Audit Firm: EY Ireland Managing Partner

Mike McKerr has been Managing Partner of EY Ireland since 2009, responsible for the Republic of Ireland and Northern Ireland.  During his career with the firm, he worked in the US and UK, and was a partner in EY’s M&A division.

EY REPORTED STRONG GROWTH IN THE YEAR TO JUNE 2015. TO WHAT FACTORS DO YOU ATTRIBUTE THIS OUT-PERFORMANCE?

Posting more than 33% growth in the last two years is a significant achievement, and we are very pleased that it’s all been organic growth. The momentum in our business today is down to our long-term investment strategy and the decisions we took during the downturn. For example, we did not make any redundancies but increased market activity and upskilled our people to work across new areas. This strategy has certainly paid off, and over the last two years we have admitted 14 new partners and have recruited top talent across experienced and graduate hires.

We continue to see robust growth in our core audit services in addition to strong demand for broader assurance services, including Data Analytics and Fraud Investigation and Dispute Services (FIDS), which grew more than 40% in FY15.  Based on the latest transparency reports, EY is now the second largest audit and assurance business in Ireland.

Change continues to be a key focus for our domestic and international clients, driven by both the need to control costs and remain competitive, but also to ignite growth and penetrate new markets.  We invested heavily in new areas including Data Analytics, Assurance, Centres of Excellence and Performance Improvement.

The PI team in Advisory led by Frank O’Dea, continues to grow due to an increase in demand for business transformation, process improvement and IT change management services. The PI team alone now employ over 200 people working across public and private sector clients, improving key business functions to achieve significant and sustainable improvement in enterprise-level performance.

But our success is about much more than financial results. It is also about our people, who continue to deliver exceptional client service. EY has a leading people culture and a transformational approach to developing talent. The firm continues to accelerate investment across the organisation and intend to acquire additional new office space in a number of Irish locations over the coming months to cater for their growing numbers.

By focusing on our people agenda, we have been able to create real momentum both inside and outside the organisation. It’s a virtuous circle – we enable them to deliver exceptional service, which strengthens our client relationships, helps us to capture market share, and this growth creates career opportunities for our people.

EY IS DOING PARTICULARLY WELL WITH AUDIT WINS. WHAT’S THE REASON FOR THAT? WHAT’S YOUR VIEW ON PROPOSALS FOR STATUTORY ROTATION OF AUDITORS?

EY had several fantastic audit wins in FY15, which reflects the significant investment made globally and locally to innovate our audit service through the use of analytical tools. Collectively our Audit and other Assurance services grew 16% in FY15, driven by excellent performance across our core Audit business, Fraud Investigation and Dispute Services and Data Analytics.  We will continue to invest in these areas.

Regulatory change, particularly audit rotation, will continue to alter the audit market for some years to come and we believe innovation and data analytics solutions will be in increasing demand.

European legislation on audit reform enacted in April 2014 will come into force in Ireland from June 2016 in the form of a new EU regulation and amendments to the existing EU Audit Directive on statutory audit. The objective of the reform measures is to ensure the objectivity and independence of auditors and includes the requirements for the mandatory rotation of audit firms on public interest entities.

These significant audit reforms will affect the auditing profession, the entities we audit and our relationships with our clients and the regulatory authorities who supervise us. We have actively engaged on these changes with the legislators and regulatory authorities, including making submissions to reflect the views of EY Ireland.

We are committed to supporting regulatory change which is appropriately proportionate for financial statement preparers and their auditors, and which ultimately strengthens public confidence in the audit model. EY Ireland will therefore continue to support regulatory change that enhances stakeholder confidence.

EY IS A BIG 4 FIRM THAT MULTINATIONALS GO TO. HOW CAN IRISH SMES BENEFIT FROM USING YOUR SERVICES TOO, AND CAN THEY AFFORD IT?

Critical to our market leading growth in Ireland is combining our global strength together with deep local connections in each of our offices across Ireland.  Our ability to collaborate internationally helps both multinational and entrepreneurial clients expand across borders.

