UNIT 5. REGULATION
OF EXTERNAL AUDIT
IFAC AND E.C.
M. ANGELA JIMENEZ
1
5.1. REGULATION: IFAC



THE MOST IMPORTANT ORGANIZATION TO REGULATE
THE EXTERNAL AUDITING IS THE IFAC.
IFAC:
INTERNATIONAL
FEDERATION
OF
ACCOUNTANTS. ITS MISSION IS THE WOLDWIDE
DEVELOPMENT
AND
ENHANCEMENT
OF
AN
ACCOUNTANCY PROFESSION WITH HARMONIZED
STANDARDS, ABLE TO PROVIDE SERVICES OF
CONSISTENTLY HIGH QUALITY IN THE PUBLIC
INTEREST.
IFAC
MAKES
RECOMMENDATIONS.
MEETS
REQUIREMENTS OF REGULATORS AND OTHER
EXTERNAL OBSERVES IN TERMS OF ITS EFFICIENCY,
TRANSPARENCY AND CREDIBILITY.
M. ANGELA JIMENEZ
2
5.1.REGULATION .IFAC

THE MAIN OBJECTIVES ARE:
– TO DEVELOP AND ISSUE STANDARDS AND
STATEMENTS ON AUDITING,
– TO ASSURANCE AND RELATED SERVICES,
– TO DEVELOP QUALITY CONTROL STANDARDS FOR
USE AROUND THE WORLD.

THE
IFAC
ISSUES
“INTERNATIONAL
STANDARDS ON AUDITING” (ISAS) AS THE
STANDARD TO BE APPLIED IN REPORTING
ON
THE
CREDIBILITY
OF
HISTORIC
FINANCIAL INFORMATION.
M. ANGELA JIMENEZ
3
5.1. REGULATION: IFAC


THE
INTERNATIONAL
STANDARD
ON
AUDITING PROVIDES AN OPPORTUNITY TO
FOCUS THE STRUCTURE OF THE HANDBOOK
OF
AUDITING
AND
ASSURANCE
PRONOUNCEMENTS TO BEST ACCOMMODATE
CURRENT AND FUTURE DOCUMENTS.
THEY ARE LIKELY TO FALL
FOLLOWING CATEGORIES:
INTO
THE
– STANDARDS FOR QUALITY CONTROL
– STANDARDS FOR AUDITS AND HISTORIC
FINANCIAL STATEMENTS
M. ANGELA JIMENEZ
– STANDARDS FOR
REWIES OF HISTORIC4
FINANCIAL STATEMENTS
5.1. REGULATION: IFAC
– STANDARDS FOR ASSURANCE ENGAGEMENTS ON
SPECIFIC SUBJECT MATTERS OTHER THAN
HISTORIC FINANCIAL STATEMENTS
– STANDARDS ON GENERIC ASSURANCE TOPICS
SUCH AS EVIDENCE AND DOCUMENTATION
– STANDARDS FOR RELATED SERVICES
– PRACTICE STATEMENTS AS NECESSARY FOR EACH
OF THE ABOVE.
M. ANGELA JIMENEZ
5
5.1. REGULATION: IFAC


ISAs ARE TO BE APPLIED IN THE AUDIT OF
FINANCIAL STATEMENTS. ISAs ARE TO BE
APPLIED TO THE AUDIT OF OTHER
INFORMATION AND TO RELATED SERVICES
IN THE COUNTRIES THAT ARE MEMBERS OF
THE IFAC.
ISAs DEVELOP THE IFAC CODE ABOUT
ETHICAL REQUIREMENTS: (PRINCIPLES OF
PROFESIONAL ETHICS)
–
–
–
–
–
INTEGRITY
OBJECTIVITY
PROFESIONAL COMPETENCE AND DUE CARE
CONFIDENTIALITY
M. ANGELA JIMENEZ
PROFESIONAL BEHAVIOR
6
5.2. REGULATION: E.C.



