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PricewaterhouseCoopers - Mexico Audit Services to Small and Medium-Size Clients, Barriers Faced and Overcome Carlos Méndez. PwC. Index. Contents Background PwC Clients Segmentation – Audit Approach PwC Focus Strategy
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PricewaterhouseCoopers - MexicoAudit Services to Small and Medium-Size Clients, Barriers Faced and OvercomeCarlos Méndez PwC
Index • Contents Background • PwC Clients Segmentation – Audit Approach • PwC Focus Strategy • PwC Clients Segmentation - Approach Tools • IAASB IAPS 1005 - Particular Considerations in the Audit of Small Businesses
I. Background Market: Size of the market (National Institute of Statistics, Geography and Informatics – “INEGI”):
I. Background - Continued • Characteristics and Barriers: • a) Internally- • Companies managed and supervised by its owners. • Limited personnel with no segregations of duties. • No formal procedures. • There are controls without a high grade of development. • Poor technology information systems development. • Unqualified and untrained employees. • Few sources of income.
I. Background - Continued • b) Externally- • Lack of financial resources. • Lack of tax incentives. • Informal economy, disloyal competition. • Lack of reinvestment by the owners. • Companies focus in market without awareness of back office support. • Complexity in tax compliance requirements.
I. Background - Continued • PwC challenge is to maintain our independence for our clients while we advise them in the early stages of their growth. SMEs management relies heavily in our external advice. • We advice the clients not only in audit matters but also in the following areas,: • Companies´ incorporation • Tax compliance • Bookkeeping • Corporate governance • Payroll
I. Background - Continued • The financial information is used in most cases only for the need to comply with tax requirements and it is not in the priority of company's management.
II. PwC Clients Segmentation - Audit Approach PE PIE Private Entities: - Non PIE - Generally private proprietary - Local visibility Public Interest Entities: - Subject to regulations for protecting groups of people - Generally listed in Stock Exchanges - High visibility
II. PwC Clients Segmentation - Audit Approach - Continued Entities qualified as immaterial for consolidation reporting purposes PIE PE Other Stock Exchanges SEC Non Significant
II. PwC Clients Segmentation - Audit Approach - Continued High Network Risk: Entities with high financial and reputation risk to the firm. HNR PIE PE Other Stock Exchanges SEC Non significant
II. PwC Clients Segmentation - Audit Approach - Continued Complex systems (ERP´s): Reliance in controls, focus in systems review and analytical procedures Integrated audits SOX - 404 HNR PIE PE Other Stock Exchanges SEC Middle Market Non significant Middle Market Non complex systems: Some reliance in controls, focus in balance validations
II. PwC Clients Segmentation - Audit Approach - Continued Complex systems (ERP´s): Reliance in controls, focus in systems review and analytical procedures Integrated audits SOX - 404 HNR PE PIE Other Stock Exchanges SEC VSE Middle Market Non significant Very Small Entities Non complex systems or lack of them: Focus in balance validations Middle Market Non complex systems: Some reliance in controls, focus in balances validations
III. PwC Focus Strategy • Factors to consider a Middle Market Company: • Non High Network Risk Entities • Non Public Interest Entities • Non Complex • Non Financial Sector • Small audit teams
III. PwC Focus Strategy - Continued • Strategies: • Acceptance risk analysis • Specialized group of professionals dedicated to attend this market, with advisory vision • Same methodology worldwide adapted to the characteristics of these clients • Access to different industries knowledge applied to this segment • Establishment of strict training programs • Development of specific audit tools for middle market and very small entities
IV. PwC Clients Segmentation Approach Tools General Master Database Master Database 404 HNR PIE PE Other Stock exchanges SEC Middle Market VSE Non significant Very Small entities Database Middle Market Database
V. IAASB IAPS 1005 - Particular Considerations in the Audit of Small Businesses • International Auditing Practice Statements (IAPS 1005): • “The special considerations in the audits of small entities” • The purpose of IAPS 1005 is to describe the characteristics commonly found in small entities and indicate how they may affect the application of International Standards of Audit (ISA). • Is a guidance on the application of ISAs to the audit of small entities. • Does not establish any new requirement for the audit of small entities; nor does it establish any new exemptions. • All audits of small entities are to be conducted in accordance with ISAs.
V. IAASB IAPS 1005 - Particular Considerations in the Audit of Small Businesses - Continued • In Mexico the Commission for Supporting the Independent Professional Practice of the Mexican Institute of Public Accountants issued on December 2005 the Audit Guidance for Small and Medium-Size Businesses, with similar purposes. • PricewaterhouseCoopers Methodology follows the ISAs.