While FDI can be a critical enabler of growth, it is equally important to help Irish companies become global players in their own right. The EY Entrepreneur Of The Year programme is the leading business award in Ireland and represents a unique business development and support network opportunity for entrepreneurs across the island of Ireland.

Our annual EOY CEO retreat is designed to take entrepreneurs out of their comfort zone and challenge them to think differently about their business.  Attendees are given the opportunity to expand their leadership skills, forge links to new markets and develop their own successful strategy for growth in addition to developing an invaluable network of peers.

Change continues to be a key focus for EY clients of all sizes, driven by both a need to control costs and remain competitive, and to ignite growth and penetrate new markets.

The diversity of our service offering and international reach means that we have a broad spectrum of experience to offer indigenous and multinationals alike. In this way, we can transfer our expertise of working with large multinationals to Irish SMEs, focusing on improving key business functions to achieve significant and sustainable improvement in enterprise-level performance.

STABLE GOVERNMENT SINCE 2011 IS ONE FACTOR CREDITED FOR RENEWED BUSINESS CONFIDENCE. IS THIS ISSUE OVER-STATED, OR IS STABLE GOVERNMENT REALLY THAT IMPORTANT FOR ECONOMIC GROWTH GOING FORWARD?

A number of factors have contributed to the economic growth that Ireland has enjoyed in recent years – among them is confidence and having a stable government in place. Having a stable economic environment has helped to reassure both Irish firms and external investors that it is safe to invest, takes risks and pursue new opportunities. During 2016, we expect to see a strengthening domestic economy, and continued export growth further enhance business confidence.

Late last year, we carried out a survey with our EOY community.  The survey shows that over half of the entrepreneurs surveyed have conducted business with other members of the EOY community, demonstrating the importance of professional networks in creating a supportive climate for doing business in Ireland. Furthermore, a skilled and educated workforce, low corporation tax rates and government support were listed as the biggest enablers to doing business in Ireland.

It therefore vital for government, industry and academia to understand the specific challenges facing entrepreneurs and to collaborate to solve problems, address legislative and cultural barriers to success, and together shape the future of entrepreneurship in 

Ireland.

Reference: 

http://goo.gl/vbMiYn

Audit News Briefing: 26 July 2016

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

July 20, 2016

Accounting Today (Debits&Credits)

Internal Auditors Move to Combat Cyberattacks

New Report – Institute of Internal Auditors: Growing Role of Internal Audit Profession in Cybersecurity

The kind of support needed:

·         Not simply focused on prevention.

·         Setting and management of expectation.

·         Helping the company assess readiness in dealing with the inevitable.

IIA President and CEO Richard Chambers: “What we continue to find is that cybersecurity is recognized almost universally as one of the most significant risks that organizations face … It’s one that internal auditors have increasingly begun to recognize they have to help address. But what we also find is that in a lot of instances the focus can’t just be on trying to prevent a cyberattack because cyberattacks are virtually inevitable. Anyone who tells their board or their customers that they are immune from a cybersecurity attack is just not being truthful.”

Please follow link for details: http://www.accountingtoday.com/blogs/debits-credits/news/internal-auditors-move-to-combat-cyberattacks-78732-1.html

July 19, 2016

Accounting Today (Accounting Technology)

Internal Audit Function Varies Globally

19-July REPORT – Internal Auditors Research Foundation: Found a variety of factors affecting the maturity levels of internal audit in different parts of the globe, including the:

-       age and size of the internal audit function,

-       the type of industry,

-       the size of the organization, and

-       other variables.

Highlight: technological variation across regions – regions still relying on manual systems and processes (13%) North America (36%) East Asia and Pacific.

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/internal-audit-function-varies-globally-78716-1.html

June 29, 2016

Accounting Web

PCAOB Issues Staff Guidance for Firms on the New Form AP

(AP) Audit Participants NEW FORM requires disclosure of the following:

·         The name of the engagement partner for all public company audits issued on or after Jan. 31, 2017.

