Advanced Audit Assurance, lesson one,
international regulatory
frameworks. And we should cover three
elements. Firstly, the need for regulatory
frameworks for audit and assurance.
Secondly, what sort of public oversight
exists of the audit profession. And
thirdly, the role of corporate governance
both for the entity itself, but also for
the audit profession.
So, let's think about what
sort of regulatory framework exists for
audit and assurance and why we need them.
Now it's important for a recap here and for
you to recall what previous studies
taught you about an assurance engagement.
And let's have a look at the paragraph
from the IAASB glossary. So an assurance
engagement is one in which a
practitioner expresses a conclusion
designed to enhance the degree of
confidence of the intended users other
than the responsible party. So there are
three parties to this arrangement.
Firstly, the practitioner.
Secondly, the intended user.
And third, the responsible party. The
responsible party is responsible for the
subject matter. The practitioner is there
to verify and provide assurance about
that subject matter in order to provide
a degree of confidence that that
information does have validity for the
intended user.
Now what sort of need is this for
well ultimately the intended user needs
to make an informed investment decision
based upon the information that is being
presented and therefore if there's a
knowledge that that information has been
reviewed by a third
party then that enhances confidence it
enhances trust it enhances Reliance on
the information in order to make those
informed investment decisions and
hopefully it has minimized or at least
reduced any potential bias in that
information because it's being looked at
by a third independent
party so it's all about enhancing
confidence allowing the user of the
information to have the confidence to
use that information to make an informed
investment decision so that's the
objective of an assurance engagement
okay it is there to enhance
confidence now we need to think about
what's happened to the order profession
uh recently in the headlines and
unfortunately there have been a number
of corporate failures that have existed
over the last few
years now notice I'm talking about
corporate failures
sometimes individuals often talk about
ordered failures but this is not
appropriate it's a corporate failure so
wire card in Germany corillian and ptis
Valerie in the United
Kingdom these organizations that have
failed and from these failures have come
criticism of the external
Auditors the criticism being that the
work that they have done was of poor
quality
that they hadn't done enough nor had
they raised this
alarm when going through this
information and realizing that there was
some sort of financial
difficulty now a reaction to these
corporate failures has therefore
resulted in this increase regulation and
certainly an increase in public
oversight of what Auditors actually do
it's all about remember the enhancement
of confidence of the user in order to
make an informed investment
decision now why do we need
regulation well we need to ensure that
the standard of
work being performed by an auditor is
being monitored okay so where does this
come from well it comes from the audit
industry itself the actual firm itself
who requires quality procedures but also
independent Regulators so Regulators who
have oversight of the ordered firms
themselves we need to ensure there is
constant high quality work we need to
ensure there's sufficient work being
done in terms of enhancing the
confidence of the user in terms of the
information being presented and
ultimately we are there to protect the
reputation of this quality profession
now where does this audit regulation
derive from well it comes from three
main areas firstly actual auditing
standards but also standards in relation
to Assurance engagements now this is a
sort of form of self-regulation so the
profession itself produces these
standards but of course we perform this
work within the rapper of a law and
therefore there there will be UK
there'll be International there'll be
laws regulations to actually govern what
sort of information um is being used in
order to be able to enhance that
confidence the Auditors have a duty of
care for The Wider or to The Wider
public and therefore there will also be
potential independent Regulators outside
of the firms to ensure that the audit is
being done correctly the quality level
is very very high and that these
auditing standards which are hopefully
fit for purpose are actually being
implemented so in relation to the
standards well we have this term the
iasb so the international auditing and
Assurance Standards Board and we have
the ESB a the International Ethics
Standards Board and these organizations
produce codes but also the actual
standards which have got to be adopted
internationally when going through an
audit and also an insurance
engagement now we have this
International Federation of accountants
and it is the
ifac
Federation in which the
iasb and also the I ESB so the Standards
Board and the ethics board exist
the
iasb they produce these isers the
international standards on
auditing which is the
framework against which an audit must be
conducted and the international ethic
Standards Board the iesba produces a
code a code of ethics for professional
accountants a code which must exist when
doing an audit but also in the actual
daily life of an external auditor and a
professional
accountant now these are
international and every country will
differ slightly and therefore it's
absolutely vital that these standards
are not followed blindly but are
potentially adapted to ensure that it is
relevant for the or for the area for the
the country in which this orders is
being produced and hence as I've said
there across the globe across the world
we have more than a 100 countries which
have taken the auditing standards and
they have adopted them
and they either used them or they've
slightly amended them so that they have
their own national standards But
ultimately the auditing standards the
ethical standards are against which
you must
work now in the UK we have um isas but
notice it's isas UK because they've been
slightly adapted in order U to uh be
consistent with the UK
Market in relation to the code of ethics
well we have the acca's code of ethics
which is based upon the ethics standards
board code and in which you must
work now the a a I apologize the
iasb also produces other standards so
they include standards on what sort of
quality control must exist within an
audit but also an audit
firm they produce is
AES which are standards on Assurance
engagements which of course include
audit
we also have
isres which provide standards on a
review engagement okay which differs
from an audit differing level of
assurance and we have is rs's standards
on related
services so the Isis apply to audits but
also all of these individual standards
they also provide or they also
relate to Audits and Assurance
engagements as well and we will use
these going forward