Wednesday, July 14, 2021
Audit is cool!!!: Audit Procedures: Final Stage
Audit is cool!!!: Audit Procedures: Final Stage: The incentive for writing this post was recent article by Lisa Weaver, ACCA Advanced Audit examiner, on the topic of audit completion. Fol...
Audit is cool!!!: Audit Method: Best practices in Audit Documentation
Audit is cool!!!: 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 r...
Business Idea: Shamrock Audit Firms
No, it is not St. Patrick’s Day and we are not going to praise Guiness in this article J
I am currently studying different forms of business organisation and try to apply this knowledge in the field of audit. I was interested by Handy’s concept of shamrock organisation, which is defined in BPP P3 study text as follows:
“The shamrock organisation, or flexible firm, has a core of permanent managers and specialist staff supplied by a contingent workforce of contractors and part-time and temporary workers.”
Thus, in this post I would like to discuss the concept of flexible firms, which might change not only the value chain and network of audit firms, but also the whole audit market.
Problems
Audit businesses face number of problems:
1. Financial crisis – clients less keen on paying for audit and there is the necessity to cut costs;
2. New Legislation – the split of audit and advisory services would lead to problems in staff utilization. Firms might face the issue of overstaffing or understaffing (before it was more leeway to balance advisory and audit projects).
3. Employee expenses – as a result of the two issues above, fixed expenses related with employees become burdensome for audit firms. Fixed salaries, pension schemes and other elements of package expose pressure on profit.
4. Efficiency – are resources invested in junior staff employees show real pay off?
5. Focus – to pick up appropriate people for audit job accounting firms should maintain comprehensive recruitment department, waste time of managers involved in the process, which might seen as waste of resources and shift of focus from delivery of quality services.
I think that flexible firm structure might help to address these problems and change marker
Answer: Concept of Shamrock Organisation
The shamrock concept comprises four so called leaves or elements.
The first leaf is professional core, which consists of professionals defining organization’s core competence. In audit firms it could be employees above manager assistant level or even higher grade staff. They would elaborate methodology, business processes, communicate with clients on major negotiations, review audits and sign up audit reports, establish and implement strategy.
The second element is self-employed professionals and technicians. For audit firms it could be extremely relevant element. IT services might be outsourced and there no need to be reliant on huge army of salary-paid IT specialists; tax, legal, valuation personnel and audit seniors could be hired separately for each audit project. To satisfy demand for these services freelancers as well as specialised firms could be hired.
The third leaf is contingent work force. The hire of this type personnel would totally depend on the external demand for audit firm’s services. I always wandered why audit firms hire people with higher education to do stock counting or cash section audit? Give me a week or two and I will teach secondary school graduates how to audit not only above mentioned sections but also receivables, payables, and even deferred taxes provided that these guys would know that 2x2=4 and more or less have common sense.
Thus, the contingent work force would cover the work of junior level staff, second and third year associates; this might include also the work of senior auditors in some cases (small project; tightly controlled by manager).
The forth element is supposed to be the contribution of consumers. Indeed, unlike other industries there are whole bunch of opportunities for better interaction with client in audit, e.g. audit committee, internal audit departments. I am going to expand this idea further.
Practical Implications
The question is rather simple: how is this model going to work? I would outline following solutions:
· Active markets of freelance professionals;
· Human resources (staffing) firms specialising in recruiting and training staff in certain area. For example, such kind of company might develop diverse skills in secondary school graduates and utilize this employees’ hours efficiently by outsourcing them both to audit, advisory, financial and other firms (e.g. data input/processing centers; call centers). Thus, the contingent work force could be provided by special HR firms;
· Overseas professionals. The new developments in IT and communication allow audit firms to transfer part of work to overseas professionals achieving economy in costs. Tax section and legal contact within audit project could be easily reviewed by specialist in China or India for less fee with the same quality.
