Audit Firm: Changes in the Audit Regulations

Effective financial reporting and auditing is essential for the efficient functioning of capital markets. It supports the development of top quality businesses that attracts investors and also provides the basis for sound commercial decision making along with trust and confidence. Auditing is an essential safety measure to provide independent assurance that the financial reporting of businesses properly reveals their overall condition, and supports the maintenance of the integrity of the business environment.

In UK, the Audit Regulations have been updated with effect from 17 June 2016 to take account of the changes in audit regulation initiated by the European Union Audit Regulation and Directive of 2014. These were transposed into UK law last week by the Statutory Auditors and Third Country Auditors Regulations (SATCAR). The changes apply to various facets of the auditing activity in the shape of eligibility criteria, accounting standards, ethical standards and governance criteria. They also include a restructuring of audit oversight and the enforcement process in the UK, and this restructure has required a number of changes in the audit regulations. The legislation has taken the form of a short new legislation in its own right which recognises the Financial Reporting Council (FRC) as the ultimate competent authority. It also makes a number of amendments to the Companies Act 2006 and Schedule 10 which sets out the role and obligations of the Recognised Supervisory Bodies (RSBs) including ICAEW.

Most firms will observe a very little change in process from the current regime, but in reality the FRC will be exercising a lot more control over the regulatory process. In particular they will be able to apply enforcement sanctions directly without any contact with the RSBs. They can apply these not only to Public Interest Entities (PIE) and AIM auditors but to any audit firm where they have elected to take over the audit inspection and investigation of individual cases.

The powers of the FRC also include the ability to move licences of individual firms between bodies or directly administer them themselves. In such cases the rules of the new RSB can apply to that firm. This requirement is set out in 1.02A.The ARD required some additional sanctioning powers be given to the regulatory bodies, and these have been brought into chapter 6 of the regulations. These include the ability to order repayment of an audit fee in part or whole, and to declare an audit report invalid

Additional Thoughts

Auditing is improving but there is more to do as the future of audit will require a change in thinking from auditors, investors and companies alike.

The complete text of the DIRECTIVE 2014/56/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 April 2014 can be found here on this link.

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0056

Reference: http://goo.gl/OeoMF7

i-Monday: There's an Alternative Course of Action

This week, we will be inspired by one of the America’s business giants named Mary Kay Ash. She has a unique story, bold ideas, and a revolutionary actions.

Inspiring and motivating people came easy for Mary Kay Ash. People from all walks of life could relate to her down-to-earth wisdom and easy speaking style. Through her words in her speeches, books and in everyday life, she showed others how to reach higher in their lives while recognizing all the blessings they enjoyed. 

Here are some of the famous lines of Mary Kay Ash:

“Don't limit yourself. Many people limit themselves to what they think they can do. You can go as far as your mind lets you. What you believe, remember, you can achieve.”

“If you think you can, you can. And if you think you can't, you're right.”

“For every failure, there's an alternative course of action. You just have to find it. When you come to a roadblock, take a detour.”

“We must have a theme, a goal, a purpose in our lives. If you don't know where you're aiming, you don't have a goal. My goal is to live my life in such a way that when I die, someone can say, she cared.”

“Most people live and die with their music still unplayed. They never dare to try.”

References:   http://www.marykaytribute.com/Wisdom.aspx

http://www.brainyquote.com/quotes/authors/m/mary_kay_ash.html

Picture Reference:   http://www.marykay.com/en-US/about-mary-kay/companyfounder/Pages/about-mary-kay-ash.aspx

Week-End: Interview tips. Video by PWC

Amp up your interview!

Express yourself with the power of storytelling. Be authentic and memorable!

Here is a practical application of some of the top Interview tips from PWC US recruiter.

Audit Method: Subsequent Events

Subsequent Events as defined in ISA 560 are “Events occurring between the date of the financial statements and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report.”

The objectives of the auditor for considering subsequent events are:

(a) To obtain sufficient appropriate audit evidence about whether events occurring between the date of the financial statements and the date of the auditor’s report that require adjustment of, or disclosure in, the financial statements are appropriately reflected in those financial statements in accordance with the applicable financial reporting framework; and

(b) To respond appropriately to facts that become known to the auditor after the date of the auditor’s report, that, had they been known to the auditor at that date, may have caused the auditor to amend the auditor’s report.

Perform audit procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the audit report that may require adjustment of, or disclosure in, the financial statements have been identified

·   Consider changes in the areas which may affect the financial statements and other information in the annual report such as banking arrangements, currency and interest rates, key markets, key products, customers or vendors, key management or employees, government regulation or policy and the ratio of orders to sales and cash receipts and the position of the order book.