·         Information about other audit firms participating in the audit for all public company audits issued on or after June 30, 2017. That information will include the names, locations, and extent of participation of other accounting firms that took part in the audit, if their work constituted 5 percent or more of the total audit hours. It also will include the number and aggregate extent of participation of all other accounting firms that took part in the audit whose individual participation was less than 5 percent of the total audit hours.

Written Statement of Martin Baumann (PCAOB chief auditor and director of professional standards) – “Form AP will provide transparency to investors about the engagement partner and other accounting firms that took part in the audit… The guidance issued today (29-Jun) will help firms implement the processes required to deliver that information.”

Please follow link for details: http://www.accountingweb.com/aa/auditing/pcaob-issues-staff-guidance-for-firms-on-the-new-form-ap  

Audit Method: Internal Control Component: Information Systems

The ISA 315, has divided the entity’s internal control process in to five components. One among these components is the Information Systems. According to ISA 315, while conducting the audit of financial statements, the auditor needs to obtain an understanding of the information system, including the related business processes, relevant to financial reporting, including the following areas:

·         The classes of transactions in the entity’s operations that are significant to the financial statements;

·         The procedures, within both information technology and manual systems, by which those transactions are initiated, recorded, processed, corrected as necessary, transferred to the general ledger and reported in the financial statements;

·         The related accounting records, supporting information and specific accounts in the financial statements that are used to initiate, record, process and report transactions;

·         How the information system captures events and conditions, other than transactions, that are significant to the financial statements;

·         The financial reporting process used to prepare the entity’s financial statements, including significant accounting estimates and disclosures; and

·         Controls surrounding journal entries, including non-standard journal entries used to record non-recurring, unusual transactions or adjustments.

The information system relevant to financial reporting objectives, which includes the accounting system, consists of the procedures and records designed and established to:

·         Initiate, record, process, and report entity transactions (as well as events and conditions) and to maintain accountability for the related assets, liabilities, and equity;

·         Resolve incorrect processing of transactions, for example, automated suspense files and procedures followed to clear suspense items out on a timely basis;

·         Process and account for system overrides or bypasses to controls;

·         Transfer information from transaction processing systems to the general ledger;

·         Capture information relevant to financial reporting for events and conditions other than transactions, such as the depreciation and amortization of assets and changes in the recoverability of accounts receivables; and

·         Ensure information required to be disclosed by the applicable financial reporting framework is accumulated, recorded, processed, summarized and appropriately reported in the financial statements.

Practice

Significant and rapid changes in information systems can change the risk relating to internal control. The extent and nature of the risks to internal control vary depending on the nature and characteristics of the entity’s information system. The entity should respond to the risks arising from the use of IT in internal control by establishing effective controls in light of the characteristics of the entity’s information system.

Audit Firm: Regulation of Audit Firms in UK

The Companies Act 2006 of United Kingdom provides powers to bodies known as Recognised Supervisory Bodies (RSBs) to register and supervise auditors. The RSBs are:

• The Institute of Chartered Accountants of Scotland
• Chartered Accountants Ireland
• The Institute of Chartered Accountants in England and Wales
• The Association of Chartered Certified Accountants
• The Association of Authorised Public Accountants

The regulatory system of RSBs involves the following:

• Registration processes
• Monitoring
• Investigation and discipline

The RSBs are also subject to independent oversight.  The Financial Reporting Council (FRC) has statutory powers delegated to it by Government for the recognition, supervision and de-recognition of the RSBs.  The FRC conducts regular inspection visits to the RSBs to ensure that their responsibilities are being discharged appropriately.  The FRC also has the power to sanction RSBs. In addition to the quality assurance and monitoring undertaken by the RSBs, the Audit Quality Review (AQR) team of the FRC has the responsibility for the monitoring of the audits of all listed and other major public entities. 

