Pan-European Database On Inspections Of Audit Firms Has Been Launched
Independent audit regulators from 27 European Countries – including the Accountancy Board in Malta have launched a common database to collect and exchange their findings from the inspections of audit firms. The non-public database will contain inspection findings in relation to the ten largest European networks of audit firms (PwC, KPMG, Deloitte, EY, BDO, Grant Thornton, Nexia, Baker Tilly, Mazars, and Moore Stephens).
Inspections of audit firms of Public Interest Entities (usually listed companies, but also banks and insurance companies) are performed on a recurring basis and are undertaken with the objective of improving the quality of audits. They generally include a review of the audit firms’ internal quality control procedures and a review of selected audit engagements to test compliance with relevant professional standards. The database will contribute to a consistent understanding of issues and help establish common approaches in addressing audit deficiencies.
The project was initiated by the European Audit Inspection Group (EAIG) which was established in 2011. The EAIG provides a pan-European platform for cooperation of audit regulators. The centralised database will be hosted and administered by the German Audit Oversight Commission and will be used by the EAIG to identify common issues in relation to particular networks or the application of particular standards by audit firms in practice. This will contribute to the on-going dialogue of the EAIG with the networks, the audit profession at large and standard setters such as the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board (IESBA).
Further information about the EAIG will be found on its website (www.eaigweb.org). For further information about the Accountancy Board and the Quality Assurance Unit, please visit www.accountancyboard.gov.mt
IFAC Releases New Guide On Review Engagements
The International Federation of Accountants (IFAC) recently released the Guide to Review Engagements. The guide, developed in conjunction with CPA Canada, aims to help professional accountants in practice, especially those operating in small- and medium-sized practices (SMPs), in conducting review engagements in compliance with International Standard on Review Engagements (ISRE) 2400 (Revised), effective for periods ending on or after 31 December 2013.
To help practitioners develop a deeper understanding of ISRE 2400 (Revised), the guide includes illustrative examples alongside relevant extracts from the standard. It also includes practical points for practitioners’ consideration and tips on how to efficiently implement the standard. Checklists and forms that can be adapted to meet the particular requirements and circumstances of individual review engagements and jurisdictions are also included. To download the guide, visit SMP Publications & Resources.
IFAC Welcomes Release Of International Integrated Reporting Framework
The Framework is an opportunity for organisations to improve the quality of information provided about governance, strategy, prospects, and performance that reflects the commercial, social, and environmental contexts within which they operate. It enables them to engage with investors and others and focus on value creation over time. Ultimately, it will contribute to a more financially stable global economy and is a force for sustainability.
It will bring cohesion, technical rigor, and efficiency to a process that has grown organically and through market pressure over the last three years. Organisations that are able to adopt “integrated thinking” will benefit by breaking down internal silos and reducing duplication. Finance and accounting leaders need to act as change agents in their organisations and facilitate integrated thinking across the organisation so that integrated reporting can be successful. These leaders have a crucial role in putting their organisations on a path of sustainable performance.
As a co-founder of the International Integrated Reporting Council (IIRC), IFAC has played a central role in the development of the IIRC and the Integrated Reporting (IR) Framework.
Ethics Board Consults On Future Strategy And Work Plan
The International Ethics Standards Board for Accountants (IESBA, the Ethics Board) recently released for public consultation its Proposed Strategy and Work Plan, 2014-2018. Comments are requested by February 28, 2014. The proposed Strategy and Work Plan builds on the strong base established by the revised Code of Ethics for Professional Accountants (the Code) issued in July 2009, which clarified requirements for all professional accountants and significantly strengthened independence requirements for auditors.
The Consultation Paper lays out four proposed strategic themes to reflect the Ethics Board’s vision for the medium to longer term and to guide its work plan over the five-year period: maintaining a high-quality Code for application by professional accountants globally; promoting and facilitating the adoption and effective implementation of the Code; evolving the Code for continued relevance in a changing global environment; and increasing engagement and cooperation with key stakeholders.
The Consultation Paper includes four work streams that the Ethics Board agreed to pursue in early 2012 in response to a strategic review of external developments: a review of the Code provisions addressing long association of senior personnel with an audit client, and non-assurance services, both with respect to independence; a review of the structure of the Code with a view to enhancing its usability and accessibility; and a review of Part C of the Code addressing professional accountants in business.