· Consumer intervention. The model might provide client with means to influence costs. For example, there are two HR firms (A and B) providing contingent work force for audit services: A has brand name, B is less known but charges lower fees. An audit firm might provide opportunity to client to chose the firm (A or B) to be included into audit budget.
The implementation of shamrock concept might lead to rise of staffing firms specialising on low skilled financial employees. Audit firms would be focused on recruitment experienced high skilled professionals. The necessity in audit seniors (also known as “audit executives” or “assistant managers”) could be liquidated: the managers should be able to undertake some tasks and delegate less complicated issues to temporary workers.
The exchanges (analogy to stock exchanges) of professional and semi-professional labor should become more developed, elaborated and structured. They should provide businesses/audit firms with access to information about freelancer’s previous works, rate per hour, references. There are professional and freelance internet projects (e.g. Odesk or LinkedIn), but they are patchy and not so developed as commodity or stock exchanges.
I would be glad if you share your thoughts on this subject. May be you have some reservations regarding this idea or you might offer the other ways to make audit business more profitable and professional
References
BPP. (2011). Paper P3. Business Analysis. Study Text. London : BPP Learning Media Ltd.
Disclaimer:
"This group is not associated with or approved by ACCA and the views expressed on this page do not necessarily reflect the views of ACCA".
Disclaimer:
"This group is not associated with or approved by ACCA and the views expressed on this page do not necessarily reflect the views of ACCA".
Thursday, July 28, 2016
Audit Method: Audit of Environmental Compliance
According to INTERNATIONAL
AUDITING PRACTICE STATEMENT 1010 “Environmental audits” are
becoming increasingly common in certain industries. The term “environmental
audit” has a wide variety of meanings. They can be performed by external or
internal experts (sometimes including internal auditors), at the discretion of
the entity’s management. In practice, persons from various disciplines can
qualify to perform “environmental audits.” Often the work is performed by a
multi-disciplinary team. Normally, “environmental audits” are performed at the
request of management and are for internal use. They may address various subject
matters, including site contamination, or compliance with environmental laws
and regulations. However, an “environmental audit” is not necessarily an
equivalent to an audit of an environmental performance report.
With respect to the entity’s
compliance with environmental laws and regulations, the auditor’s purpose is
not to plan the audit to detect possible breaches of environmental laws and
regulations; nor are the auditor’s procedures sufficient to draw a conclusion
on the entity’s compliance with environmental laws and regulations or the
adequacy of its controls over environmental matters. To conclude that an entity
operates in compliance with existing environmental laws or regulations
ordinarily requires the technical skills of environmental experts, which the
auditor cannot be expected to possess.
It is management’s
responsibility to ensure that the entity’s operations are conducted in
accordance with laws and regulations. The responsibility for the prevention and
detection of noncompliance rests with management (ISA
250, paragraph 9). In this context, management has to take
into account:
- Laws
and regulations that impose liability for remediation of environmental
pollution arising from past events; this liability may not be limited to
the entity’s own actions but may also be imposed on the current owner of a
property where the damage was incurred by a previous owner (“vicarious
liability”);
- Pollution
control and pollution prevention laws that are directed at identifying or
regulating sources of pollution, or reducing emissions or discharges of
pollutants;
- Environmental
licenses that, in certain jurisdictions, specify the entity’s operating
conditions from an environmental point of view, for example, a
specification of the maximum levels of emissions; and
- The
requirements of regulatory authorities with respect to environmental matters.
Practice
If the auditor suspects there
may be non-compliance, the auditor shall discuss the matter with management
and, where appropriate, those charged with governance. If management or, as
appropriate, those charged with governance do not provide sufficient
information that supports that the entity is in compliance with laws and
regulations and, in the auditor’s judgment, the effect of the suspected non-compliance
may be material to the financial statements, the auditor shall consider the
need to obtain legal advice.
Wednesday, July 27, 2016
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:
Tuesday, July 26, 2016
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
Friday, July 22, 2016
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.
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