AUDITING IN CONFIGURED UNDER THE DIRECTIVE
OF THE EUROPEAN PARLIAMENT AND OF THE
COUNCIL ON STATUTORY AUDIT OF ANNUAL
ACCOUNTS AND CONSOLIDATED ACCOUNTS AND
AMENDING COUNCIL DIRECTIVES 78/660/EEC AND
83/349/EEC.
AUDITING: ACTIVITY THAT, THROUGH USE OF
CERTAIN REVIEW TECHNIQUES, IS AIMED AT
ISSUING A REPORT CONCERNING THE RELIABILITY
OF THE ACCOUNTING DOCUMENTS AUDITED. TRUE
AND FAIR VIEW.
IT IS ACTIVITY COMPRISED OF REVIEW
VERIFICATION OF ACCOUNTING DOCUMENTS.
M. ANGELA JIMENEZ
AND
7
5.2. REGULATION: E.C

DIRECTIVE ON STATUTORY
ANNUAL ACCOUNTS:
AUDIT
OF
– STATUTOTY AUDIT IN DEFINED AS THE AUDIT OF
ANNUAL OR CONSOLIDATED ACCOUNTS OF
ENTITIES
COVERED
BY
COMMUNITY
LAW
DIRECTIVES.
– EACH
MEMBER
STATE
SHALL
DESIGNATE
COMPETENT
AUTHORITIES
WHICH
ARE
RESPONSIBLE
FOR
APPROVING
STATUTORY
AUDITORS AND AUDIT FIRMS.
M. ANGELA JIMENEZ
8
5.2. REGULATION: E.C


AUDITING
ACTIVITY
INCLUDES
THE
VERIFICATION OF THE RESULTS OF ITS
OPERATIONS
AND
THE
RESOURCES
OBTAINED AND APPLIED DURING THE
PERIOD EXAMINED, ACCORDING TO THE
COMMERCIAL CODE AN OTHER LEGISLATION
APLLICABLE THERETO.
UNDERSTAND THE FINANCIAL SITUATION
AND ASSETS OF THE COMPANY OR BODY
AUDITED.
M. ANGELA JIMENEZ
9
5.2. REGULATION: E.C

FOR THE PURPOSE OF THIS DIRECTIVE,
FOLLOWING DEFINITIONS SHALL APPLY>
THE
– STATUTORY AUDIT> MEANS AN AUDIT OF ANNUAL
ACCOUNTS OR CONSOLIDATED ACCOUNTS INSOFAR AS
REQUIRED BY COMMUNITY LAW.
– STATUTORY AUDITOR> MEANS A NATURAL PERSON
WHO IS APPROVED IN ACCORDANCE WITH THIS
DIRECTIVE BY THE COMPETENT AUTHORITIES OF A
MEMBER STATE TO CARRY OUT STATUTORY AUDITS.
– AUDIT FIRMS> MEANS A LEGAL PERSON OR ANY OTHER
ENTITY, REGARDLESS OF ITS LEGAL FORM, THAT IS
APPROVED IN ACCORDANCE WITH THIS DIRECTIVE.
M. ANGELA JIMENEZ
10
5.2. REGULATION: E.C

UNDER THE DIRECTIVE VIII, THE REQUISITES TO
BE AN AUDITOR ARE:
– TO BE OF LEGAL AGE.
– TO BE A NATIONAL OF THE MEMBER STATES OF
THE EUROPEAN COMMUNITIES.
– TO LACK A CRIMINAL RECORD FOR FRAUD
RELATED OFFENSES.
– TO
HAVE
OBTAINED
THE
RELEVANT
AUTHORIZATION FROM THE ACCOUNTING AND
AUDITING INSTITUTE
M. ANGELA JIMENEZ
11
5.2. REGULATION: E.C

THE AUTHORIZATION: CONDITIONS:
– HAVING
ATTAINED
ENTRANCE LEVEL
UNIVERSITY
– HAVING
COMPLETED
THEORETICAL
TEACHING PROGRAMMES AND CARRIED
OUT PRACTICAL TRAINING
– HAVING
PASSED
A
PROFESSIONAL
PROFICIENCY EXAMINATION ORGANISED
M. ANGELA
JIMENEZ
12
AND RECOGNISED
BY
THE STATE.
5.2.REGULATION: E.C