The FRC operates an independent disciplinary scheme for accountants and accountancy in the UK. The Accountancy Scheme operates independently of the professional bodies. The FRC deals with cases of potential misconduct which raise or appear to raise important issues affecting the public interest in the UK. All other cases of potential misconduct continue to be dealt with by the professional bodies above.  The FRC Conduct Committee has oversight over the operation of the disciplinary arrangements. The Conduct Committee’s responsibilities in this regard include:

• Operating independent disciplinary Schemes for the investigation of cases which raise or appear to raise important issues affecting the public interest in the UK; and
• Where appropriate, bringing disciplinary proceedings against those whose conduct appears to have fallen short of the standard reasonably to be expected of members or member firms of the relevant professional body.
• Keeping under review the working of the Schemes and the supporting Regulations to ensure that they are operating effectively; and
• Regular publicity for the FRC’s disciplinary activities and achievements as appropriate.

Additional Thoughts

Compliance with local laws and regulations is a matter of utmost care for the audit firms. The audit firms should abide by all the laws and regulations in order to gain the trust of the authorities and the general public.

Reference:      http://goo.gl/1XOfUS

http://goo.gl/7wWT0q

Audit News Briefing: 15 July 2016

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

July 14, 2016

Business Wire (press release)

IESBA Redefines Accountants’ Ethical Role When Laws and Regulations Broken

International Federation of Accountants (IFAC) 32-page July 14, 2016 Publication: Responding to Non-Compliance with Laws and Regulations – http://www.ifac.org/publications-resources/responding-non-compliance-laws-and-regulations

The global organization for accountancy profession released this new standard today through its independent standard-setting board, the International Ethics Standards Board for Accountants (IESBA).

IESBA Technical Director Ken Siong: “The board carefully calibrated the standard based on the rich and diverse input from a wide range of stakeholders to ensure that it is proportionate and, importantly, globally operable … The standard fills a gap in jurisdictions where legislation or regulation does not address professional accountants’ responsibilities in these situations, and by providing helpful guidance it may well complement legislation or regulation in jurisdictions that do address it. This has been a long journey, and now it’s time for national standard setters, professional accountancy organizations, and accounting firms to adopt and implement the standard.”

Please follow link for details: http://www.businesswire.com/news/home/20160714005837/en/IESBA-Redefines-Accountants%E2%80%99-Ethical-Role-Laws-Regulations

July 14, 2016

Accounting Today

5 Questions to Ask Before Moving into Advisory Services

Accounting technology veteran Amy Vetter recently featured a new revenue generating undertaking – that is, advisory service. It is based on the Global SMP Survey by the International Federation of Accountants (IFAC) which revealed a 32% increase in advisory and consultancy service by small and mid-size firms in North America.

She have found in her career that auditors tend to have the most natural skills to transition into advisory work – “They’re used to reviewing financial statements for anomalies and asking questions. Shifting to advisory is a natural evolution of the work: instead of delivering a report, you’re sitting down with clients to discuss the report in the context of improving their business operations.”

Please follow link for details:

http://www.accountingtoday.com/accounting-technology/news/5-questions-to-ask-before-moving-into-advisory-services-78674-1.html

July 14, 2016

Economia

FRC survey reveals fears that audit profession becoming less attractive

YouGov Survey by the Financial Reporting Council (FRC): “There is growing concern that the audit profession is becoming less attractive as a result of increased public and regulatory scrutiny”

·         It was stressed that the audit profession’s recruitment, level of quality and judgment skill development are disadvantaged after the implementation of EU Regulation and Audit Directive (ARD) last month.

·         Related FRC survey of audit market emphasized the concentration of the FTSE 350 audit market in the Big Four firms.

FRC executive director for audit Melanie McLaren: “Our vision for audit is that it is trusted to provide reliable assurance on the public reporting of financial information, and in doing so, promotes good governance and facilitates the effective allocation of capital … The FRC’s strategy is to promote continuous improvement in audit quality. One of the key factors in achieving this is to engage with other regulatory professional bodies, auditors, audit committees and investors to communicate good practice.”

