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.

i-Monday: Steve's Way

i-Monday - is a new cool rubric of articles issued on Monday for my readers. The term i-Monday means - inspiration on  Monday. The articles are intended to give reader good examples of success or inspiration and will motivate you on Mondays :)  This week we remind Steve Jobs word to you.

“Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure — these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

From: Commencement address delivered by Late Steve Jobs, Ex - CEO of Apple for the 114th graduating class at Stanford University June 12, 2005

Picture reference: http://aarondanowski.com

Audit News Briefing: 23 October 2015

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

October 21, 2015

Accountancy Live

Listed companies slow to adopt new UK GAAP as deadline looms

According to Deloitte research on annual reports of UK, listed companies are being slow to make the transition to the new UK GAAP financial reporting standards. This is despite the Cutting the Clutter campaign made by the Financial Reporting Council. Please follow link for details: https://www.accountancylive.com/listed-companies-slow-adopt-new-uk-gaap-deadline-looms

October 21, 2015

Accounting Today

What Star Wars Can Teach Us about Fraud and Recovery Audits

APEX Analytix’s senior vice president, global marketing & business development – Joseph Burke – recently featured a Star Wars inspired audit advisory on fraud and recovery.

Here are some excerpts:

• Lesson #1: “It’s a trap!” - Admiral Ackbar. Fraud runs rampant in organizations of any size.
• Lesson #2: “Fear is the path to the dark side.” – Obi-Wan Kenobi. Accounts payable professionals who let fear stand in the way of putting systems in place to detect duplicate payments and fraudulent losses are pulling their company down instead of raising it up.
• Lesson #3: “Do or do not. There is no try.” – Yoda. Many organizations attempt to handle recovery audits, overpayment detection and risk analysis in-house. What they’re finding is that they’re not getting the results they want.
• Lesson #4: “Someday I will be the most powerful Jedi ever.” – Anakin Skywalker. What does it take to create the most powerful of AP departments? Having a clean vendor master list is a powerful start.
• Lesson #5: “The force is strong in this one.” - Darth Vader. Isn’t this what you want your employees and customers saying about you? By putting best practices in place, you’ll have stronger internal employee relations and external supplier relationships.
• Lesson #6: “Hello, I am C-3PO, human cyborg relations. How might I serve you?” – C-3PO. There’s a sometimes unstated fear that duplicate payment and fraud detection technologies will replace a human workforce. The lesson from our goldenrod friend is that technologies are there to enhance, not replace, the workforce.
• Lesson #7: “You were the chosen one!… You were to bring balance to the force, not leave it in darkness.” – Obi-Wan Kenobi. We all have our secrets. In the AP world, for example, there are the dirty secrets of contract noncompliance and the disconnects in the procure-to-pay process that lead to big gaps in negotiated contracts and actual payment.
• Lesson #8: Luke… I am your father.” - Darth Vader. Never doubt that delivering the right punch of information can dramatically change the course of future events. Your punch should be broadcasting—both internally and externally—your intent to fight fraud and root out the source of errors in payments.

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/what-star-wars-can-teach-us-about-fraud-and-recovery-audits-76150-1.html

October 21, 2015

CGMA Magazine

U.S. Internal auditors receive modest raises

2015 Internal Audit Compensation Survey Study (published October 20, Tuesday) by the Institute of Internal Auditors (IIA) - Although internal auditors in the US and Canada generally received modest pay raises in the past year, the median salaries for many US internal audit positions decreased. Please follow link for details: http://www.cgma.org/Magazine/News/Pages/internal-auditor-salaries-201513222.aspx

October 16, 2015

Accountancy Live

PwC settles £1.6bn auditor negligence claim by subprime lender Cattles

As the case was due to be heard in the High Court in a trial starting this week and scheduled for up to four months – parties appeared before the judge to put forward their agreement. “Cattles, Welcome Financial Services and PwC confirm that they have resolved the claims between them. The terms are confidential,” PwC said in a statement.

Please follow link for details: https://www.accountancylive.com/pwc-settles-%C2%A316bn-auditor-negligence-claim-subprime-lender-cattles

October 12, 2015

Accountancy Live

Grafton Group ends KPMG 20-year audit relationship

In a Grafton Group statement: ‘The board would like to thank KPMG for their service as auditor to the group over a long period and looks forward to working with PwC in the future.’ PwC will take over as auditors with effect for the financial year ending 31 December 2016. Please follow link for details: https://www.accountancylive.com/grafton-group-ends-kpmg-20-year-audit-relationship

Audit Firm: Vault Top 50 US Accounting Firms

Vault.com, an online careers site, has unveiled its annual ranking of the best accounting firms to work for in the U.S. Vault uses the following survey methodology to rank the audit firms.

Methodology: “When Vault asks accounting professionals what matters most to them in choosing an employer, they continually tell us that although prestige is important, it's not the only determining factor. In addition to prestige, accounting professionals find the following factors extremely important: firm culture, type of work, location, work/life balance, compensation, business outlook, and training opportunities.

