Advanced Program in Auditing
and Accounting Regulation
Module 12 Enhancing Statutory Audit Quality from a
Financial Regulator’s Perspective
Presenter: Geraldine McWeeney
Auditing and Accounting Policy
Irish Financial Services Regulatory Authority
22 November 2005
Contents
1. Respective Responsibilities of
•
•
•
•
Board of Directors/Those Charged with Governance
Financial Regulators
External Auditors
Areas of Common Interest for the Financial Regulator and the
External Auditors
• Limitations on Contribution Auditors can make to the Supervisory
Process
2. Directors’ Compliance Statements and Auditors’ Reports
thereon.
3. Irish Financial Regulator’s liaison with External Auditors
4. The establishment of the Irish Auditing and Accounting
Supervisory Authority (IAASA)
1.
Respective Responsibilities of:
1.1
Board of Directors/Those Charged with
Governance
• Promote the success of the entity for the benefit of the
shareholders as a whole
– Provide entrepreneurial leadership within a framework of
prudent and effective controls which enables risk to be
assessed and managed
– Establish appropriate management information systems
– Ensure the regulated entity has appropriate risk
management policies and procedures
– Have regard for the interests of all stakeholders
– Compliance with laws and regulations
– Set the Entity’s values and standards
– Primary source of information to the Regulator
1.
Respective Responsibilities of:
1.2
Financial Regulator
Prudential Supervision and Financial Stability
• To foster sound and solvent financial institutions which
give consumers confidence that their deposits and
investments are secure
Consumer Protection
• Help consumers to make informed decisions on their
financial affairs in a safe and fair market
1.
Respective Responsibilities of:
1.3 External Auditors
• To give an independent opinion of the Financial
Statements on whether they present a ‘true and fair
view’ on the state of affairs of the entity.
• Statutory Duty to report to the Financial Regulator and
Other Bodies in certain specified circumstances.
1.4
Areas of common interest for the Financial
Regulator and External Auditors
• Going Concern
• Sound System of internal control
• Proper accounting system
• Good Corporate Governance
1.5
Limitations on Contribution Auditors can make
to the Supervisory Process
• Auditor’s reports are a supplement to, and not a
substitute for, proper reporting by regulated entities.
• A financial statement audit provides a type of assurance
that has limited value to the regulatory process.
– Financial Statements are historical documents.
– A financial statement audit cannot be assumed to include
consideration of all matters that may be relevant to a
regulators functions.
– Materiality thresholds may be very high
– The Financial Regulator and the External Auditor must
recognise their duty to observe confidentiality with
reciprocity of information
2.
Directors’ Compliance Statements and
External Auditors’ reports thereon
2.1
Review Group on Auditing (RGA)
Recommendation
– “Directors of a company should be required to report on an
annual basis to the shareholders on the company’s
compliance with its obligation under company law, taxation
law and other relevant statutory or regulatory
requirements”.
– “Auditors opinion required on whether the Directors’
Compliance Statement is reasonable”
• Implies 100% compliance with all legislation
• Envisaged that it would apply to all companies other than those
with very low turnover who are exempt from audit.
• Envisaged that it would also apply to all financial institutions
2.
Directors’ Compliance Statements and
External Auditors’ reports thereon
2.2
Companies legislation
– Section 45 of the Companies (Auditing and Accounting)
Act, 2003 – not yet commenced
• “Policies and Procedures” approach rather than 100% compliance
• Mandatory for publicaly listed companies (plc’s) and llarge private
companies
• Other “relevant obligations” confined to
(a) those enactments that provide a legal framework AND
(b) that may materially affect the entity’s financial statements
• A review of Section 45 was conducted by the Company Law
Review Group (CLRG) as a result of lobbying from affected parties.
The CLRG is expected to recommend substantial amendments to
Section 45.
2.
