RSM International Conference, Singapore 2007 Inspections – Plans for 2008 David Wall Interim Chair TASEC

RSM International Conference, Singapore 2007

Inspections – Plans for 2008David WallInterim Chair TASEC


IntroductionIntroduction

• The value of inspections• Changes to the international inspection programme• Overview of current inspection activities• Plans for 2008• Requirements of member firms• Internal inspection programme


The value of inspectionsThe value of inspections

• The proven model worldwide• Achieves consistent and high quality standards• Demonstrates audit quality to global markets• Expected by our selected market i.e. growing

internationally active clients• Cornerstone of the RSM business model – QUALITY



• An effective global inspection programme should:– be positive and helpful– have accountability and strong governance – improve member firms’ inspection programmes– identify causes– provide access to practical advice and guidance – identify issues requiring network-wide solutions– align with regulatory inspections– be part of a truly integrated network



• Compliance with regulatory and professional obligations– IFAC Forum of Firms:

– all members are currently provisional members– full membership is conditional

– ISQC1:– internal monitoring and inspection process


Changes to the Changes to the international inspection programmeinternational inspection programme

• A revised approach for 2007, focusing on participation in, and/or oversight of, member firms’ inspection programmes by the network

• This new approach includes elements of the previous observation and regional inspection programmes

• Special provisions for “small” firms



• The degree of participation by member firms depends upon the reliability of the member firm’s internal inspection programme:– firms who are just establishing– firms who have an unproven inspection programme – firms who have a proven inspection programme

• In reality, RSM participation should gradually transition towards pure oversight for all member firms’ inspection programmes – ideally by 2009



Extent of RSM involvement in the internal inspection

Reliability of internal inspection programme



• transition as soon as possible• all member firms have robust and reliable internal

inspection programmes• provide the network with assurance that all member firms

are effectively monitoring own quality standards• maximum scope for RSM to oversee their inspections

rather than participate in them


Overview of current inspection activitiesOverview of current inspection activities

• significantly increased number of inspections in 2007 to comply with Forum of Firms’ 3 year cyclical requirements

• 19 countries were selected for inspection in 2007• similar numbers of inspections in 2008


Plans for 2008Plans for 2008

• selections currently under consideration by TASEC (firms to be notified January 2008)

• updated Guidelines for a Member Firm Inspection Programme and related workpack material (early 2008)

• new policy document• development and release of inspection training material

(early-mid 2008)


Requirements of member firmsRequirements of member firms

• establish an inspection programme• submit annual internal inspection report and action plan to

the Executive Office• participation of partners and senior audit personnel in

international inspection teams• fast response to RSM requests for information• feedback to the Executive Office of experiences of an

RSM international inspection


Internal inspection programmeInternal inspection programme

• all RSM member firms (except those designated as “small” firms) should now be implementing an internal inspection programme in accordance with the RSM Guidelines for a Member Firm Inspection Programme

• those member firms designated as “small” should request RSM to arrange for annual inspections to be conducted on their behalf

• proposed definition of “small” firms to be ratified at November 2007 TASEC meeting



• Governance:– Inspection programmes must be underpinned by strong governance– Regulators are looking closely at governance arrangements (or “tone at the

top”) – Firms’ leadership should demonstrate their commitment to the inspection

process:– communication to the firm’s leadership– minutes– linking inspection outcomes with evaluation, promotion and

compensation arrangements, etc



• Objectives:– Quality Assurance and Risk Containment Policies– Ethics & Independence Policies– RSM Training & CPE Guidelines (Practice Aid 4)– Professional standards– Deficiencies are identified and remedied– Improvements in engagement efficiency and client service



• Summary of the inspection process:– plan the scope, coverage and detailed approach of the

inspection– conduct the inspection– agree findings and underlying causes – issue inspection report and develop action plan– implement action plan and monitor on an ongoing basis



• Focus:– It is not sufficient just to identify and agree inspection findings –

we must find out WHY they have occurred (i.e. establish the underlying causes)

– This can be a sensitive process, as the cause of any inspection finding can be attributed to some deficiency – however minor – in ability or commitment

– Let us consider this further….



