Welcome to Audit News 60, your regulatory update containing the latest technical guidance and best practice advice. In this issue: Undertakings given to ICAEW; The latest feedback from audit monitoring reviews in Audit Essentials 2017; audit monitoring support webinars; new criteria for Use of Description Regulations’ dispensations; PII Regulations: Applicants to receive a right of review; Materiality in the audit of financial statements; Audit insights: charities – Positive impacts in challenging times and Audit and Assurance Faculty autumn roadshows.
14 July 2017
Typical undertakings might include:
The ARC will always consider whether regulatory action should be taken against any firm that does not comply with undertakings. Depending on the seriousness of the breach, this could result in the withdrawal of a firm’s audit registration and/or a regulatory penalty.
The start point in the Guidance on Sanctions for an inadvertent breach of an undertaking of £3,450. In 2016 the ARC offered five regulatory penalties to firms that failed to comply with undertakings, averaging £4,000 each.
In addition, the ARC refers more serious breaches to the ICAEW Professional Conduct Department, which may result in disciplinary action being taken. It made four referrals in 2016. If your firm is experiencing difficulties in meeting undertakings given, please contact the audit regulation team (+44 (0)1908 546 309, +44(0) 1908 546 202 or +44(0) 1908 546 311) as soon as a problem becomes apparent.
This year’s report includes a focus on FRS102 and runs through some key points that firms have missed in the first year of implementation. It also highlights some of the underlying causes including the danger of over-relying on your accounts production software. Make sure your firm doesn’t fall into the same trap.
Revised Ethical Standard and FRS102 are two of the topics covered in our new series of webinars.
Using the experience and expertise of our monitoring reviewers, each 20 to 30-minute webinar addresses issues and pitfalls faced by the firms we monitor and tips on how to avoid them. They are relevant for firms of all sizes and particularly for smaller firms with smaller audits.
The main change is to the guidance criteria for the grant of dispensations set out in the annex to the regulations, which is now more ‘principles-based’ and less prescriptive. Previously the guidance criteria focused on the extent to which chartered accountants controlled a firm’s operations, now the criteria focus on the extent to which chartered accountants direct and control the accountancy or reserved services carried on by the firm.
These changes were made by the ICAEW Regulatory Board following consultation with the ICAEW Members and Commercial Board and its sub-committees. They are a response to changes in the business environment, in particular the emergence of the multi-disciplinary model and firms taking on private equity investment.
Other amendments have been made to the regulations for completeness. These include new regulations governing appeals in relation to dispensation applications and decisions concerning general affiliates and the levying of fees for dealing with dispensation applications.
The PII Regulations and Guidance have been amended to provide applicants with a right of review in cases where applications for dispensation are either declined or granted subject to conditions. The Review Committee will have the same powers as the PII Committee to consider applications and to receive new evidence. Guidance on the criteria to be applied in determining requests for dispensation under the regulations has also been included in Appendix B.
The guide takes a look at the ISA requirements on materiality and uses practical illustrations to highlight key challenges and common pitfalls. It is intended to help audit firms better understand, and appropriately apply, the materiality requirements in ISAs when planning and performing audits and evaluating misstatements.
Charities are being scrutinised more closely than ever. ICAEW has collated the expert knowledge of external auditors and its specialist staff to set out a series of recommendations to help charities demonstrate their positive impacts and become more resilient and transparent if they are to retain public trust.
The roadshows will provide practical help using new case studies. Topics will include new style audit reports for all entities, FRC’s Ethical Standard, responsibilities relating to the adequacy of strategic reports, audits using the micro accounting regime or FRS 102 Section 1A and using data analytics on smaller audits.