A./ THE THEORETICAL TRAINING COURSES COVER TO
THE FOLLOWING SUBJECTS:
–
–
–
–
–
INTERNATIONAL AUDITING STANDARD
ECONOMIC, FINANCIAL AND ASSETS ANALYSIS
GENERAL ACCOUNTING THEORY AND PRINCIPLES
CONSOLIDATION
ANALYTICAL OPERATIONS ACCOUNTING AND
MANAGEMENTE ACCOUNTING
– INTERNAL CONTROL AND RISK MANAGEMENT
– RULES RELATED TO ANNUAL ACCOUNTS AND
CONSOLIDATED ACCOUNTS
M. ANGELA JIMENEZ
13
5.2. REGULATION: E.C
– JURIDICAL AND PROFESSIONAL RULES RELATED
TO CONTROL OF AUDITS AND AUDITORS
– INTERNATIONAL ACCOUNTING STANDARDS
– COST AND MANAGEMENT ACCOUNTING
– AUDITING
– PROFESSIONAL
INDEPENDENCE
SKILLS,
M. ANGELA JIMENEZ
ETHICS
AND
14
5.2. REGULATION: E.C
– OTHER MATTERS LIKE >

CORPORATE LAW, TAX, CIVIL AND MERCANTILE
LAW, LABOUR AND SOCIAL SECURITY LAW,
INFORMATION
SYSTEM
AND
COMPUTING,
CORPORATE ECONOMICS, ECONOMIC POLICY AND
FINANCIAL ECONOMICS, MATHEMATICS, STATISTICS
AND FUNDAMENTAL PRINCIPLES OF CORPORATE
FINANCIAL MANAGEMENT.
M. ANGELA JIMENEZ
15
5.2.REGULATION: E.C


B./THE PRACTICAL TRAINING MUST LAST AT LEAST
THREE YEARS, ON WORK CARRIED OUT IN THE
FINANCIAL AND ACCOUNTING FIELDS, SUBJECTS
RELATED TO CONTROL OF ANNUAL ACCOUNTS,
CONSOLIDATED ACCOUNTS OR SIMILAR FINANCIAL
STATEMENT.
AT LEAST TWO YEARS OF WHICH SHALL BE
PERFORMED WITH A STATUTORY AUDITOR OR AUDIT
FIRM.
M. ANGELA JIMENEZ
16
5.2. REGULATION: E.C

AUDITOR´S RESPONSIBILITIES:
– RESPONSIBILITY: AUDITORS SHALL BE DIRECTLY
RESPONSIBLE, IN SOLIDUM AND WITHOUT LIMIT,
TO THE COMPANIES OR BODIES AUDITED AND TO
THIRD PARTIES, FOR THE DAMAGE AND LOSSES
ARISING FROM FAILURE TO FULFIL THEIR DUTIES.
– SECRECY: AUDITORS SHALL BE OBLIGED TO KEEP
SECRECY AS TO ALL INFORMATION THAT COMES
TO THEIR KNOWLEDGE WHILE PERFORMING
THEIR ACTIVITY, AND MAY NOT MAKE USE OF
SAME FOR PURPOSE OTHER THAN THOSE
INHERENT TO AUDITING
M. ANGELA JIMENEZ
17
5.2. REGULATION: E.C


DUTY OF CUSTODY: AUDITORS AND AUDITING FIRMS
SHALL
CONSERVE
AND
SAFEGUARD
THE
DOCUMENTATION RELATED TO EACH AUDIT THEY
PERFORM, FOR THE TERM OF FIVE YEARS AS FO THE
DATE OF THE AUDITOR´S REPORT, INCLUDING THE
AUDITOR´S WORKING PAPERS CONSTITUTING THE
PROOF AND BASIS FOR THE CONCLUSIONS
RECORDED IN THE REPORT.
INDEPENDENCE:
STATUTORY
AUDITOR
IS
INDEPENDENT FROM THE AUDITED ENTITY AND IN
NOT IN ANY WAY INVOLVED IN MANAGEMENT
DECISIONS OF THE AUDITED ENTITY.
M. ANGELA JIMENEZ
18
5.2. REGULATION: E.C



STATUTOTY AUDITOR OR AN AUDIT FIRM SHALL NOT
CARRY OUT A STATUTORY AUDIT IF THERE IS ANY
FINANCIAL, BUSINESS, EMPLOYMENT OR OTHER
RELATIONSHIP, INCLUDING THE PROVISION OF
ADDITIONAL SERVICES.
OBJECTIVITY.
THE AUDITOR WILL CONSIDER THE PRINCIPLES OF
THE INTERNATIONAL FEDERATION OR ACCOUNTATS,
*IFAC*, CODE OF ETHICS.
M. ANGELA JIMENEZ
19
5.2. REGULATION : E.C

