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

September 8, 2015

Accounting Web

U.S.: Accounting Salaries Estimated to Rise 4.7% in 2016

The 2016 Salary Guide: Accounting & Finance by Robert Half Management Resources, issued last September 2, revealed that –

In corporate accounting, salary predictions for senior internal audit and internal audit manager, IT audit manager, and general accountant manager positions are expected to exceed the 4.7 percent increase. Increases in starting salaries for corporate accountants are projected to range from 4 percent to 5.2 percent. Please follow link for details: http://www.accountingweb.com/practice/team/accounting-salaries-estimated-to-rise-47-in-2016

September 7, 2015

Accountancy Live

Woolf: paying the price for delusional regulation

Well-acclaimed professional textbook author and Hyperion Insurance Group Board Director, Emile Woolf FCA, shared his expert view on Audit, he said: “The unbridled lack of measured regulation at every level is highlighted by the recent Quindell accounting fiasco which is now under investigation by the Serious Fraud Office which is now taking the lead in the probe into accounting irregularities.” Please follow link for details: https://www.accountancylive.com/woolf-paying-price-delusional-regulation

September 4, 2015

Journal of Accountancy

Rise in US accounting salaries accelerates

Starting salaries for accounting and finance positions in the United States are expected to rise in 2016 between 4.0% and 5.3% over the previous year. This is according to 2016 Salary Guide: Accounting & Finance by the world's premier provider of senior-level financial and business systems professionals, Robert Half Management Resources. According to their Vice President, Dan DeNisco, high-demand skill areas for accountants include:

·         A combination of audit/compliance and IT skills.

·         Senior accountant skills, such as the ability to do reconciliations and monthly closes.

·         Financial analysis skills, such as budgeting and variance analysis.

Please follow link for details: http://www.journalofaccountancy.com/news/2015/sep/accounting-salaries-rise-201512959.html

September 4, 2015

Accountancy Age

KPMG ends PwC's 11-year audit reign at Premier Foods

One of Britain's largest food producers, Premier Foods, has appointed KPMG as auditor for the 2015/16 financial year. Audit committee chairman Ian Krieger said, "We would like to thank PwC for their significant contribution as the company's auditor since the company's stock market listing in 2004 and look forward to working with KPMG going forward." Please follow link for details: http://www.accountancyage.com/aa/news/2424649/kpmg-ends-pwcs-11-year-auditor-reign-at-premier-foods

Week-End: Right Decisions Matter!

I would like to present you a good story about the auditor and making right decisions in life:

"The accounting department dean had worked for the prestigious firm of Arthur Anderson for a number of years. He had been one of their rising stars until he had a tiff with upper management concerning how to report certain transactions for a client. Arthur Anderson management wanted the transactions recorded in a manner which would make the client look good. The Dean however insisted on full disclosure with the transactions being reported clearly and informatively. That wouldn't have been favourable for the client. So rather than compromise his integrity, he resigned from Arthur Anderson and found the job of dean of the accounting department at St. Martins College."  

From the Book: Odyssey of the Auditor Interns

Author: Thomas McGoldrick

Audit News Briefing: 01 September 2015

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

September 1, 2015

Accountancy Live

Audit Updates: September 2015

Charity Commission financial probe of Swimming Teachers’ Association

The non-ministerial government department that regulates registered charities recently held a financial investigation at Swimming Teachers’ Association (STA) – to inquire upon the charity’s governance, financial controls and a plan for organisational changes, which posed a potential risk to its assets.

10-year audit tender rules for public interest entities

The UK government recently pronounced thru a written ministerial statement that public interest entities (PIEs) will be required to put their audit out to tender at least every 10 years. Further, the requirement to change auditor was ruled every 20 years. The confirmation statement also emphasized the authority and audit regulation roles of the Financial Reporting Council (FRC) and recognised supervisory bodies such as the Institute of Chartered Accountants in England and Wales (ICAEW).

Audit win: PwC keeps flying with easyJet

 After meetings with each of the top 10 audit firms in the UK, the board of easyJet is set to recommend the reappointment of PricewaterhouseCoopers (PwC) as the company’s auditor for the year ending 30 September 2016 to shareholders at the annual general meeting in February 2016.

Please follow link for details: https://www.accountancylive.com/audit-updates-september-2015

Audit Method: Materiality

The concept of materiality is applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report. Information is material if it is likely to influence financial statements users’ decisions. The major reason for thinking about materiality is to try to fine tune the audit for effectiveness and efficiency.

Planning Materiality: Auditors use planning materiality at the planning stage to determine which financial statement items, account balances and transactions to test and which to not test. It affects the scope of both tests of controls and substantive tests.

