Advanced Auditing

AQ053-3-2

Regulatory Environment
 Topic & Structure of the lesson

 The Need for Standards and Regulations

 The Financial Reporting Council
 Audit Committees

AQ053-3-2 AAD ADVANCED AUDITING Slide 2 of 15

 Ice-breaker

What do you understand by terms such as:

1. Compliance
2. Statutory audit
3. Corporate governance
4. Accountability

Spend 15 minutes discussing in groups on 4 – 5

to present your ideas
AQ053-3-2 AAD ADVANCED AUDITING
 The Need for Standards and
Regulations
Regulation is needed to ensure that auditors are acting
in the public interest

These 'regulations' come in 4 ways:

1. Ethics
2. Standards
3. Regulations
4. Statutory

AQ053-3-2 AAD ADVANCED AUDITING

 The Need for Standards and
Regulations
The international regulatory framework for audit and
assurance services encompasses:
1. International Federation of Accountants (IFAC)
pronouncements
2. This is made up of the accountancy bodies such as
ACCA & CIMA etc
3. Corporate Governance
4. Other Boards (International Auditing & Assurance
Standards Board, Public Interest Oversights Board,
International Ethics Standards Board)

AQ053-3-2 AAD ADVANCED AUDITING

 The Financial Reporting
Council
The Financial Reporting Council (FRC) is
the UK's independent regulator for corporate
reporting and governance.

AQ053-3-2 AAD ADVANCED AUDITING

 Core structure and responsibilities
under the overarching FRC Board

AQ053-3-2 AAD ADVANCED AUDITING

 Role of the FRC Board

1. To set high standards of corporate governance

through the UK Corporate Governance Code
2. To set standards for corporate reporting and
actuarial practice
3. To monitor and enforce accounting and auditing
standards
4. To oversee regulatory activities of the actuarial
profession and professional accountancy bodies
5. To operate independent disciplinary arrangements
for public interest cases

AQ053-3-2 AAD ADVANCED AUDITING

 International standard setting

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 Public oversight

The Public Interest Oversight Board (PIOB)

exists to exercise oversight for all of IFAC's
'public interest activities' including its
standard-setting bodies such as the IAASB.

AQ053-3-2 AAD ADVANCED AUDITING

 Public Interest Oversight Board
(PIOB)
• Monitoring the standard-setting boards
• Overseeing the nomination process for
membership of these boards
• Co-operation with national oversight
authorities

AQ053-3-2 AAD ADVANCED AUDITING

 FRC Guidance on Audit
Committees
• The particular arrangements for an audit
committee should be tailored to the
circumstances of the company. Audit committees
need to be proportionate to the size, complexity
and risk profile of the company.
• At least one member of the committee should
have recent and relevant financial experience
(and a professional accountancy qualification).

AQ053-3-2 AAD ADVANCED AUDITING

 FRC Guidance on Audit
Committees
• There should be three independent non-
executive directors on the committee, two in the
case of smaller companies. At least one member
should have recent and relevant financial
experience (and a professional accountancy
qualification).
• Appointments are recommended by the
nomination committee, and are for a maximum
of three years, but this may be extended by a
further two three-year periods (nine years in
total).
AQ053-3-2 AAD ADVANCED AUDITING
 FRC Guidance on Audit
Committees
• There should be a minimum of three meetings
per year, but the precise number depends on the
circumstances. No one who is not on the
committee has a right to attend meetings (but
they may be there if invited). The committee
should meet external auditors at least annually.
• The committee should have sufficient resources
to undertake its duties, including remuneration
for its members.

AQ053-3-2 AAD ADVANCED AUDITING

 Role of the Audit committee

• To improve the quality of financial reporting

• To increase the confidence of the public in the financial
statements.
• Assist directors in meeting their responsibilities in
respect of financial reporting.
• Provide a channel to external auditors to report concerns
or issues.
• Review the company’s system of internal controls.
• Strengthen the position of internal audit by providing
greater independence from management.
• Appointment of external auditor.

AQ053-3-2 AAD ADVANCED AUDITING

 Communication with the audit
committee
• To ensure independence between the board and the
audit firm.
• The audit committee has more time to review the audit
report and other communications (e.g. management
letters) than the board.
• The audit committee can ensure that any
recommendations from the auditor are implemented.
• The audit committee also has more time to review the
effectiveness and efficiency of the work of the external
auditor than the board.

AQ053-3-2 AAD ADVANCED AUDITING

 Class activities

Spend 30 minutes discussing in groups on 4 – 5

to present your ideas

AQ053-3-2 AAD ADVANCED AUDITING

 Class activities 1
A corporate scandal can occur any time there is evidence of
unethical behaviour, negligence or third-party interference that
impacts a company’s reputation. As we will see, this can
include evidence of ‘creative’ accounting, dodgy business
practices, data breaches or anything that damages the
environment.

Required:
Discuss the above statement and provide an example of
corporate scandal with short explanations of the scandal.

AQ053-3-2 AAD ADVANCED AUDITING

 Class activities 2

Explain the role and responsibilities of audit

committee in relation to external auditor.

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 Question and Answer Session

Q&A

AQ053-3-2 AAD ADVANCED AUDITING Slide 20 (of 16)

 What we will cover next

 Money Laundering

AQ053-3-2 AAD ADVANCED AUDITING Slide 21 (of 16)