• Why – many reasons (identify symptom)• Reactive – Accountable sanctions• Proactive (identify cause)

– Is there an effective training strategy?– Is there clear support from top management for audit quality ?

• It’s not always easy to correctly identify the underlying cause! BUT…



• … if we correctly identify the underlying cause, we have a chance of devising a suitable action plan to prevent repetition of the finding, or even possible new findings resulting from the same cause

• The effect of the action plan will address the CAUSE and not simply the SYMPTOMS

• Doing so will therefore help to accelerate our drive towards QUALITY and put RSM….. “INTO THE FAST LANE”


Activities of Regulators Activities of Regulators regarding inspectionsregarding inspections

Jane Meade - National Technical Director, RSM Bird Cameron


Regulator ActivitiesRegulator Activities

• International matters:– IFIAR– PCAOB co-operative arrangements

• Public reporting• PCAOB Inspections• Areas of focus – ASIC, ACRA, POB, PCAOB• Action points


International MattersInternational Matters

• Independent Forum of Independent Audit Regulators (IFIAR) – September 2006 – 22 countries, including US (PCAOB)

• Activities:– Share knowledge of audit market environment and practical

experience of independent audit regulatory activity– Promote collaboration in regulatory activity; and– Provide a focus for contacts with other international

organisations which have an interest in audit quality


IFIARIFIAR

• Key area of discussion = drivers of audit quality and the inspection process

• Audit inspection workshop held in May 2007, another to be held in early 2008– Exchange inspection techniques and experiences– Discuss emerging issues– Reporting of findings was discussed at May workshop

• Likely to form relationship with Forum of Firms (FOF) / Transnational Audit Committee (TAC) of IFAC


Cross-Border Co-operative arrangementsCross-Border Co-operative arrangements

• Likely to further develop through IFIAR• PCAOB – Statement of Protocol with ASIC (Australia)

– To enhance co-operation in the supervisory oversight of auditors and public accounting firms that practice in their respective jurisdictions

• Also looking to establish similar arrangements in other jurisdictions


Public ReportingPublic Reporting

• PCAOB issues publicly available reports for each inspection

• Each firm gets full individual report• Some findings remain confidential - eg adverse findings re

QA procedures if firm commits to addressing in 12 months• If insufficient progress made in 12 months, issue will be

included in next public report


Public Reports (cont.)Public Reports (cont.)

• Other regulators currently issue combined public report without reference to individual firms

• UK – proposals for consultation – favoured option is public reports for each of 9 firms inspected by Audit Inspection Unit (AIU) of Financial Reporting Council (FRC)

• Australia – ASIC soon to release consultation paper on proposals for public reporting on individual firms

• IFIAR workshop issue


PCAOB InspectionsPCAOB Inspections

• Continuing program of inspections of registered public accounting firms.

• Assess compliance with the Sarbanes Oxley Act, PCAOB rules, SEC rules, and professional standards

• Annually - firms that provide audit reports for more than 100 issuers and at least triennially for firms that provide audit reports for fewer issuers.


Focus areas – International RegulatorsFocus areas – International Regulators

• “Tone at the top”• Partner evaluation, compensation, admission, assignment of

responsibilities and disciplinary actions• Auditor independence• Client acceptance and retention• Consultations on accounting, auditing, and SEC matters • Internal inspection programs• Establishment and communication of audit policies, procedures, and

methodologies, including training.


Action PointsAction Points

• Map RSMI audit manual / S to local audit standards (where different to International)

• Map local quality requirements to QA manual• Map local Independence requirements to Independence

Manual• After regulatory inspection develop an action plan,

including timings


Thank youThank you

• Thank you for your attention and participation• Questions?

Documents

RSM International Conference, Singapore 2007 Inspections – Plans for 2008 David Wall Interim Chair TASEC