IAASB Consults On Five-Year Strategic Objectives And Work Priorities
The International Auditing and Assurance Standards Board (IAASB) recently released for public comment its Proposed Strategy for 2015-2019 and Proposed Work Program for 2015-2016. Comments are requested by April 4, 2014. The proposals emphasise the IAASB’s commitment to developing and maintaining high-quality International Standards on Auditing (ISAs) to be adopted and implemented globally. The strategy proposals set out the following objectives for the five-year period:
- Develop and maintain high-quality ISAs that are accepted as the basis for high-quality financial statement audits
- Ensure the IAASB’s suite of standards continues to be relevant in a changing world by responding to stakeholder needs
- Collaborate and cooperate with contributors to the financial reporting supply chain to foster audit quality and stay informed
Within the context of the proposed strategic objectives, the IAASB intends to focus its efforts in 2015-2016 on the topics of quality control, professional skepticism, and special audit considerations relevant to financial institutions. Also envisaged is work to support the effective implementation of the IAASB’s new and revised Auditor Reporting standards (which are expected to be finalised in 2014), further information gathering on potential future work topics such as group audits and assurance on Integrated Reporting, and development of a post-implementation review process for the IAASB’s assurance and related services standards. The IAASB consultation also set out the topics that it intends to prioritise in 2017 and beyond in support of its strategic objectives.
Preliminary Agreement In Trilogue On The Reform Of The Audit Sector
The European Commission, the European Parliament and EU Member States have reached a preliminary agreement on 17 December 2013 on the reform of the audit sector. A formal approval in the Council and a plenary vote in the EP are expected shortly and will finalise the legislative process.
With the agreement, audit firms will be required to rotate every 10 years. Public interest entities will only be able to extend the audit tenure once, upon tender. Under this measure, joint audit will also be encouraged. Despite the extension of the rotation period, this principle will have a major impact in reducing excessive familiarity between the auditors and their clients and in enhancing professional scepticism.
The new rules also provide innovative tools to limit the risk of conflict of interest. To avoid the risk of self-review, several non-audit services are prohibited under a strict ‘black list’, including stringent limits on tax advice and on services linked to the financial and investment strategy of the audit client. In addition, a cap on the provision of non-audit services is introduced.
Modernisation Of The Professional Qualifications Directive Concluded
Recognition of professional qualifications obtained in another EU Member State is essential to establish an internal market for professional services.
The current system (based on Directive 2005/36/EC) has been evaluated by the European Commission, who has consulted stakeholders and has finally adopted a legislative proposal on 19 December 2011.
FEE supports the European Commission’s general objectives of simplifying rules for the mobility of professionals within the EU, clarifying the framework for consumers and injecting more confidence into the system.
On 9 October 2013, the European Parliament voted in favour of the Commission legislative proposal for modernising Directive 2005/36/EC on the recognition of professional qualifications. On 15 November 2013 the Council of the EU has adopted the revised Professional Qualifications Directive. The adoption of the new directive by the Council follows an agreement with the European Parliament at first reading.
Review Of Financial Reporting And Accounting Standard Setting Process
Philippe Maystadt, special adviser to Commissioner Michel Barnier, recently presented his recommendations for enhancing the EU’s role in international accounting standard-setting. Mr Maystadt proposes taking a three-fold approach:
- Maintaining a “standard-by-standard” adoption procedure, including the possibility of accepting or refusing a standard issued by the IASB (International Accounting Standards Board). Any move to introduce greater flexibility (such as amending or adapting a standard) should be strictly regulated (precise criteria and conditions) in order not to impede the aim of applying global standards. Mr Maystadt proposes adding adoption criteria to the Regulation on the application of the IFRS (not endangering financial stability and not hindering the economic development of the region). Otherwise, the Commission could clarify the interpretation of the criterion specifying that a standard should contribute to the public interest.
- Reorganising the current EFRAG (the European Financial Reporting Advisory Group) to increase its legitimacy and representativeness for strengthening the European Union’s influence in international accounting standard-setting.
- That the Accounting Regulatory Committee, ARC, further develop its dialogue with EFRAG at an earlier stage in the process, in order to be more effective in bringing influence to bear on the activities of EFRAG and the IASB.
In addition to the task mandated to Mr Maystadt, the Commission will carry out an evaluation of the Regulation on the application of the IFRS. This evaluation will be based on Mr Maystadt’s recommendations and complement them by providing factual data about implementing the IFRS in Europe so far.
Latest Update To Study Confirms Substantial Progress Towards Global Adoption Of IFRS
With the completion of the third phase of its project to study jurisdictional adoption of International Financial Reporting Standards (IFRS), the IFRS Foundation has gathered solid evidence that IFRS has already become the de facto global language for financial reporting. The third phase involved research on how IFRS is used in an additional 41 countries, bringing the total number of countries surveyed to 122.
Key findings based on all 122 jurisdiction profiles include:
- Nearly all of the jurisdictions have made a public commitment to global accounting standards and to IFRS as those global standards.
- IFRS is already required for all or most domestic listed companies in 101 (83 per cent) of the 122 jurisdictions.