Audit Firm: Framework to Deal with Brexit

Yesterday the UK decided to leave EU. This is an interesting outcome and at least a positive thing it terms that it will provide us with the topic for discussion for the rest of the year. 

Okay, the business, including auditors, now in situation where actions have to be taken and decisions to be made. 

The scenarios and preliminary analysis of Brexit situation were issued by the    Big 4 firms recently. Please, follow links to find the reports available on the internet:

• Materials from EY
• Materials from PWC
• Materials from Deloitte
• Materials from KPMG

Based on these readings the companies influenced by Brexit will apply following framework:

After Referendum: 2016 -2018

• Deep analysis and development of the plan for full implementation of Brexit actions
• Communication of implications to customers, employees and other third parties
• Start partial/interim implementation of actions
• Political activity to lobby more positive post-brexit options 

Brexit implementation by UK Government: from 2018

• Full implementation of the plan previously designed

Week-End: Formula for Success

Everyone wants personal success and to learn the keys to success. Everyone wants to have a happy, healthy life, do meaningful work, and achieve financial independence. Everyone wants to make a difference in the world, to be significant, to have a positive impact on those around him or her. Everyone wants to do something wonderful with his or her life.

The great keys to success to change your life have always been the same. Here are the four keys to success.

-       Decide exactly what you want and where you want to go.

-       Set a deadline and make a plan to get there. (Remember, a goal is just a dream with a deadline.)

-       Take action on your plan; do something everyday to move toward your goal.

-       Resolve in advance that you will persist until you succeed, that you will never, ever give up.

This formula is your key to success and has worked for almost everyone who has ever tried it.  It will require the very most you can give and the best qualities you can develop. In developing and following these keys to personal success, you will evolve and grow to become an extraordinary person.

Reference: 

http://www.briantracy.com/blog/personal-success/personal-success-keys-to-success-change-your-life/

Audit Method: Accounting for BREXIT

Auditors should consider the implications of BREXIT? The  EU referendum is carried out today and tomorrow by 9:00 AM Greenwich time we should be able to know the preliminary results.

Lets think about fictional accounting standard "Brexit accounting". We, auditors, have clients who work both in UK and EU and would like to know impact of Brexit outcome. 

I would consider following topics in this standard:

• Accounting for uncertainties;
• Disclosure and recognition of contingent assets;
• Disclosure and recognition of contingent liabilities;
• Disclosure of business risks related with change of UK status in EU

Some questions

• do we need to calculate long term provisions for employment termination  for EU employees from outside UK;
• discontinued operations: is there risk for the business to do that in case Brexit legislation would be enacted
• disclosure of future development in the strategic reports of companies who would benefit from Brexit

Some articles on the topic

EY helps boards to prepare:

http://www.ey.com/Publication/vwLUAssets/ey-helping-boards-assess-and-prepare-for-the-uk-referendum-on-eu-membership/$FILE/ey-helping-boards-assess-and-prepare-for-the-uk-referendum-on-eu-membership.pdf

Careers:

http://www.careersinaudit.com/article/how-will-brexit-affect-auditors-/

PWC involvement:

http://news.sky.com/story/1640482/accounting-giant-pwc-kicks-off-brexit-debate

Tax matters:

http://www.accountancyage.com/2016/04/13/would-brexit-mean-the-end-of-vat-in-the-uk/

Boards readiness:

https://iia.org.uk/media-centre/news/ftse-250-boards-finding-possible-brexit-planning-challenging/

Audit Method: Internal Audit Function

ISA 610 explains the relationship between internal audit function and the external auditor. Internal audit function is an appraisal activity established or provided as a service to the entity. Its functions include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of internal control.

Preliminary assessment of the internal audit function

When it appears that internal audit is relevant to the external audit of the financial statements in specific audit areas, we make a preliminary assessment of internal audit by obtaining information about matters such as:

• the objectivity of internal audit function i.e. status and reporting of internal audit function in the entity
• the due professional care of internal audit, especially whether the work is adequately planned, supervised and reviewed
• the technical competence of the internal audit function
• whether management acts on internal audit's reports and recommendations and how this is evidenced

Evaluate and test the work of internal audit

When we intend to use specific work of internal audit, we evaluate and test that work to confirm its adequacy for our purposes.

For evaluation, we check that:

• the work is performed by persons with adequate technical training and proficiency.
• the work of assistants is properly planned, supervised, reviewed and documented.
• sufficient appropriate audit evidence is obtained to afford a reasonable basis for the conclusions reached.
• conclusions are appropriate in the circumstances and reports are consistent with the results of the work performed.
• any exceptions or unusual matters disclosed by internal audit are properly resolved by management.

For testing, we may perform any of the procedures below relating to testing of internal audit that may be considered given specific client circumstances. Our tests of the internal audit function's work may include the following procedures.

• Observe the internal audit function perform audit procedures.
• Re-perform some of the audit procedures previously performed by the internal audit function.
• Perform different audit procedures. For example, we may test controls, transactions or balances other than those the internal audit function tested.
• Examine internal audit's working papers.

Practice

Remember that the external auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by the external auditor's use of the work of the internal auditors. Evaluating the internal audit function becomes relevant only when the external auditor has determined, in accordance with ISA 315, that the internal audit function is likely to be relevant to the audit. The internal audit function is considered relevant when the nature of the internal audit function's responsibilities and activities are related to the entity's financial reporting, and the auditor expects to use the work of the internal auditors to modify the nature or timing, or reduce the extent, of audit procedures to be performed.

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.