THE
COMMISSION
SHALL
ADOPT
INTERNATIONAL AUDITING STANDARDS
FOR APPLICATION IN THE COMMUNITY
ONLY IF THEY:
– ARE GENERALLY ACCEPTED INTERNATIONALLY
AND ARE DEVELOPED WITH PROPER DUE
PROCESS,
PUBLIC
OVERSIGHT
AND
TRANSPARENCY
– PROVIDE A HIGH LEVEL OF CREDIBILITY TO THE
ANNUAL ACCOUNTS
20
– ARE CONDUCTIVEM. ANGELA
TO JIMENEZ
THE EUROPEAN PUBLIC
GOOD
5.2. REGULATION: E.C


THE TECHNICAL STANDARDS ON AUDITING
ESTABLISHES
THE
PRINCIPLES
AND
REQUISITES THAT MUST NECESSARILY BE
COMPLIED
WITH
BY
AUDITORS
IN
PERFORMANCE OF THEIR DUTIES AND TO
EXPRESS AN EXPERT TECHNICAL OPINION.
THE TECHNICAL STANDARDS ON AUDITING
COVER THE FOLLOWING MATTERS:
– T.S. OF A GENERAL NATURE
– T.S. OF PERFORMANCE OF THE WORK
– T.S. ON REPORTS
M. ANGELA JIMENEZ
21
5.2. REGULATION: E.C

TECHNICAL
STANDARDS
GENERAL NATURE:
OF
A
– AFFECT THE CONDITIONS THE AUDITOR
MUST
COMPLY
WITH,
AND
HIS
BEHAVIOUR IN PERFORMANCE OF THE
AUDITING ACTIVITY. MATTERS:


REGULATION OF THE CRITERIA THAT MUST BE
APPLIED BY AUDITORS IN PERFORMANCE OF
THEIR ACTIVITIES, IN ORDER TO GUARANTEE
THEIR INDEPENDENCE.
THE PRINCIPLES THE AUDITOR MUST FOLLOW
TO GUARANTEE AFFECTIVE PROFESSIONAL
SECRECY.
M. ANGELA JIMENEZ
22
5.2. REGULATION: E.C



REGULATION OF PRINCIPLES THAT MUST
BE FOLLOWED AS TO REMUNERATIONS.
REGULATION OF CONTROL SYSTEM THAT
ALL AUDITORS OR AUDITING FIRMS MUST
ESTABLISH IN ORDER TO REASONABLY
ASSURE
THAT
THEIR
PROFESSIONAL
ACTIVITY WITH ACT AND REGULATIONS.
OTHER
ASPECTS
THAT
AFFECT
THE
AUDITORS IN PERFORMANCE OF THEIR
ACTIVITY.
M. ANGELA JIMENEZ
23
5.2. REGULATION: E.C

TECHNICAL STANDARDS ON PERFORMANCE OF THE
WORK:
– REFER TO PREPARATION AND PERFORMANCE OF
THE WORK TO BE CARRIED OUT BY AUDITORS.
– REGULATE THE SET OF INVESTIGATION AND
INSPECTION TECHNIQUES APPLICABLE TO THE
ACCOUNTING
DOCUMENTS
SUBJECT
TO
EXAMINATION.
– REFER THE INTERNAL CONTROL SYSTEMS AT THE
COMPANY OR BODY AUDITED.
M. ANGELA JIMENEZ
24
5.2.REGULATION: E.C




PLANNING AND PROGRAMING THE WORK.
PERFORMANCE OF THE WORK, INCLUDING THE
ADEQUATE METHODS AND PROOF TO OBTAIN
THE EVIDENCE
DEVELOP THE METHODS AND PROCEDURES FOR
SPECIFIC APPLICATION TO THE DIFFERENT
SECTORS OF ECONOMIC ACTIVITY.
THE CONTENT, CUSTODY AND PRINCIPLES
RELATED TO THE DOCUMENTATION THAT
JUSTIFIES THE WORK CARRIED OUT.
M. ANGELA JIMENEZ
25
5.2. REGULATION: E.C

TECHNICAL
REPORTS:
STANDARDS
ON
– REGULATE THE PRINCIPLES THAT MUST
BE COMPLIED WITH TO PREPARE AND
PRESENT THE AUDITING REPORT.
– ESTABLISH THE EXTENT AND CONTENT OF
THE DIFFERENT TYPES OF REPORT, AS
WELL AS THE CRITERIA TAKEN AS THE
BASIS FOR THE MODEL OF REPORT, TO BE
M. ANGELA JIMENEZ
26
USED IN EACH CASE.