Current issues by

2018-09-24 15:06:02 UTC

Old: Traditionally, materiality has been defined through the lens of financial reporting.
New: The corporate lens through which material issues are identified is expanding from strictly financial to other sustainability issues affecting human, social, natural, intellectual, and built environment capitals.
In order for firms to stay competitive, they need to develop views and processes on materiality: 1) Prioritising stakeholders, industry and wider operating environment.
2) Developing appropriate processes that enable continuous growth.
3) Manage materiality, based on these insights, in ways that anchor sustainability issues at the heart of a company’s operating system.
4) Be more transparent in a wider context.
No longer restricted to purely financial indicators or single issues such as climate risk or conflict minerals, materiality now includes a range of sustainability issues affecting “multiple capitals.” These “multiple capitals” build upon earlier efforts to value “intangibles,” and refer to the “stock” of financial, human, social, natural, built environment, and intellectual assets.
A website called AccountAbility created a "pioneering materiality framework" which demonstrates how business strategy, reporting and engagement can be aligned with environmental, social and governmental issues.

Cyber Security & Audit -

2018-09-24 15:06:29 UTC

Cybersecurity tops the list of concerns for internal audit professionals across Europe.
Security breach - Data protection, loss of trust, share price could decrease
IBM found that 60% of all attaks were carried out by insiders. - the large majority invest in product before people while real and measurable results can be achieved by investing in information security awareness. To contribute tangible results auditors should prioritise people over product.
In 2017, Grant Thornton ramped up its own efforts to boost cyber security business, launching DataCheckPoint, a new data and cyber security audit service, in partnership with international law firm Lewis Silkin.
They want to give our clients innovative ways to respond to growing cyber threats impacting the way they do business.
“A key element of shaping a vibrant economy is building trust and integrity in markets''

Globalisation of Audit Standards

2018-09-24 15:07:43 UTC

The main reason for a lack of global audit standards is that there is no globalised FRS so, auditors will face different problems in different countries so an overarching audit standard wont always meet the needs of everyone. Lack of consistency across the board.

There is a struggle for people to see the added value audit bring so nobody is looking at other standards or wants new ones. Links back to expectation gap

Emerging economies have different accounting and auditing needs than a fully developed economy

Different economies have different requirements from auditors across the board.

Liberalisation of trade (multilateral and bilateral trade agreements), and other factors have increased the demand for audit services across a broader range of countries who have differing auditing standards.

Transparency

2018-09-24 15:08:02 UTC

The FRC does not recognise adequately the lack of transparency of both the audit process as well as that of the audit firms. Over the decades there have been significant regulatory initiatives, particularly through codes of corporate governance, aimed at improving the transparency of companies. Yet, there has been relatively little advancement in making the audit process or the governance of audit firms more transparent.

Harmonisation of IAS

2018-09-24 15:13:47 UTC

Most countries adopt the IFRS.
Benefits are:
1. Improved financial reporting transparency
2. Lower cost of capital
3. Increased cross-border investing
4. Better comparability of financial reports
5. Increased following by foreign financial analysts

Problems are:
1. Developing countries find it too expensive to adopt
2. Increased confusion and conflict between accounting practitioners and professional bodies (IFRS will differ from standards already used)

Redefining professional scepticism

2018-09-24 15:13:47 UTC

Professional scepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

How does the auditor apply professional scepticism?

When assessing engagement acceptance
When performing risk assessment procedures
When obtaining audit evidence
When evaluating evidence

Other aspects of an audit where professional scepticism may be important

Accounting estimates – this can include fair value accounting estimates, the use of significant assumptions by management in developing accounting estimates, and reviewing the judgements and decisions used by management for management bias in developing accounting estimates.

Going concern – the auditor should review management’s assessment of going concern and whether management’s plans are feasible, this being particularly important where there is a significant doubt over the entity’s ability to continue as a going concern.

Related party relationships and disclosures – it can be difficult to obtain information on related parties, as knowledge may be confined to management meaning that the auditor may have to rely on management to identify all related parties The auditor should also be sceptical when assessing the business rationale behind related party transactions.

Consideration of laws and regulations – the auditor should be alert throughout the audit for indications that there may have been a suspected non-compliance with laws and regulations.

The increasing importance of professional scepticism

The global financial crisis of 2008–2009 also focused attention on professional scepticism. Auditors in many jurisdictions were criticised for not applying sufficient professional scepticism at that time, particularly in relation to the audit of fair values, related party transactions and going concern assessments.One of the reasons for the IAASB issuing the Staff Questions and Answers document was to re-emphasise the importance of professional scepticism especially in the audit of financial statements where there is a high risk of material misstatement due to financial distress.
International Auditing and Assurance Standards Board (IAASB)

Big Data

2018-09-24 15:14:47 UTC

Big Date

2018-09-24 15:16:21 UTC

1. Big Data lacks a consistent definition, some big data definition focuses on characteristics of big data and other definition focuses more on the examples of the content of big data.

2. In terms of characteristics side, big data is defined in terms of 4 Vs; volume, velocity, variety and veracity.

3. In terms of contents, include some mix of traditional structured ﬁnancial and non-ﬁnancial data(NFD), logistics data, sensor data ,emails ,telephone calls ,social media data, blogs, as well as other internal and external data.

4. Accounting ﬁrms are declaring that Big Data is increasingly essential part of their assurance

Big Date

2018-09-24 15:16:22 UTC

Lack of Competition in Auditing

2018-09-24 15:16:30 UTC

Big Four Share of FTSE 350 auditing has increased from 95% to 98% in the past five years despite a series of EU and UK reforms introduced since the financial crisis.


The Competition Commission (CC) has now provisionally concluded that the audit market is restricted: companies are inhibited from switching auditors and there is a tendency for auditors to focus on satisfying the needs of management rather than shareholders. However the main duty of an auditor is to inform the shareholders if the financial statements provide true and fair view of the company.

In a report by MPs on the collapse of Carillion it was suggested that the big four be refereed to the Competition and market authorities to consider whether they should be forced to break up.

Expanding auditor's role - fraud

2018-09-24 15:17:27 UTC

Going beyond regulatory compliance due to new demands from company boards, senior leaders and regulators.
Enterprise risk management introduced as an evaluation method to reduce risks including fraud

Cyber Security - cont..

2018-09-24 15:19:24 UTC

Too many auditors worry about threats and vulnerabilities that pose no actual risk to an asset, prioritising compliance over risk and wasting precious time and resources.

Restoring Public Trust

2018-09-24 15:20:28 UTC

If auditors had maintained the high ethical conduct expected of them, many of the recent corporate scandals would not have been possible – improving the ethics of the auditors and auditing companies is the most important way of restoring public trust

Governing bodies should have a more aggressive approach in addressing the expectations gap.

Accounting firms should participate more in community activities in an effort to repair their reputation

A more timely, relevant, objective, and transparent financial reporting process in reporting financial results and conditions should improve the quality, integrity, and reliability of financial information.