Chapter 8: Professional Standards Flashcards
What does audit regulation promote?
Professional standards are in the public interest as they add to the quality of assurance services.
Audit regulation promotes comparability of financial statements which are all audited to the same standards and therefore improves public confidence
What are all assurance engagements governed by?
- ethics
- risk assessment
- terms of engagement
- International standards on quality control (ISQCs)
In addition, UK audits are governed by
- Companies Act 2006
- International standards on auditing (ISAs)
What is the IAASB and who are members nominated by?
The international auditing and assurance standards board (IAASB) is a subsidiary of the International federation of accountants (IFAC)
Members are nominated by;
- IFAC
- the forum of firms (a group set up by large accountancy firms)
What professional standards does the IAASB issue and where do they apply?
International standards on auditing (ISAs) - applied to all audits
International standards on assurance engagements (ISAEs) - applied to assurance engagements other than those on historic financial information
International standards on review engagements (ISREs) - applied to assurance engagements to review historic financial information
What are the ISRSs and ISQCs issued by the IAASB?
ISRSs - International standards on related services - applied to non-assurance engagements
ISQCs - International standards on quality control - applied to all assurance engagements
What is the process for setting standards by the IAASB?
- a subcommittee is established to work on a particular area
- the subcommittee issues an exposure draft for consideration
- where appropriate, the exposure draft is revised as a result of feedback from interested parties
- once amendments are finalised/approved, the definitive international standard is published
What is the FRC? What are they doing?
Financial Reporting Council - supervises accountancy related issues and issues auditing standards in the UK
It is continuing to rebrand publications previously issued by the Auditing practices board (APB). Some APB pronouncements are still in force so you may see reference to this body
What is the structure of the FRC?
The FRC has a board which is the supported by:
- governance committees (the audit and risk committee and people committee)
- business committees (conduct committee, regulatory standards and codes committee and supervision committee)
It delegates some responsibility to these committees
How does the FRC interact with ISAs?
The FRC amends ISAs for any specific UK factors then issues them as ISAs (UK)
What does the FRC issue?
Aside from ISAs:
- ethical standards for auditors
- practice notes - guidance on applying ISAs ro particular circumstances and industries
- Bulletins - guidance on new or emerging issues
- Standards for reviews of interim financial statements performed by the auditor of the entity
- Audit quality - thematic reviews
Practice notes and Bulletins are persuasive rather than prescriptive
What is harmonisation?
Harmonisation is the process of aligning global standards so that companies are audited in a comparable way regardless of location
What did the EU Directive and Regulation of April 2014 introduce?
Changes in Ethical and Auditing \standards and the UK Corporate Governance Code:
- improving the quality of audit and reporting
- mandatory re-tendering after 10 years
- change of auditor at least every 20 years
- ban on providing non-audit services (including tax advice) to public interest entities
- cap on fees for non-audit services
What have the FRC done in relation to professional scepticism?
- Issued a briefing paper on professional scepticism which recognises the difficulty in exercising scepticism when the culture of audit firms encourages close working relationships with clients
- The briefing paper stresses the need to challenge and test management assertions
How have the FRC criticised auditors?
In relation to professional scepticism, the FRC criticised auditors for lack of attention in this area. They have identified the following problem areas:
- year-on-year audits adopting the same approach with changes ignored
- accepting management explanations rather than forming own view
- acceptance of unrealistic deadlines
How are auditors responding to big data?
By increasing the use of technology in the audit approach
