audits changing landscape p1 aud and p2 ap as

IN PRACTICE Audit’s Changing Landscape BY Fidelma McPhillips Audit’s Changing Landscape Fidelma McPhillips, CPA Irel...

0 downloads 50 Views 304KB Size
IN PRACTICE

Audit’s Changing Landscape

BY

Fidelma McPhillips

Audit’s Changing Landscape Fidelma McPhillips, CPA Ireland looks at current Audit Reform.

Fidelma McPhillips ACA CPA is a Quality Assurance Executive in the Professional Standards with CPA Ireland. Previously she worked in the firm Kane Bergin and Company.

The years since 2010, have borne witness to an increasingly challenging regulatory and commercial environment in statutory audit. It has been six years since there has been change in this area, and the Summer of 2016 has seen a significant development in audit reform. The implementation of this legislation has implications for the entire future of audit regulation in Europe, enhancing the audit regulator’s role and audit quality. On June 17th 2016, the Minister for Jobs, Enterprise & Innovation, Ms. Mary Mitchell O’Connor, signed into law, the new EU regulatory framework on statutory audit. That being Statutory Instrument 312 of 2016 – European (Statutory Auditors) (Directive 2006/43/EC; as amended by Directive 2014/56/EU, and Regulation (EU) No 537/2014 Regulations 2016, thus replacing, the previous supervisory framework on Statutory Audit S.I. 220 of 2010. The driving force behind this legislation emerged out of a unified desire and attempt to bring reform and clarity to the audit regime across member states within the European Union. The key principles of the legislation are to improve the basis for integrity, independence, objectivity, transparency and reliability with respect to statutory auditors and audit firms.

38

90 YEARS OF CPA

This new Audit Regulation and Directive (ARD) applies to all the member states within the European Union. The new audit regulatory framework enshrines IAASA (the Irish Auditing and Accounting Supervisory Authority) as the designated single competent authority for the purposes of Article 20 (1) of the EU Audit Regulations with responsibility for the oversight of statutory audit, statutory auditors and audit firms of PIEs (Public Interest Entities; a PIE broadly speaking, is an entity listed on regulated Stock Exchanges, Credit Institutions and Insurance companies). This function was previously carried out by the recognised accountancy bodies and many of the changes contained within the regulations only apply to the audit of PIEs. The status of the competent authority for audit in Ireland essentially widens the scope of IAASA’s oversight role. IAASA’s powers have been enhanced in respect of the area of statutory auditors including; • Approvals (including recognition of EU Member State firms) and registration • Continuing education • Quality assurance process • Investigations and disciplinary processes In accordance with Article 24 of the Audit and Regulation Directive, the powers afforded to IAASA, as the designated oversight supervisory body, means that it will be responsible for: • Quality assurance reviews of Statutory Auditors and Audit firms of PIEs and the Audits of PIEs • Investigation and Discipline into Statutory Auditors and Audit firms of PIEs Changes brought forth by the legislation with regard to the audit of PIEs include requirements that PIEs rotate auditor after ten years, a placing of a restriction on the

provision of certain non-audit services to PIEs and the widening of the function, role and responsibilities of PIE audit committees. The recognised accountancy bodies will continue to perform the quality assurance inspections of non-PIE audits performed and all audits by non-PIE audit firms. However, IAASA will be responsible for the oversight of how this function is conducted by the professional accountancy bodies in respect of the following: • Approvals and Registration of Non-PIE auditors • Continuous Professional Development • Inspection of Non PIE Audits (Quality Assurance Reviews of Statutory Auditors and audit firms) • Investigations and Disciplinary actions in respect of Non PIE Statutory Auditors and audit firms

Audit quality In line with Part 5 of the Regulations on Auditing Standards and Audit Reporting, IAASA as the Supervisory Authority will also be responsible for the adoption of standards on auditing, professional ethics, and the internal quality control of audit firms operating in Ireland. Statutory auditors and audit firms shall carry out audit work in accordance with those standards. The current ISA’s (International Standards on Auditing) (UK and Ireland) and the Ethical Standards as published by the FRC, will continue to apply to audits for financial periods beginning before 17 June 2016, for example audits of years ending 31 December 2016.

