Audit News May 2020
Welcome to Audit News 66, your regulatory update containing the latest technical guidance and best practice advice.
In this issue:
Updates from around ICAEW
In April 2020, the UK charity regulators released updated guidance for auditors and independent examiners on the requirement to report matters of material significance to the Charity Commission. Changes made to the guidance included the need to consider the impact of a national emergency on the conduct of an audit or independent examination on the duty to report.
Following the release of this updated guidance, the Charity Commission has confirmed that it will be conducting an ongoing review of the reporting of matters of material significance by auditors and independent examiners. As part of this review, all independent examination reports or audit opinions signed on or after 1st May 2020 which contain a qualification, modified opinion or other reporting paragraph will be reviewed, to confirm that a report of a matter of material significance had also been promptly filed with the Commission in accordance with the updated guidance.
Auditors and independent examiners are therefore reminded of their reporting duty and are encouraged to ensure that any outstanding reports are submitted to the Charity Commission without further delay.
Following recent Government guidance, we will not be carrying out onsite audit monitoring reviews for the foreseeable future.
If your firm was scheduled to have an onsite review in the next few months, a member of the Quality Assurance Department (QAD) will contact you shortly before the scheduled review date to explore whether we can perform the monitoring review remotely.
If it is not possible to perform your firm’s monitoring review remotely, QAD will defer your monitoring review until later in the year.
If you need to postpone your review because your business has been affected by Coronavirus, please email QADvisits@icaew.com.
Some firms have asked if their visit can be pulled forward. If you would like us to bring forward your firm’s monitoring review, please email QADvisits@icaew.com and we will do our best to accommodate your request.
Our audit monitoring work is supervised by our oversight regulator, the Financial Reporting Council (FRC). We agree the number of monitoring visits and types of firms we need to review annually with the FRC.
Since the start of the Coronavirus crisis, ICAEW has been in contact with all of its oversight regulators to explain that some firms are unable to accommodate visits at this time and that it may not be possible to carry out all of the visits which were originally planned during this period. The oversight regulators understand and accept this, but they have asked us to try to carry out as many of the visits as possible. This is why ICAEW is exploring the option of remote monitoring visits during this period.
The Professional Standards Department (the department responsible for carrying out ICAEW’s regulatory and disciplinary roles) recognise that COVID-19 has and is creating exceptional circumstances.
Our colleagues in the Professional Standards Department are working from home, in line with Government guidelines. We are able to assist with queries relating to new or ongoing regulatory applications, quality assurance monitoring reviews and annual returns questions.
During this uncertain time, we recognise there are unprecedented challenges facing ICAEW firms and members. We continue to expect the highest professional standards by all ICAEW firms and members. This includes abiding by ICAEW and statutory regulations and to continue to meet the high standards expected by the public.
Practical guidance including group audits, auditing inventories, understanding audit reports, considering going concern, and reporting on material uncertainty.
Section 1.21 of FRC’s Revised Ethical Standard 2019 requires audit firms to report all possible or actual breaches of the Ethical Standard to the Competent Authority on a biannual basis.
The Ethical Standard explains that firms with public interest entity (PIE) audits should report all breaches to the FRC – irrespective of whether the breach relates to a PIE or non-PIE matter. For firms that do not audit PIEs, all breaches should be reported to the Recognised Supervisory Body.
ICAEW-registered firms that do not audit PIEs should make their biannual notifications to firstname.lastname@example.org.
The revised Ethical Standard applies for periods commencing on or after 15 March 2020 and therefore firms need to be aware of this new requirement and consider how to ensure any breaches are properly and promptly reported.
ICAEW’s PII Committee would like to highlight that there has been a hardening of the professional indemnity insurance market over the last 18 months, meaning that firms may find it more challenging (and/or time-consuming) to renew cover than previously. It could also mean that firms find their premiums increase significantly. Additionally COVID-19 may be affecting response times from brokers and insurers, as well as firms’ ability to meet the costs of increased premiums.
The ICAEW PII Committee recommends that firms:
- Prepare early for your renewal.
- Provide complete and accurate information to insurers at the outset to ensure a smooth renewal or transfer of cover to another insurer.
- Note that if you are unable to obtain a new policy before your current one expires, your last insurer is required (under the minimum approved wording) to extend cover for an additional 30 days (see clause D3).
- Speak to your broker/insurer about whether alternative payment terms may be available if you are struggling to meet increased premiums.
- Note that a policy may not be cancelled unless both the insurer and the insured agree mutually in writing to cancel the policy (see minimum approved wording clause C11).
- Ensure you are open and transparent with your insurer/prospective insurer when you take out/renew cover to safeguard the indemnity available for a claim. Firms have a legal obligation to make a fair presentation of the risk on taking out or renewing cover.
- Ensure you read and completely understand the terms of your firm’s PII policy. If any points are unclear, clarify these points with your firm’s broker. (Disruption to business and the economy caused by COVID-19 is likely to result in an increased number of PII claims against accountants and other professionals.)
As a result of the changes in registration for Irish audits, and the demands of Brexit, a number of firms will be ceasing their audit registration in Ireland and resigning from the audits of any Irish companies. These firms are reminded that resignation of Irish audits, both PIE and non-PIE, need to be notified to IAASA (but not ICAEW) under section 403 of the Companies Act 2014 and that this notification needs to occur within 30 days of resignation. The format of notice is prescribed by IAASA and available here.
Access a quick overview of all the latest regulatory and disciplinary information from ICAEW's Professional Standards department.
Updates from around ICAEW
These Audit and Assurance Faculty guides discuss going concern considerations, and reporting if material uncertainties related to going concern are identified.
During the Coronavirus outbreak and while ICAEW offices are closed, we have put together a summary of the best ways to contact us. In particular, please ensure all correspondence is emailed until further notice, as the distribution of postal correspondence may be significantly delayed.
ICAEW is collating resources to offer support and information to members and firms as conditions unfold.
Increased support includes unlimited loans and guarantees to help manage staff wages and cashflow during the pandemic.