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.