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Capacity Building Effective Audit Quality Systems

Capacity Building Effective Audit Quality Systems. Paul F.M. Hurks Director NBA International Accountancy Amman, June 2013. Capacity Building. Principles compliance international standards sustainable development public interest focus country level, best endeavours

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Capacity Building Effective Audit Quality Systems

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  1. Capacity Building Effective Audit Quality Systems Paul F.M. Hurks Director NBA International Accountancy Amman, June 2013

  2. Capacity Building Principles compliance international standards sustainable development public interest focus country level, best endeavours stakeholder involvement business model, governance membership IFAC, ongoing compliance program leadership & partnership communication, visibility mentoring, professional & personal fit education and training on standards and concepts initiatives underway funding

  3. Specific Responsibility: Public Interest IFAC/PIOB (PPP5) definition of public interest: “The net benefits derived for, and procedural rigor employed on behalf of, all society in relation to any action, decision or policy” Elements: Public (broad scope) Interests of the public (economic in nature, management of resources) Responsibility of the profession (in a large variety of roles) General assessments (cost/benefit; processes, trade-offs)

  4. Principle based Standards Principle-basedregulation Code of Ethics (Attitude) ClarifiedISAs (Processes) ISQC1: Quality Control (Governance) SMOs: Best endeavours (Compliance) All assessments are highlyjudgmental

  5. Code of Ethics (IESBA) FundamentalPrinciples: Integrity Objectivity Competence & Due Care Confidentiality Professional Behaviour (and Independence) Conceptual Framework Safeguards & Evaluation All assessments are highlyjudgmental

  6. Clarified ISAs (IAASB) Standards for Auditing & Assurance An audit is an audit Principle-basedrequirementsforprocesses Requirementstointerprete in a case-systemic way Tailor made application All assessments are highlyjudgmental

  7. ISQC1 (IAASB) (1) Standards for Quality Control Control: firms are required to design and implement a system of Quality Control, tailor made, according to the following concept: All assessments are highly judgmental .

  8. ISQC1 (IAASB) (2) ObligationsforQuality Control Leadershipresponsibility Client relationshipsandassignments Human resources Engagement performance Monitoring Documentation All assessments are highlyjudgmental

  9. IFAC SMO Compliance & Best EndeavoursAll assessments are highly judgmental Questionnaires • legal framework • PAO Action Plan • 7 SMOs • ongoing self- assessment Policy directives 7 SMOs • SMO1 Quality Assurance • SMO2 Education • SMO3 Audit & Assurance • SMO4 Ethics • SMO5 IPSAS • SMO6 Investigation & Discipline • SMO7 IFRS

  10. When high quality FR is safeguarded? (1) Agency Theory for Audit & Assurance former (3 parties): client – shareholder – auditor current (4 parties): client – stakeholder – auditor – PAO, or current (5 parties): client – stakeholder – auditor – PAO - regulator (N.B.: stakeholder = public)

  11. When high quality FR is safeguarded? (2) FR Infrastructure UNCTAD Capacity Building Framework Pillar A: Legal andRegulatory Frameworks Pillar B: InstitutionalFrameworks Pillar C: Human Resources Pillar D: Capacity Building Process

  12. When high quality FR is safeguarded? (3) Why do we needoversight boards andPAOsoverseeing auditors? Becauseregulationoften is onlyadopted, ‘notreally’ implemented, reflecting elements of: lack of awareness of the concepts lack of professional knowledgeand practical experience (techniques(science) versus judgements (art)) lack of substanceover form (mirror-approach) characteristicsof human behaviour (threats, pressures) The profession is responsibleforreliabilityand trust

  13. When high quality FR is safeguarded? (4) Cascade effect of influencing attitude: - IFAC > Standards, Guidance, SMOs, CAP - PAO/Oversight > QA, education, CPD - Firm> QC, dailypractice, professional skepticism - Client > ethicalbehaviour, CSR

  14. When high quality FR is safeguarded? (5)

  15. Challenges for capacity building (1) Development categoriestowards “Center of Excellence” Managerial support (business model, governance, practices) Technical support (rules, regulation, tools, guidance) Intellectual support (ethics, values, mindset, principles, attitude, concepts, judgment)

  16. Challenges for capacity building (2) For Firms • Concept of ‘Public Interest’ • Definition of ‘Quality’ • Concept of ‘Control’ • Concept of Judgment • Ethics & Attitude • Nature of firm’sclients • SolePractitioners • Education, CPD • Competence & Workexperience • Availability of tools (IT) • Language • Competition & transparency For PAOs • Recognition PAO • Legal environment • Governmentsupport • Stakeholder support • Size of the profession • CompetitionPAOs • Leadershipand management • Competence & Workexperience • Staffandvolunteers • PAO viable business model • Language • Oversight • Expectations

  17. Challenges for capacity building (3) Whatcan we do improve audit qualitypractices? Step by step approach: Step 1: legalframeworkandregulation (international, convergence) Step 2: institutionalcapacity (involvement stakeholders) Step 3: education & CPD (human resources) Step 4: design customizedpractice (adoption) Step 5: performance accordingly (implementation)

  18. Lessons Learned Whatcan we do enhance the capacity building process? Step by step approach followinglocaleconomydevelopments Country-level approach Patience: the 5 – 10 yearstrategy (at the minimum) Enhance PAO visibility, lobby, reputation, center of excellence Liaison withgovernment / oversight (combine competenceandauthority) Make availablesufficient tools (IFAC andlocal; locallanguage, IT-based) Start easy; postponeperfection; manage expectations Accept learningprocess of all stakeholders involved (coaching) Share experienceand /or collaborate cross border (language / size) Joint effort in QA (postponenamingandshaming, avoidduplication) Continuous CPD attention forconcepts (ethics, attitude, judgmentsetc) Train members, reviewersand trainers (ttt) for CPD Design proper (country-) business model forviabilityandsustainability No onesize fits all > customizedsolutions No dependency, PAO leadership, mentor exit strategy

  19. For consideration Professional: > contribute to reliable FR Profession: > contribute to effective and efficient markets “High quality financial reporting will not create economic growth, but for creating economic growth you cannot do without it*)” *) quote Ian Ball IFAC CEO

  20. Thank you for your attention .

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