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Getting more value from the audit. Storyboard for. …clear thinking. By completing this module you will be able to: Help make the audit process work better for your organisation Make your audit committee’s assessment of your auditors more effective
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Getting more value from the audit Storyboard for
By completing this module you will be able to: Help make the audit process work better for your organisation Make your audit committee’s assessment of your auditors more effective Will be relevant even if your organisation does not have an audit committee At the end, you can visit useful Internet sites on a “Web Ride” Lecturer: John McCarthy Learning time: approx. 20 min How to use this learning module? - Click on "Help" in the Table of Contents (TOC) Getting more value from the audit Graphic: [presenter or standard graphic]
Monitor integrity of financial statements Review the company’s internal financial controls and review the company’s internal control and risk management systems Monitor/ review effectiveness of internal audit function Make recommendations to the board - appointment, re-appointment/ removal of external auditor/ approve remuneration/ terms of engagement of the external auditor Review/ monitor the external auditor’s independence and objectivity and the effectiveness of the audit process Develop/ implement policy on engagement of the external auditor to supply non-audit services Report to the board where action/ improvement is needed and make recommendations What is the audit committee responsible for? Graphic: [an audit committee]
Audit committee should oversee auditor appraisal Chairman of the audit committee should present the results to the board Audit committee will not have the time to be involved in a detailed review and much of the information will be provided by management Committee obtain information from the external auditor Audit committee retains control of the process Performed objectively and fairly Remove any potential for management bias Enable it to make the recommendation to the board on appointment/ reappointment Assessment Graphic: [telescope]
Several specific occasions during the year Audit committee gain insight into the performance of the auditors Committee and auditors communicate during the review of the auditor’s independence/ objectivity and during the audit also Assessment completed between effective completion of the annual accounts and audit and the recommendation to the board Year-end reporting timetable should include how/ when the committee’s assessment will be carried out Timing of the assessment Graphic: [ business diary]
Auditor may provide other services closely related to the statutory audit Audit committee may take these services into account when assessing not only the competence of the auditors and how to improve the company/ auditor relationship in areas such as: Reporting on Corporate Governance statement by the board Reporting to regulatory bodies and industry regulators Work on prospectuses and other documents to shareholders Other services Graphic: [stock exchange]
Assessment process more efficient/ effective if there is openness Procedural and in spirit Both committee/ auditor agree to document their needs and expectations during the audit and related work for the coming year Through agreement of the terms of engagement/ review of the overall audit plan including performance criteria Criteria should be balanced and appropriate to the company Should not stress one or two factors to the exclusion of others Challenging but achievable Some criteria measurable (e.g. deadlines) but most will be qualitative Should the audit firm be involved? Graphic: [ traffic lights]
Audit committee reports to the board Has primary responsibility for making the recommendation on the appointment, reappointment and removal of external auditors Recommendation/ suggested section on the audit committee’s activities for the directors’ report - dealt with at the same time If recommendation is a new firm of external auditors should be appointed - requires additional disclosure Explaining why a change is proposed and reporting on the selection process How should the audit committee report to the board? Graphic: [person doing a presentation in a board room ]
Four main criteria Assess how to get the most from the audit process Qualification Expertise and resources Effectiveness Independence Framework for appraisal Graphic: [judging panel from Strictly Come Dancing]
Independence and integrity Maintaining competence Compliance with technical standards Audit engagement partner = ‘Responsible Individual’ Rest of audit team - mixture of professionally qualified accountants and those under training contracts Other non-accountant qualified specialists e.g. tax and IT Consider among other matters: Qualifications of key members of the audit team Confirm with the auditor - no issues concerning its status as a Registered Auditor or the designation of the audit engagement partner as a Responsible Individual Rotation/ identification of the independent Engagement Quality Control Review partner who carries out the independent review of the audit file Qualification Graphic: [a rosette]
Independence of the audit partner and senior audit staff Quality of the audit partner/ audit staff - technical accounting and auditing perspective, including industry knowledge/ specialist expertise Numbers of partners/ staff on the audit, especially at critical times Were issues raised at the right time by appropriate level of audit staff with the appropriate level of client staff? Relevance and appropriateness of the auditor’s procedures Partner and audit staff continuity Arrangements for key audit partner rotation Expertise and resources Graphic: [chess pieces]
Did auditors have up to date understanding of the business? Was audit work focused on major issues? Did the work deal appropriately with those areas? Recommendations for improvements to internal controls/ other areas - were they useful? Did auditors use technology effectively in their work? Did auditors use experts in auditing technical items? Assess quality of comments/ reports on board’s corporate governance statement? Were appropriate management representations obtained? Effectiveness #1 Graphic: [dart board showing Darts scoring180 ]
Was internal audit used appropriately? Was the independent partner review(s) effective? Any late surprises/ changes that could have been avoided? Were audit plan/ management letters, of sufficient quality? Were right numbers/ quality of personnel used in the audit? Were the auditors unduly influenced by management during the audit? Was communication with the audit committee effective and timely? Effectiveness #2 Graphic: [dart board] with 1 dart in the double 20
Did auditors disclose/ discuss as appropriate all relationships that might be thought to bear on the firm’s independence and objectivity? Did the auditors confirm their independence and objectivity? Non-audit services - did these comply: (a) with statutory and ethical pronouncements and (b) with the company’s policy for such services? Any non-audit services, were the agreed safeguards properly applied? Any breaches of policy regarding the provision of non-audit services, e.g. key audit partner rotation or other aspects of the auditor independence requirements Were these communicated to the committee in an appropriate and timely manner? Independence Graphic: [ M Gandhi]
Sets the tone for the audit Quality of leadership by the audit partner and effective implementation of the agreed audit strategy Quality of thought leadership by auditors - relevant to audit Personal authority, knowledge and integrity of audit partner(s)/ staff - interact effectively with management Succession planning/ management of rotation of key audit partners Leadership Graphic: [Nelson Mandela]
Value for money Time and effort well rewarded Your audit committee - better able to assess the auditor’s effectiveness Ultimately the shareholders benefit Improved audit process Summary Graphic: [standard summary graphic]
Please select the correct answer(s) and then click on “Submit” Which of the following is the correct list of the four key areas for carrying out an appraisal of the entity’s auditors? Value for money, Independence, Effectiveness, Qualification Expertise and resources, Materiality, Qualification, Independence Independence, Expertise and resources, Effectiveness, Qualification Expertise and resources, Speed, Qualification, Independence Question 1
Please select the correct answer(s) and then click on “Submit” Which of the following is not among the reasons for the audit committee to carry out the appraisal of the external auditors? Ensure performed objectively and fairly Because the process is controlled by the Board Remove any potential for management bias Enable it to make the recommendation to the board on appointment/ reappointment Question 2
Please select the correct answer(s) and then click on “Submit”. The independent audit review is carried out by a partner within the audit firm. What is that partner’s title under the Ethical Standards for Auditors? Audit Compliance Partner Engagement Quality Control Review Partner Assurance Partner Technical Partner Question 3
Now you have finished this module and acquired basic knowledge on appraising the effectiveness of your external auditors If you answered all the questions in the Quiz correctly, you can print out your personal certificate by clicking on the link Thank you for your attention! Finish Graphic: [standard finish graphic]