Investigation and disciplinary action IAASA is empowered to conduct investigations into potential breaches of the Regulations by auditors. Whereupon a finding is made by IAASA, sanctions can be imposed including fines of up to €100,000 for an auditor or €500,000 for an audit firm ACCOUNTANCY PLUS. ISSUE 03. SEPTEMBER 2016

IN PRACTICE

BY

Audit’s Changing Landscape

and prohibitions on working as an auditor or audit firm for up to three years. IAASA will publish details of any findings made and the sanctions imposed.

Ethical & professional framework Set out within Part 5, Chapter 2, of the Regulations, are the conditions for continuous education for Statutory Auditors in order to maintain knowledge, professional skills, and values, with particular reference to auditing at a sufficiently high level. Chapter 2 also gives a statutory setting for the requirements of independence, objectivity, professional ethics and professional scepticism for the auditor.

Professional scepticism & auditor independence The general requirements around independence, prohibited relationships, rotation and prohibition of certain nonaudit services and the statutory auditor are contained within Part 7 of the Regulations. In Section 92, the regulations elaborate on the maintenance of professional scepticism (now given statutory footing within S.I. 312) whilst carrying out the statutory audit and the specific provisions to secure independence. Professional scepticism is a fundamental principle of audit objectivity and independence which is essential for the auditor. Whilst carrying out the audit, professional scepticism is the approach through which the auditor must frame their judgement skills and mind set. Within the context of these Regulations, the meaning of professional scepticism is in line with the definition as contained in the International

Fidelma McPhillips

Auditing and Assurance Standards Board’s (IAASB) Handbook of International Quality Control, Auditing, Review, Other Assurance and Related Service Pronouncements. It means an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud and a critical assessment of audit evidence. The regulations outline that when carrying out the statutory audit, the statutory auditor or the audit firm shall: • Maintain professional scepticism throughout the audit, • Maintain professional scepticism when reviewing management estimates relating to fair values, the impairment of assets, provisions, and future cash flows relevant to the audited entity’s ability to continue as a going concern, and • Recognise the possibility of a material misstatement due to facts or behaviour indicating irregularities, including fraud or error, notwithstanding the statutory auditor’s or the audit firm’s past experience of the honesty and integrity of the audited entity’s management and of the persons charged with its governance. A key area of consideration is that of independence. The legislation defines the general requirement for independence at length, stating that during the period in which the audit is carried out, the statutory auditor or firm shall be independent of, and not involved in, the decision taking of the audited entity. The Regulations expand further on the theme of independence. The auditor must ensure their independence is not affected by any existing or potential conflict of interest, or any business, or other direct or indirect relationship involving the

statutory auditor or audit firm conducting the audit and that independence shall be required at least during the period covered by the financial statements to be audited, and the period during which the statutory audit is carried out.

Quality assurance The overarching supervisory framework of the audit profession essentially remains the same as under the previous legislation of S.I. 220 of 2010. Therefore, from a regulatory context, it’s important to note that quality assurance inspections of each statutory audit firm will continue on the same audit cycle as before. Statutory auditors should be aware that in accordance with the legislation now in force, where a firm has a quality assurance review within the cycle, the next quality assurance review will occur within the 6 years from the date of the first review.

Conclusion The advent of audit reform comes at a time when there is fluidity in the audit market environment with acceptance by all stakeholders that change was apparent and necessary. At the time of writing, the Audit Regulation & Directive has become law. It is expected that both auditors and regulatory bodies have planned for and will be ready to adapt to the significant changes within the area of statutory audit. Against the backdrop of the Companies Act 2014 and the implementation of the financial reporting standard FRS 102, Autumn 2016 is shaping up to be a busy period for statutory auditors.

“formerly mystrikeoff.ie”

• Voluntary strike-off advertisements for • •

only €99 plus Vat per company Full strike-off service for only €199 incl Vat Discounted rates on liquidation advertisements

ACCOUNTANCY PLUS. ISSUE 03. SEPTEMBER 2016

Call us today for more information! Tel: 1890-CLOSED (1890-256733) Email: [email protected]

90 YEARS OF CPA

39