Performance Materiality: To plan the audit of various accounts, auditors need to assign part of the planning materiality to each account or class of transactions. If planning materiality is 1million CU(Currency Unit) and procedures for each account or class of transactions are designed to allow a 1million CU misstatement to go undetected, the total misstatement could obviously be more than acceptable. Therefore, auditors use performance materiality (an amount less than materiality for the financial statements as a whole) to make sure that the aggregate of uncorrected and undetected immaterial misstatements does not exceed materiality for the financial statements as a whole.

Computing Materiality: A number of quantitative approaches may be used by the auditor depending on his professional judgment; two common methods employed are discussed here:

Single Variable Approach This approach uses a single financial variable for computing materiality. Depending on qualitative factors, an auditor would select the variable that was judged to be the most appropriate way to compute materiality for a specific client. Examples of possible common single variables are: 5% of pre-tax income, 1/2% of total assets, 1% of equity, 1/2% of total revenues.

Blend or Average Method This method typically takes four or five variables and then either weights each variable according to some proportion or averages them (an equal weighing). Presumably, the blending or averaging process provides an indirect way of considering qualitative factors. An example of the averaging method would be to take the previously listed four single variables and average them (give each of them a 25% weight).

Recommendation

My recommendation to audit seniors will be that consider the amount (quantity) and nature (quality) of misstatements as both are relevant in deciding what is material. Moreover consider the industry in which your audit client falls and then decide on which financial variable is most relevant to the particular industry. For example for retailers revenue or profit after tax would be more suitable, for business concerned with asset growth e.g. property development an asset based benchmark would be a better measure to use, a not for profit organization or a public sector body could use 0.5% to 1% of expenses since they are normally not concerned with revenue generation or profits.

Audit News Briefing: 27 August 2015

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

August 25, 2015

Tax News

Country-By-Country Reporting: The Transfer Pricing Game-Changer

The Tax-News.com Editorial featured the proposals for new tax information reporting requirements for large multinational businesses. An introduced concept of standardized three-tier format on transfer pricing document serves to enhance determinations about where audit resources can most effectively be deployed, and, in the event audits are called for, provide information to commence and target audit inquiries. Please follow link for details: http://www.tax-news.com/features/CountryByCountry_Reporting_The_Transfer_Pricing_GameChanger__573035.html

August 18, 2015

Corporate Social Responsibility and the Law

U.K. Modern Slavery Act: New Disclosure Requirements for Companies Operating in the United Kingdom

This October, companies that do business in the U.K. should assess their exposure to the U.K. Modern Slavery Act. Among the steps required for compliance involve – review or implementation of auditing and verification mechanisms. The significant audit policy evaluation questions are:

•  How does your company verify compliance with its human rights policies?
•  Does your company have systems in place to audit its operations and its suppliers for compliance with corporate human rights policies?  What performance indicators support these systems?
•  Are existing, or planned, auditing procedures sufficient to evaluate the specific risks of slavery and human trafficking associated with your company’s business?
• Does your company use independent auditors?

Please follow link for details: http://www.csrandthelaw.com/2015/08/18/u-k-modern-slavery-act-new-disclosure-requirements-for-companies-operating-in-the-united-kingdom/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original

August 25, 2015

Accountancy Live

Deloitte picks up Admiral Group audit

The largest professional services network, Deloitte, will replace Klynveld Peat Marwick Goerdeler (KPMG) as Admiral Group auditor. This is according to the insurer company’s interim financial statements on 15 August 2015. Please follow link for details: https://www.accountancylive.com/deloitte-picks-admiral-group-audit

August 20, 2015

Accountancy Live

Woolf: Toshiba audit raises red flag over quality and independence

Hyperion Insurance Group Board Director, Emile Woolf, articulated the professional significance of external audit on the edge of recent accounting scandals. On fraud investigation, he opined: “While audit methodology fails to reflect the environment in which results are reported, the real question concerns the corporate culture of the audit firm itself, as much as its client.” Please follow link for details: https://www.accountancylive.com/woolf-toshiba-audit-raises-red-flag-over-quality-and-independence

June 2015

ICAEW Press Release

Bank auditors could add credibility to capital numbers

The Institute of Chartered Accountants in England and Wales (ICAEW) has called for auditors to be ready to give independent assurance on bank capital numbers. Iain Coke, head of ICAEW’s Financial Services Faculty, said: “People need to have confidence in banks’ capital ratios. We need to know what society expects from bank auditors and how the auditors can meet those expectations. ICAEW will then design a framework that allows auditors to deliver this consistently across banks.” Responses are invited by 16 October 2015. Please follow link for details: http://www.icaew.com/en/about-icaew/newsroom/press-releases/2015-press-releases/bank-auditors-could-add-credibility-to-capital-numbers

  

List of SOURCES:

https://www.accountancylive.com/

http://www.accountancyage.com/

http://www.icaew.com/en/about-icaew/newsroom/press-releases/2015-press-releases

http://www.fca.org.uk/news

http://www.sfo.gov.uk/

http://pwc.blogs.com/press_room/