Presenter: Geraldine McWeeney

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Advanced Program in Auditing and Accounting
RegulationModule 12 Enhancing Statutory Audit
Quality from a Financial Regulators Perspective

• Presenter Geraldine McWeeney
• Auditing and Accounting Policy
• Irish Financial Services Regulatory
  Authority
• 22 November 2005

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Contents

• Respective Responsibilities of
• Board of Directors/Those Charged with Governance
• Financial Regulators
• External Auditors
• Areas of Common Interest for the Financial
  Regulator and the External Auditors
• Limitations on Contribution Auditors can make to
  the Supervisory Process
• Directors Compliance Statements and Auditors
  Reports thereon.
• Irish Financial Regulators liaison with External
  Auditors
• The establishment of the Irish Auditing and
  Accounting Supervisory Authority (IAASA)

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1. Respective Responsibilities of

• 1.1 Board of Directors/Those Charged with
  Governance
• Promote the success of the entity for the benefit
  of the shareholders as a whole
• Provide entrepreneurial leadership within a
  framework of prudent and effective controls which
  enables risk to be assessed and managed
• Establish appropriate management information
  systems
• Ensure the regulated entity has appropriate risk
  management policies and procedures
• Have regard for the interests of all stakeholders
• Compliance with laws and regulations
• Set the Entitys values and standards
• Primary source of information to the Regulator

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1. Respective Responsibilities of

• 1.2 Financial Regulator
• Prudential Supervision and Financial Stability
• To foster sound and solvent financial
  institutions which give consumers confidence that
  their deposits and investments are secure
• Consumer Protection
• Help consumers to make informed decisions on
  their financial affairs in a safe and fair market

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1. Respective Responsibilities of

• 1.3 External Auditors
• To give an independent opinion of the Financial
  Statements on whether they present a true and
  fair view on the state of affairs of the entity.
• Statutory Duty to report to the Financial
  Regulator and Other Bodies in certain specified
  circumstances.

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• 1.4 Areas of common interest for the Financial
• Regulator and External Auditors
• Going Concern
• Sound System of internal control
• Proper accounting system
• Good Corporate Governance

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• 1.5 Limitations on Contribution Auditors can make
  to the Supervisory Process
• Auditors reports are a supplement to, and not a
  substitute for, proper reporting by regulated
  entities.
• A financial statement audit provides a type of
  assurance that has limited value to the
  regulatory process.
• Financial Statements are historical documents.
• A financial statement audit cannot be assumed to
  include consideration of all matters that may be
  relevant to a regulators functions.
• Materiality thresholds may be very high
• The Financial Regulator and the External Auditor
  must recognise their duty to observe
  confidentiality with reciprocity of information

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2. Directors Compliance Statements and
External Auditors reports thereon

• 2.1 Review Group on Auditing (RGA)
  Recommendation
• Directors of a company should be required to
  report on an annual basis to the shareholders on
  the companys compliance with its obligation
  under company law, taxation law and other
  relevant statutory or regulatory requirements.
• Auditors opinion required on whether the
  Directors Compliance Statement is reasonable
• Implies 100 compliance with all legislation
• Envisaged that it would apply to all companies
  other than those with very low turnover who are
  exempt from audit.
• Envisaged that it would also apply to all
  financial institutions

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2. Directors Compliance Statements and
External Auditors reports thereon

• 2.2 Companies legislation
• Section 45 of the Companies (Auditing and
  Accounting) Act, 2003 not yet commenced
• Policies and Procedures approach rather than
  100 compliance
• Mandatory for publicaly listed companies (plcs)
  and llarge private companies
• Other relevant obligations confined to
• (a) those enactments that provide a legal
  framework AND
• (b) that may materially affect the entitys
  financial statements
• A review of Section 45 was conducted by the
  Company Law Review Group (CLRG) as a result of
  lobbying from affected parties. The CLRG is
  expected to recommend substantial amendments to
  Section 45.