Please follow link for details: http://economia.icaew.com/news/july-2016/frc-survey-reveals-fears-that-audit-profession-becoming-less-attractive

Audit Method: Best practices in Audit Documentation

ISA 230, deal with the auditor’s responsibility to prepare the audit documentation. Audit Documentation is defined in ISA 230 as “The record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached (terms such as “working papers” or “workpapers” are also sometimes used).” The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand

• ·         The nature, timing and extent of the audit procedures performed
• ·         The results of the audit procedures performed
• ·         Significant matters arising during the audit and the conclusions reached thereon

In documenting the nature, timing and extent of audit procedures performed, the auditor shall record:

• ·         The identifying characteristics of the specific items or matters tested;
• ·         Who performed the audit work and the date such work was completed; and
• ·         Who reviewed the audit work performed and the date and extent of such review.

The auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final audit file on a timely basis. After the assembly of the final audit file has been completed, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period.

Audit documentation may be recorded on paper or on electronic or other media. Examples of audit documentation include:

• ·         Audit programs.
• ·         Analyses.
• ·         Issues memoranda.
• ·         Summaries of significant matters.
• ·         Letters of confirmation and representation.
• ·         Checklists.
• ·         Correspondence (including e-mail) concerning significant matters.

However it should be kept in mind that neither auditing standards nor any audit firm policy prohibits the audit team members from including documentation in the file that they believe necessary to support their work.

Practice

Documentation prepared after the audit work has been performed is likely to be less accurate than documentation prepared at the time such work is performed. ISQC 1, requires firms to establish policies and procedures for the timely completion of the assembly of audit files. An appropriate time limit within which to complete the assembly of the final audit file is ordinarily not more than 60 days after the date of the auditor’s report.

Audit Firm: US PCAOB regulation of US Audit Firms

The Public Company Accounting Oversight Board (PCAOB) is a private-sector, nonprofit corporation established by the U.S. Congress to oversee the audits of public companies in United States in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports. In U.S in early 2000, when the Enron and WorldCom Scandal came to surface, the congress felt the need for more strict regulations for the audit firms and thus promulgated the Sarbanes Oxley Act on July 30, 2002. This act mandated the formation of PCAOB to oversee the audit of public companies that are subject to the securities laws, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies the securities of which are sold to, and held by public investors.

Before the Sarbanes-Oxley Act of 2002, the audit profession was self-regulated in U.S., but after its promulgation, it required that auditors of U.S. public companies be subject to external and independent oversight for the first time in history. In passing this Act, Congress sought to restore investor confidence and address serious gaps in the U.S. regulatory framework that were identified through the financial scandals of 2001-2002. The PCAOB comprises of five members, including the Chairman and are appointed to staggered five-year terms by the Securities and Exchange Commission (SEC).

The PCAOB has five primary responsibilities:

·         Registration of public accounting firms (including non-US firms) that audit public companies (including non-US issuers) trading in US securities markets;

·         Inspections of registered public accounting firms;

·         Establishment of auditing and related attestation, quality control, ethics, and independence standards for registered public accounting firms; and

·         Investigation and discipline of registered public accounting firms and their associated persons for violations of specified laws or professional standards.

·         Enforcing compliance with Sarbanes-Oxley Act.

Additional Thoughts

Although the Sarbanes-Oxley Act, through establishment of PCAOB, introduced much strict regulations for the audit profession, but the WorldCom and Enron scandal alongwith the dissolution of the then big five firm Arthur Andersen which was found guilty of fudging Enron accounts, brought a great disrepute for the profession. Audit firms need to develop a sense of self-regulation and high ethical standards so that the investors and public in general endow trust upon the profession.

Reference: https://goo.gl/YU1dgc

                  https://goo.gl/mpKGaX