Directors’ Compliance Statements and
External Auditors’ reports thereon
2.3
Financial Services Legislation
• Section 25 of the Central Bank Act, 1997 as substituted
by section 26 of the Central Bank and Financial Services
Authority of Ireland (CBFSAI) Act, 2004
– Closer to the wording of the Review Group on Auditing
(RGA)
• ‘Policies and Procedures’ approach is not mentioned
• No materiality level
– It is an enabling provision (not mandatory)
– The Financial Regulator to issue Guidelines
– The Financial Regulator would first consult widely with
Interested Parties.
3.
Irish Financial Regulator’s liaison with
External Auditors
3.1
Receipt of annual audited financial statements from
the regulated entity (no separate auditor’s report
on financial statements is prepared by the auditor
for the Financial Regulator).
3.2
Statutory Duty of Auditors to Report to the
Financial Regulator.
3.2.1 Examples of circumstances where auditors
must report to the Financial Regulator are
contained in Section 33 of Investment
Intermediaries Act, 1995.
3.
Irish Financial Regulator’s liaison with
External Auditors
3.2.2 Other examples where there is a Statutory
Duty on Auditors to Report to the Financial
Regulator are contained in Section 27 of the Central
Bank Act, 1997 as substituted by section 26 of the
Central Bank and Financial Services Authority of
Ireland (CBFSAI) Act, 2004
• Section 27B – Auditor of regulated financial service provider to
lodge annual report with the Financial Regulator
• Section 27C - Duty of auditor to provide the Financial Regulator
with copies of Reports sent to those charged with governance
• Section 27D - Duty of auditor to provide the Financial Regulator
with copies of Reports sent to the Director of Corporate
Enforcement
3.
Irish Financial Regulator’s liaison with
External Auditors
3.3
The Financial Regulator may hold bi-lateral meetings
(Financial Regulator and auditor) and tri-lateral
meetings (Financial Regulator, auditor and regulated
entity) to reciprocate information. The Financial
Regulator and the auditor must recognise their duty to
observe confidentiality.
3.4
Co-operation and assistance to Auditors in
development of Guidance for Auditors of Regulated
Entities
Examples
•
•
•
•
•
Reports on Client Assets
Statutory Duty to Report
Practice Note 19(I) (Banks)
Practice Note 20(I)(Insurers)
Requirements on Auditors of Credit Unions
3.
Irish Financial Regulator’s liaison with
External Auditors
3.5
A Liaison Group exists between the Financial
Regulator and Accountancy Bodies.
3.
Irish Financial Regulator’s liaison with
External Auditors
3.6
Other enabling provisions regarding auditors in
legislation
3.6.1 Reports on request of the Financial Regulator
• Reports on other matters (Section 27E of Central Bank Act 1997)
• Access to audit working papers (Section 27F of Central Bank Act
1997)
• Reports on Directors’ Compliance Statements (Section 26 of
Central Bank Act 1997)
3.
Irish Financial Regulator’s liaison with
External Auditors
3.6.2 “Assurance Levels”
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•
•
•
Opinion
Negative Assurance
Specified Procedures
Compilation Reports
3.6.3 “Expectation Gap”
4.
Establishment of the Irish Auditing
and Accounting Supervisory Authority
(IAASA)
• Review Group on Auditing (RGA) Recommendation (July 2000)
• Legislated for in the Companies (Auditing and Accounting)
Act, 2003
• Ministerial Order required to ‘commence’ the legislation
• Financial Regulator has a nominee on the Interim Board of the
Irish Auditing and Accounting Supervisory Authority (IAASA)
• 3 out of 15 Board members are nominated by Accountancy
Bodies.
• Maximum of 5 accountants out of 15 on the Board
Establishment of the Irish Auditing and
Accounting Supervisory Authority
• Funding
– 60% Accountancy Bodies
– 40% State
• Objective
– To supervise how the prescribed accountancy bodies
regulate and monitor their members
– To promote adherence to high professional standards in
the auditing and accountancy profession
– To monitor whether the accounts of certain classes of
companies and other undertakings comply with the
Companies Acts, and
– To act as a specialist source of advice to the Minister on
auditing and accounting matters
Thank
Thank you
you