·   Consider other significant knowledge gained, for example press comment, internal audit reports, changes in client trading patterns, changes in laws or regulations, currency devaluations, major fires or catastrophes, or technology failures (e.g. computer operations failures) and security incidents.

·   Evaluate procedures management has established to ensure that subsequent events are identified.

·   Inquire of management and, where appropriate, those charged with governance as to whether any subsequent events have occurred which might affect the financial statements.

·   Review the results of the review of minutes of meetings of the entity’s owners, management and those charged with governance, including audit, executive and other Board committees since the balance sheet date.

·   Consider reviewing invoices from lawyers received after the year-end to determine whether any litigation, claims or assessments exist that were not previously identified in our analysis of legal expenses and other procedures.

·   Review the latest available interim financial statements and, as considered necessary and appropriate, budgets, cash flow forecasts and other related management reports. Consider whether they reveal any adverse trends or significant movements in balance sheet headings compared to the audited financial statements. Consider whether the management information is reliable.

Practice

Where a material subsequent event has been identified, determine whether it is reflected in the financial statements in accordance with the applicable financial reporting framework by adequate disclosure and, where appropriate, adjustment of the account balances and transactions affected. Consider also its effect on the audit report.

Audit Firm: Busy Season

Hello, my followers! Do you have busy season during off season time (it is summer after all, isn't it?!) ? Well, I have. I have to perform audit of 8 statutory financial statements during this summer, then the audit and review of listed companies. I am not complaining, I am just saying: "Busy!". And here is my next article for you about the busy season time tips.

Intro

Busy Season for auditors means long hours, tight deadlines, and constant pressure. It can be exhausting for even the most experienced accountants. The busy season for auditors normally starts from around mid-January and lasts till the end of March.

Here are few tips that will help you to get through the busy season in a successful manner.

Start your day earlier

Starting to work early in the morning can save you some time for a calm sleep in the night that will make you refresh for the next day. Although late sitting is a norm and not an exception during the busy season for auditors, but starting your day earlier can actually help you manage your tasks more efficiently.

Take advantage of travel time to the office: While on the way to office if you are not driving, you can easily check your e-mails, prioritize your most important tasks and preplan the schedule for the whole day.

Set Agenda for meetings

Plan your meetings well ahead of time by setting agenda for each meeting so as to avoid missing out on any important issue that needs to be discussed and clarified from the client.

Make a To-Do List

At the end of every day make a To-Do List for the next day. Things that are left undone today should be given priority the next day so as to avoid backlog of activities. 

Delegate Work

Activities that can be handled by subordinates should be handed over to them in a timely manner to free up yourself for handling more productive tasks.

Keep office and personal time separate 

Busy season does not mean you should ignore your family, health and other recreational activities. Exercise regularly. Do take breaks on the weekends and enjoy passing time with family and friends which will help you to be more effective at work. .

Apply the “Pay time” Sale Concept

Pay time is the time during the day when clients are available; normally it is from 9:00 a.m. in the morning to 6:00 p.m. in the evening. No pay time is when you would not be able to reach out to them. Use no pay time for responding to e-mails, writing, research, or for any other marketing activity that does not directly lead to a paycheck. (Kelley C. Long, CPA, personal financial coach)

Additional Thoughts

The thought of busy season can bring some stress but if you mentally prepare yourself and try to weigh the positives and the negatives you can tackle it with ease and full of productivity. Do plan a trip at the end of the busy season that will keep you motivated throughout the tough busy working season and will also re-energize you at the end of it. 

Audit News Briefing: 24 December 2015

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

December 16, 2015

Reuters - dailymail.co.uk

Accounting firms, SEC hobble U.S. audit watchdog

"U.S. rule-making is a complex process that involves people with many different perspectives who care deeply about the issues… I think this is the case with the PCAOB and SEC in the work we do together, including proposals to give more information to investors about who is leading the audits of the companies in which they invest." This is what PCAOB chief Doty said in a written statement during the annual accounting-industry gala. James Schnurr, who is just two months into his job as chief accountant at U.S. SEC also addressed auditing failures that had shaken public confidence in recent years. Investigative journalist Charles Levinson enumerated all exchanges of thoughts and surrounding events of this so-called hobble.

Please follow link for details: http://www.dailymail.co.uk/wires/reuters/article-3362563/Accounting-firms-SEC-hobble-U-S-audit-watchdog.html

December 15, 2015

The Wall Street Journal

Regulator Approves Naming of Audit-Firm Partners in Charge of Corporate Audits

Under the long policy aim to make auditors more accountable – Beginning with audits performed in 2017, audit firms will have to name their “engagement partner” in charge of each audit in a new form to be filed with the Public Company Accounting Oversight Board. The PCAOB voted unanimously last December 15 (Tuesday) to enact the proposal, which is still subject to Securities and Exchange Commission approval.

