Auditing, oversight and quality assurance

Objectives and challenges

Goal of Statutory Audit Directive

» High-level harmonization of statutory audit requirements

» Implications• More stringent requirements are permitted• Choices have to be made in implementation

» Commission recommendation• Quality assurance for auditors of public interest entities (PIEs)

Range of issues addressed

» Strengthen consistency and credibility of the external audit• Qualifications to be a statutory auditor• Characteristics of a statutory auditor• Performance standards• Transparent information about statutory auditors• Independent quality assurance• Public oversight of statutory auditors

» Commission Recommendation supplements Directive• Addresses expectations for quality assurance for audits of

public interest entities

Principles of public oversight

» Covers all statutory auditors and audit firms» Governed by non-practitioners with relevant knowledge

• Minority of practitioners permitted• Independent and transparent nomination process

» Ultimate responsibility for:• Approval and registration• Adoption of standards (auditing, ethics & quality control)• Continuing education• Quality assurance• Investigations and discipline

» Transparency» Funding that is free of inappropriate influence

Choices in implementing public oversight

» Existing or new body» Composition and appointment of governing body» Scope of oversight» Who conducts quality assurance inspections» Required range of disciplinary sanctions» How should funding be secured» Level of funding required» Size and composition of staff» Level of transparency» Relationship with financial supervisors

Conclusion

» No single model fits all circumstances

» Statutory Audit Directive allows scope for variation

Auditing, oversight and quality assurance

Objectives and challenges

Public oversight system governance

» Characteristics• Governed by non-practitioners• Knowledgeable in areas relevant to statutory audit• Minority of practitioners permitted

Why are the requirements needed?

» Recognition that the statutory audit is a public interest function• Reliable audits contribute to efficient functioning of markets• Broad range of interests rely on the auditor’s work

» Regulatory framework should reinforce the public interest• How credible is pure self regulation by a private body?• Does the audit profession itself need public oversight?

Some characteristics of public oversight» Not readily defined in a few words» Gives stakeholders in audit profession’s product a role in its

governance» Government agencies should consider their role» Governed by knowledgeable non-practitioners» Balance between audit knowledge and independence» Adequate funding that preserves independence» Supported by appropriate expert staff» Oversight body must have real authority» “Ultimate responsibility” for oversight of key functions» System should be transparent and accountable

Public oversight and quality assurance

» Oversight body must play a prominent role in QA system» Public oversight and effective QA are inextricably linked» Non-practitioners can bring valuable insights to the QA

system