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2. Directors Compliance Statements and
External Auditors reports thereon

• 2.3 Financial Services Legislation
• Section 25 of the Central Bank Act, 1997 as
  substituted by section 26 of the Central Bank and
  Financial Services Authority of Ireland (CBFSAI)
  Act, 2004
• Closer to the wording of the Review Group on
  Auditing (RGA)
• Policies and Procedures approach is not
  mentioned
• No materiality level
• It is an enabling provision (not mandatory)
• The Financial Regulator to issue Guidelines
• The Financial Regulator would first consult
  widely with Interested Parties.

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3. Irish Financial Regulators liaison with
External Auditors

• 3.1 Receipt of annual audited financial
  statements from the regulated entity (no
  separate auditors report on financial
  statements is prepared by the auditor for the
  Financial Regulator).
• 3.2 Statutory Duty of Auditors to Report to the
  Financial Regulator.
• 3.2.1 Examples of circumstances where auditors
  must report to the Financial Regulator are
  contained in Section 33 of Investment
  Intermediaries Act, 1995.

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3. Irish Financial Regulators liaison with
External Auditors

• 3.2.2 Other examples where there is a Statutory
  Duty on Auditors to Report to the Financial
  Regulator are contained in Section 27 of the
  Central Bank Act, 1997 as substituted by section
  26 of the Central Bank and Financial Services
  Authority of Ireland (CBFSAI) Act, 2004
• Section 27B Auditor of regulated financial
  service provider to lodge annual report with the
  Financial Regulator
• Section 27C - Duty of auditor to provide the
  Financial Regulator with copies of Reports sent
  to those charged with governance
• Section 27D - Duty of auditor to provide the
  Financial Regulator with copies of Reports sent
  to the Director of Corporate Enforcement

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3. Irish Financial Regulators liaison with
External Auditors

• 3.3 The Financial Regulator may hold bi-lateral
  meetings (Financial Regulator and auditor) and
  tri-lateral meetings (Financial Regulator,
  auditor and regulated entity) to reciprocate
  information. The Financial Regulator and the
  auditor must recognise their duty to observe
  confidentiality.
• 3.4 Co-operation and assistance to Auditors in
  development of Guidance for Auditors of
  Regulated Entities
• Examples
• Reports on Client Assets
• Statutory Duty to Report
• Practice Note 19(I) (Banks)
• Practice Note 20(I)(Insurers)
• Requirements on Auditors of Credit Unions

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3. Irish Financial Regulators liaison with
External Auditors

• 3.5 A Liaison Group exists between the Financial
  Regulator and Accountancy Bodies.

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3. Irish Financial Regulators liaison with
External Auditors

• 3.6 Other enabling provisions regarding auditors
  in legislation
• 3.6.1 Reports on request of the Financial
  Regulator
• Reports on other matters (Section 27E of Central
  Bank Act 1997)
• Access to audit working papers (Section 27F of
  Central Bank Act 1997)
• Reports on Directors Compliance Statements
  (Section 26 of Central Bank Act 1997)

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3. Irish Financial Regulators liaison with
External Auditors

• 3.6.2 Assurance Levels
• Opinion
• Negative Assurance
• Specified Procedures
• Compilation Reports
• 3.6.3 Expectation Gap

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4. Establishment of the Irish Auditing and
Accounting Supervisory Authority (IAASA)

• Review Group on Auditing (RGA) Recommendation
  (July 2000)
• Legislated for in the Companies (Auditing and
  Accounting) Act, 2003
• Ministerial Order required to commence the
  legislation
• Financial Regulator has a nominee on the Interim
  Board of the Irish Auditing and Accounting
  Supervisory Authority (IAASA)
• 3 out of 15 Board members are nominated by
  Accountancy Bodies.
• Maximum of 5 accountants out of 15 on the Board

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Establishment of the Irish Auditing and
Accounting Supervisory Authority

• Funding
• 60 Accountancy Bodies
• 40 State
• Objective
• To supervise how the prescribed accountancy
  bodies regulate and monitor their members
• To promote adherence to high professional
  standards in the auditing and accountancy
  profession
• To monitor whether the accounts of certain
  classes of companies and other undertakings
  comply with the Companies Acts, and
• To act as a specialist source of advice to the
  Minister on auditing and accounting matters

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