Please follow link for details: http://www.wsj.com/articles/regulator-approves-naming-of-audit-firm-partners-in-charge-of-corporate-audits-1450198985

December 10, 2015

Street Insider

SEC Suspends Five Public Accountants and Two Audit Firms for Bad Auditing

“Auditors must follow the professional standards and avoid conflicts of interest when they opine on the financial information reported by public companies… These accountants and their firms showed complete disregard for the basic rules of their profession. As a result, they are now barred from working on any SEC-related matters.”

This was the pronouncement of Director Paul G. Levenson of the SEC’s Boston Regional Office. The government regulator suspended five accountants and two audit firms from practicing or appearing before the SEC after they violated key rules that are designed to preserve the integrity of the financial reporting system.

According to the SEC’s orders finding violations by Peter Messineo and his firm Messineo & Co., Charles Klein and his firm DKM Certified Public Accountants, Robin Bigalke, Joseph Mohr, and Richard Confessore:

·         Messineo and his firm, which had more than 70 corporate clients, skipped mandatory quality reviews for their own audits and performed deficient quality reviews for audits by another audit firm.

·         To cover up these violations, Bigalke falsified and backdated audit documents in her role as Messineo & Co.’s senior accountant. She also arranged with Mohr, the firm’s quality reviewer, the backdating of quality review documents.

·         Mohr falsely identified himself as a certified public accountant during a time when was not licensed as a CPA.

·         Messineo served as the CFO of two public companies being audited by Klein and DKM. Messineo falsely certified the companies’ public filings despite knowing that auditor independence rules were being violated as Confessore was improperly serving conflicting roles as a member of the DKM audit team and an employee of Messineo & Co.

·         After Messineo resigned from his CFO positions at both public companies, he merged his audit firm into DKM and exacerbated DKM’s independence issues because he retained ownership interests in the two companies while DKM continued to audit them.

Please follow link for details: http://www.streetinsider.com/Litigation/SEC+Suspends+Five+Public+Accountants+and+Two+Audit+Firms+for+Bad+Auditing/11144504.html

Audit Method: Small Business Audit

An audit is designed to evaluate and verify the effectiveness of company’s financial operations. It can also help the management or owner detect circumstances that could lead to financial problems in the future.

But the audit strategies used on bigger companies may not be applied for audits of a small business.  Big companies can rely on their own internal auditors to provide assistance.  But small businesses, given a limited budget, have limited personnel.  With this, auditors of a small business might also need to adjust their audit strategy.

Auditors of a small business may encounter some challenges that affect their audit strategy since small businesses face certain challenges in executing effective internal control, particularly if management of the business perceives internal control as something to be added on rather than integrated with core processes.

Audit in a small businesses is very important so as to minimize the potential risks of material misstatements in the financial statements whether it is caused by error or fraud.

So what do Auditors need to pay attention on auditing a small businesses?

First, auditors should review the systems and examine financial documentation whether it is being processed in a timely manner. Without timely and reliable information, accounting records can become unreliable that may create discrepancies in a company's financial records.

Second, auditors should identify and review each component of the company's accounting system, including journal entries, T-Accounts, general ledger and financial statements.  Analytically work through the accounting system to ensure that all accounts are present, that all journal entries are posted to the general ledger in a timely manner and that the system has the ability to correct human errors, such as calculation errors.

Third, auditors should check into the company's internal controls policies to measure the level of security they provide from theft and fraud.  

Fourth, auditor should compare internal records of cash possessions, income and expenses against external records.   The auditor should check the company's stored external records and compare selected transactions against internal records.   For example, a purchase receipts sent from suppliers for a certain month will be compared against internal purchase records, or compare cash register tapes against revenue recorded on the books.

And finally, auditors should analyze the company's internal tax records and official tax returns.  Auditors should also take a little extra time to review the range of credits and deductions claimed on the most recent tax return, looking for areas of dubious reporting, such as inflated expense numbers.

Efficiency in audit is achieved through a careful audit planning.   One specific example is that auditors review the prior years’ workpapers to familiarize themselves with client issues and to look for past inefficiencies and possible improvements.  Another factor that contributes to audit efficiency is Auditors’ independence and objectivity.  Auditors should be free from bias, conflict of interest and undue influence of others to override professional judgements

Sources: 

http://smallbusiness.chron.com/conduct-financial-audit-10228.html