The global body for professional accountants Practice monitoring in Cyprus

The global body for professional accountants

Practice monitoring in Cyprus


LOUIS THEODOTOUKYRIACOS KARAOLIS

HAROULLA ARKADE NICOLAOU

Senior Practice Reviewers


INTRODUCTION

THREE PARTS

• The monitoring process

• Common deficiencies on ISQC 1 and ISAs

• Common ethical issues


THE MONITORING PROCESS

1. The visit

2. Examination of audit files

3. Assessing the outcome of an audit file examination

4. Assessing the overall outcome of an audit monitoring visit

5. Action plans

6. ICPAC & ACCA rules and regulations

7. How firms should prepare for an audit monitoring visit


THE VISIT• Arranging the visit:

- Firm contacted by telephone - Information in PVQ and audit clients discussed

- Date of visit agreed and confirmed in writing • Undertaking the visit

- Opening meeting - background /quality controls procedures

- Examination of practice records and audit files- Closing meeting - discuss and agree the findings and overall outcome and guidance on any

improvements given

• Post-visit procedures- Report on visiting findings, conclusion and guidance drafted- Internal quality control of review of report/visit papers- Report / action plan template sent to the firm - Firm’s response including action plan received and

reviewed - Report and firm’s response /action plan sent to ICPAC


EXAMINATION OF AUDIT FILES



• Use an audit file inspection checklist (AFIC) to document findings

• Selection to cover audits of all engagement partners

• Focus on high risk audits i.e. complex and larger entities

• Review file without engagement partner or staff present

• Only recognise work recorded on the file



• Findings discussed with engagement partner / practitioner

• Seriousness of deficiencies assessed to conclude whether file is satisfactory


ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION


ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION• Perfect audit files do not exist

• Number of deficiencies does not necessarily determine whether audit is unsatisfactory

• Key concept is “reasonable assurance” that financial statements are free from material misstatement

• The “test” is whether there is a significant risk that the financial statements could contain an undetected material misstatement as a result of the deficiencies found in the audit work

• An audit file may only have one deficiency and be considered unsatisfactory if significant in a key area


ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 1• Inventories are material

• No continuous inventory system and auditor does not attend client’s physical inventory count

• No alternative procedures to obtain reasonable assurance that stock count was undertaken reliably and results were recorded accurately

• No other serious deficiencies noted on file and clean report issued

• Failure to verify inventory could mean a material misstatement remains undetected

• Conclusion: Unsatisfactory audit


ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 2• Inventories are significantly material

• Auditor attends physical inventory count but does not adequately record the work performed. For instance it is not clear that test counts were done in both directions.

• Work on value of inventory adequately addressed

• No other deficiencies on evidence identified

• Conclusion: Deficiency, but not sufficiently serious to render outcome unsatisfactory


ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 3• Audit client was an international business company which is an

investment holding

• Its main activities are holding of investments in subsidiaries and financing group entities

• Auditor did not verify the validity and recoverability of material receivables and did not assess impairment of investments which are carried at cost

• Conclusion: Unsatisfactory file


ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 4• Indicators of financial difficulty and cash flow problems

• Auditing standard on going concern (ISA 570) not followed

• Conclusion: Unsatisfactory audit


ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 5• No indication of financial difficulty and surplus cash generated

• Auditing standard on going concern (ISA 570) not followed

• Conclusion: Deficiency, but not sufficiently serious to render outcome unsatisfactory


ASSESSING THE OVERALL OUTCOME OF AN AUDIT

MONITORING VISIT


EVALUATING THE OVERALL OUTCOME OF THE AUDIT MONITORING VISIT • Prior to June 2012 – Outcome satisfactory if all audits examined

satisfactory• From June 2012 – Outcome satisfactory if half or more of audit

files inspected are satisfactory, subject to the following two conditions:

None of the unsatisfactory audit files are seriously deficient (virtually no audit work); and/or

None of the unsatisfactory audit files are in respect of public interest entities or large clients of the firm

• Outcome unsatisfactory if serious ethical or other breaches found even where audit file examination outcome satisfactory


ACTION PLANS


ACTION PLAN

• Firms required to provide detailed action plans to address the deficiencies at monitoring visits

• Appropriate action plan template together with written instructions enclosed when monitoring visit report issued to the firm

• Guidance on how to complete the template also given at the monitoring visit


ACTION PLAN

• Submitted action plans reviewed for reasonableness. Revised plans required if original not adequate or appropriate

• Copy of the action plan enclosed when the report is sent to ICPAC

• Firms are expected to implement the action plan and ensure that a satisfactory outcome is achieved at the next visit

• See example


ICPAC RULES AND REGULATIONS


ICPAC RULES AND REGULATIONS

Scope of visit also includes to verifying compliance with certain ICPAC’s rules and regulations

• Professional indemnity insurance Ensure that cover is adequate i.e.at least €85.000 or 10% of

annual practice income Ensure that retroactive date is specified, and this is set at the

policy’s inception date, irrespective of the insurance firm used Ensure the insured party is correctly stated on the policy

• Continuing Professional Development Ensure that each practitioner has covered 40 units of CPD

each year, from which 21 must be verifiable Ensure that CPD undertaken includes an adequate proportion

of units in auditing Ensure adequate records kept


ICPAC RULES AND REGULATIONS (continued)

• Continuity of practice Ensure that have a provision for the firm’s continuity of its

practice in writing

• Money Laundering Regulations Ensure that firm is aware of ML regulations and of its

responsibilities Ensure that has notified MOKAS for appointment of MLRO Ensure that adequate training is provided to staff Ensure that KYC procedures are duly followed.


ICPAC RULES AND REGULATIONS (continued)

• Client money (IFAC Code of Ethics) Client money should be banked in a separate bank account

with title “Client account” No right of set-off between client account and office accounts

• Referral fees ICPAC members should not given or offer commission or

remuneration to a third person who is not an employee of the member

• ACCA Rules and Regulations

Holders of ACCA PC should also ensure compliance with ACCA practicing rules and regulations – Similar to ICPAC


HOW FIRMS SHOULD PREPARE FOR AN AUDIT MONITORING

VISIT


PREPARING FOR A MONITORING VISIT• Key – firm to ensure that it complies with ISAs

• Key – firm to establish appropriate policies and procedures and document them (ISQC 1)

• Effective planning leading to use of an effective audit programme

• Record all audit work and reasoning in detail to support the conclusions

• Ensure compliance with ICPAC rules and regulations

• Ensure all documents are ready before the visit

• Get the most out of the visit by listening carefully to what is said


ANY QUESTIONS?


THANK YOU

Documents

The global body for professional accountants Practice monitoring in Cyprus