As a result of these findings, Vault has compiled a weighted formula that reflects the issues job seekers care about most. We believe that this formula showcases those accounting firms deemed the Best to Work For. The Vault Accounting 50 is based on the following:

• 40 percent prestige
• 20 percent firm culture
• 10 percent work/life balance
• 10 percent compensation
• 10 percent overall job satisfaction
• 5 percent business outlook
• 5 percent formal training

The top 10 Accounting/Auditing Firms in US at the Vault top 50 for 2016 are as follows.

1. PwC (PricewaterhouseCoopers) LLP
2. Ernst & Young LLP (EY)
3. Deloitte LLP
4. KPMG LLP
5. Grant Thornton LLP
6. BDO USA LLP
7. McGladrey LLP
8. Plante Moran
9. Moss Adams LLP
10. Crowe Horwath LLP

You can see the complete list of Top 50 Accounting firms by Vault at the under mentioned address:

http://www.vault.com/company-rankings/accounting/vault-accounting-50

Additional Thoughts

Accounting Firms should develop a congenial and friendly working environment for its employees and young graduate trainees so that they are developed and groomed professionally. A culture that promotes leadership, diversity, ideas generation will not only nurture the employees to grow professionally but will also bring good reputation for the firms locally and globally.

Audit Method: Oil & Gas Industry

The Oil & Gas Industry comprises of three sectors:

The Upstream sector: This is also called the exploration and production sector (E&P). It involves the search for potential underground or underwater crude oil and natural gas.

The Midstream sector: This sector involves the transportation, storage and marketing of petroleum products.

The Downstream sector: this sector is involved in the refining of crude petroleum products and processing and purification of the raw natural gas.

Accounting for oil and gas companies is a bit complicated because it has to reflect the company’s principal assets; the oil and gas reserves, with ownership rights often based on contractual relationships between the oil and gas producing entities and the owners of the mineral rights. 

Some of the specific accounting issues which arise in the Oil and gas sector are as follows: 

• Joint Arrangements: It is a common term for oil & gas companies to share the risks and costs of exploration and production activities. A separate Joint Venture Account statement is prepared which shows the advances received from working interest owners and how the amount is spent.
• Revenue recognition: The revenue arising from each transaction is recognized based on the terms of the underlying sales agreement.
• Exploration & Evaluation Assets and Development Assets: IFRS 6 - Exploration for and Evaluation of Mineral Resources explain the complete accounting for these assets.
• Depletion, depreciation and amortization (DD&A): The unit of production method is most commonly used to deplete upstream oil and gas assets.
• Impairment of non-financial assets: IFRS 6 relaxed the rules of annual impairment testing for exploration and evaluation (E&E) assets. IFRS 6 requires these assets to be tested for impairment only when the facts and circumstances suggest that the carrying amount may exceed its recoverable amount and on the transfer of E&E asset to development assets. 
• Reserves Reporting: The purpose of reserve reporting is to make available information about the oil and gas reserves which are controlled by the company. This information helps to assess the companies’ current performance and future prospects.
• Provisions for Decommissioning Costs: Due to exploration and evaluation activities oil and gas companies often are required to create a provision for meeting the costs of site restoration, decommissioning and dismantling of assets. It is covered by IAS 37.

Practice

While conducting the audit of oil & gas companies, the auditor should gain thorough and deep understanding of the industry and the practices followed by the oil & gas companies. Audit requirements may vary depending on whether the company is operating in an upstream, midstream or downstream sector. Moreover audit procedures in upstream sector also vary depending on whether the company is an operator or non-operator of and oil or gas well or lease. 

Audit Firm: Personality of Auditor

There are a few personal characteristics that are important for an auditor to have:

• Auditors should possess a strong ethical framework and report on issues (or anticipated issues) as they come across them. There is a temptation to "let things go" as further investigation may require more work or reveal embarrassing processes, performance and/or fraud.

• Good communication skills allow auditors to have a rapport with a variety of employees, managers, directors and external parties. As auditors establish good rapport with a variety of individuals, however, they should keep in mind the objectives of the audit (for instance, the reliability, verifiability, accuracy and timeliness of information), as they can often be tempted to not report on issues discovered.

• Strong interpersonal skills are important, due to the variety of informational requests - and often, resistance to those requests - required from a variety of sources. Strong and/or ambitious types may attempt to dissuade auditors from revealing embarrassing findings.

• Auditors need to be team players. As the scope of the audit can be fairly large, it is beneficial to help in other areas of an audit when resource constraints warrant it.

• Finally, "professional skepticism" is an important trait to have, especially when reviewing a company's internal controls. One needs to assess how perpetrators of fraud can beat a company's controls, and auditors need to design and implement a system that can effectively protect the organization's assets.