Presentation to the Chinese Institute
of Certified Public Accountants
Beijing September 2012
Supporting International Development
by China’s Corporate Sector
The Role and Responsibilities of the
Accounting Profession in Enhancing the
Credibility of China’s and the Asian Region’s
Capital Markets
Presented by Lee White FCA
Chief Executive Officer
Institute of Chartered Accountants Australia
> I am honoured to be invited to speak
to you today
> The Chinese Institute of Certified
Public Accountants is to be
congratulated on the leadership it
has demonstrated in the evolution of
public accounting in China, since its
founding in 1988
China’s growth
> Chinese companies will be major
investors in Asia in the next 20 +
years because of their domestic
growth and financial strength
> In addition investment in Chinese
companies by domestic and foreign
investors will increase as more of
China’s major companies seek to
access local and international
capital markets to fund their growth
A consequence of growth
> Consequently the welfare of China’s
citizens and those of its regional
neighbours will be increasingly dependent
on the economic prosperity of China’s
corporate sector
> Good corporate governance will play a
major role in enhancing this prosperity
Growth and
corporate governance
> A major component of good corporate
governance is reliable and timely
reporting both in terms of financial and
non financial data enhanced by high
quality external auditing and effective
audit committees
> This is the mandate and responsibility of
the accounting profession and the area
on which I would like to talk to you more
today as both CICPA and my organisation
ICAA have a mutual interest and
obligation to good corporate reporting
What constitutes a quality audit
> Our approach has been to assist the 3 key
stakeholders to improve quality
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The supplier’s role – assisting auditors to
develop a quality audit (Continuous cycle of
audit quality brochure)
The consumer’s role – assisting consumers to
evaluate quality as a means of promoting quality
as a competitive edge between audit firms (The
benefit of audit brochure)
The governance role – making audit committees
more effective in delivering a quality external
reporting (Walk the line brochure)
Framework for managing audit
quality sustainability
Key phases:
> Client acceptance and retention
> Strategy and policies
> People and tools
> Inspection
> Remediation
> Return to client acceptance and retention phase
Framework for managing audit
quality sustainability
Client acceptance and retention
> Risk appetite
> Values
> “Tone from the top”
> Data
Framework for managing audit
quality sustainability
Strategy and policies
> Independence
> Delivery of quality
> Remediation systems
> Acceptance of standards
> Relevance
Framework for managing audit
quality sustainability
People and tools
> Recruitment
> Development
> Engagement
> Culture
> Methodology / technology
Framework for managing audit
quality sustainability
Inspection
> Commitment
> Collaboration
> Robustness
> Ongoing
> Effective / efficient
Framework for managing audit
quality sustainability
Remediation
> Commitment
> Results / consequences
> Action
> Systems
> Accountability
The benefit of audit – a guide to
audit quality
Five drivers of audit quality
> The culture within the audit firm
> The skills and personal qualities of audit partners,
principles and staff
> The effectiveness of the audit process
> Factors outside the control of auditors
> The reality and usefulness of audit reporting
Walk the line
> Discussions and insights with leading audit committee
members
> Outcome of joint project by:
UK Financial Reporting Council
The Institute of Chartered Accountants in Australia
The Institute of Chartered Accountants of Scotland
> The aim of the project was to explore the workings of
audit committees
> The project was conducted through interviewing the
audit committee chairmen and others involved in
working with audit committees
Questions used as basis of meetings and telephone
interviews:
> How would you define your role?
> How should your role discharge its obligations to
the board (however they are defined)?
> In whose interests is the audit committee acting?
> What is the proper relationship between the audit
committee and the rest of the board?
> What are the skill requirements of an audit
committee?
Questions used as basis of meetings and telephone
interviews:
> How should audit committees identify risk? For
example, what regular reports should be available to
audit committees (external and internal auditors,
compliance reports and reports from chief financial
officer/chief executive officer)?
> To what extent should the audit committee have
responsibility for reviewing all material activities and
transactions and management’s assessment of the
financial risk in those transactions – and reporting
thereon to the board?
> What part should audit committees play in the
appointment of the chief financial officer, internal
auditors and external auditors?
Questions used as basis of meetings and telephone
interviews:
> Should audit committee chairmen have a
governance responsibility to meet with investors?
> Should the audit committee be limited to a
consideration of financial reporting matters or should
it also consider other audit/financially related risks?
> What are the main challenges facing audit
committees?
Participants interviewed included
Leading audit committee members of listed
companies from:
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Singapore
Indonesia
Australia
United Kingdom
United States
Germany
Netherlands
Summary of findings
> Functions of audit committee
> Building on relationships
> Building an effective audit committee
> Challenges facing the audit committee
> Reflections and questions
Functions of audit committee
Oversight of integrity of:
> financial reporting processes and reporting
> internal control and risk management
Building on relationships
> audit committee and the board
> audit committee and management
> audit committee and the auditor
> internal audit
> audit committee and shareholders
Building an effective audit committee
> composition of the audit committee
> managing the audit committee meeting
Challenges facing the audit committee
> unrealistic expectations
> communications to bridge the expectations gap
> legal responsibilities and liabilities
> keeping the flow with new members
> quality of information
> knowledge of auditing standards
Reflections and questions
Universal questions answered by audit committee
chairmen:
> How do you keep the board fully informed?
> What sort of reports should be given to the board before
they are asked to approve financial statements?
> Should those reports come from the audit committee
chairman or management?
> How do you ensure you get the best out of the external
auditor?
> How often should the audit committee meet with the
external auditor?
Universal questions answered by audit committee
chairmen (continued):
> How do you best deal with commentary from the
external auditor that may be critical of management?
> How do you ensure you get the best from the internal
auditor?
> How do you ensure you get the best out of the audit
committee members?
> How do you ensure diversity of membership across
the audit committee?
> How do you ensure frank and open discussions in
audit committee meetings?
Regional engagement
> At a regional level we are working to
engage more closely with
independent audit regulators in
Australia, Singapore, Malaysia,
Indonesia, Thailand and Vietnam so
that the profession and the
regulators work together to enhance
quality
Regional engagement
> Given my earlier comments about the role
of Chinese companies in the capital
markets and economies of these countries
China has a vital interest in the work of
these regulators
Regional engagement
> We would be pleased to explore further with
CICPA the opportunity for CICPA to join
with us in this engagement
Thank you