ACCA Advanced Audit and Assurance (AAA) Course: 1. The Need for Regulatory Frameworks for Audit

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