The World Bank - Centre for Financial Reporting Reform

Audit & Oversight Community of Practice Newsletter January 2011
 

Audit and Oversight Community of Practice

In this issue

This issue recaps the highlights and insights from the October 2010 AOCoP workshop:

  1. Standard model
    The AOCoP agreed on a standard model framework for POS, QAS and Sanctions & Discipline in order to help define the focus of activities of the three workgroups.

  2. Public Oversight Systems
    The AOCoP was shown a detailed POS methodology and started preparations for an analytical paper describing effective POS legislation, regulation and other policy instruments.

  3. Quality Assurance Systems
    The AOCoP was shown a detailed QAS methodology, explored the benefits of a regional approach to QAS, and started plans for an entire AOCoP workshop devoted to seeing the QAS methodologies developed for and being used in Croatia and Macedonia.

  4. Sanctions & Discipline
    The Sanctions & Discipline workgroup made plans to prepare an analytical paper comparing the sanctions and discipline schemes of various mature countries and proposed to invite the Chamber of Financial Auditors of Romania (CFAR) to describe their system for ranking registered auditors.

  5. Next Audit & Oversight activities including the proposed 24-25 March workshop in Skopje
    (the date and location are tentative)

The Audit and Oversight Community of Practice
Members of the Audit and Oversight Community of Practice
at October's workshop



Background, objectives and goals of the October 2010 AOCoP workshop

The 4th workshop for the Auditing & Oversight Community of Practice (AOCoP) took place on October 13-15, 2010 in Vienna, Austria. The overall objective was to start the development of detailed POS, QAS and Sanctions & Discipline methodologies

At the 3rd AOCoP workshop in May 2010 (see the AOCoP Wiki), the AOCoP developed broad workgroups and plans for public oversight, quality assurance and sanctions & discipline. The Public Oversight Workgroup decided to develop guidelines on how to establish public oversight, and see detailed methodologies for public oversight, particularly from small economies with established POS and with practical examples. The Quality Assurance Workgroup decided to develop guidance or best-practice annual returns for auditors and audit firms, as well as how to analyze them; see a quality assurance and quality control methodology including templates, minimum requirements and practical examples by someone who is doing it in practice.

The Sanctions & Discipline Workgroup decided to explore how to establish a structure and legal basis for sanctions; see a sanction and disciplinary methodology by someone who is doing it in practice; and compare and contrast sanction and disciplinary measures for various breaches/infractions.

Accordingly, the main objective of the October 2010 workshop was to agree on what the community wants these methodologies to address, to include, to exclude and to look like in order to make them work for the community. These agreements were captured in charters and workplans for each workgroup. These are described in more detail below.

Andrei Busuioc at October's AOCoP workshop

Andrei Busuioc at October's AOCoP workshop


Rimas Butkevicius at October's AOCoP workshop

Rimas Butkevičius at the AOCoP workshop


October 2010 workshop agenda

  1. Discussion of standard model and focus of activities of POS, QAS and Sanctions & Discipline
  2. Public Oversight
    1. IFIAR POS Developments
    2. UK POS
    3. Common contents and demo of POS methodology
  3. Quality Assurance
    1. Caribbean approach to regional QAS
    2. QAS annual returns
    3. QAS methodologies
    4. Common contents and demo of QAS methodology
  4. Sanctions & Discipline
    1. UK sanctions & discipline
    2. ICAEW sanctions & discipline
  5. Preparing for next phase
    1. Chartering POS, QAS and S&D workgroups
    2. Reflection on enabling environment issues
  6. Consider AOCoP-supported events on POS and auditing
Satisfaction chart

Twenty-nine participants from the eight REPARIS countries attended the workshop in person, with twenty-four joining one or more of the sessions over the internet.

Overall, workshop participants were either satisfied or very satisfied with the workshop. 90% of the participants rated the performance and knowledge of the speakers from good to excellent.



1. Standard model and focus of activities of POS, QAS and Sanctions & Discipline workgroups


Standard model and focus of activities of POS, QAS and Sanctions & Discipline workgroups


The AOCoP agreed on a standard model of POS, QAS and Sanctions & Discipline as presented in the diagram above in order to help define the focus of activities of the three workgroups. The POS workgroup will focus on methodologies and approaches for public oversight bodies to inspect professional audit bodies which are in turn responsible for operating QAS. The QAS workgroup will focus on methodologies and approaches for professional audit bodies to directly inspect audit firms and auditors. Finally, the sanctions & discipline workgroup will focus on the application of appropriate sanctions and discipline resulting from both POS and QAS activities.

The immediate focus of the POS workgroup would be the POS-indirect approach (numbered 1 in the above diagram). The focus of the QAS workgroup would be the QAS-direct approach (numbered 2 in the above diagram). The focus of the Sanctions & Discipline workgroup would cut across both POS and QAS activities (marked ## in the above diagram). The other approaches (numbered 3-5 in the above diagram) would be addressed later.




2. Public Oversight Systems


AOCoP shown detailed POS methodology

Ranjan Ganguli of the CFRR presented a detailed POS methodology and described how it derives from the Statutory Audit Directive. This followed presentations from Jon Hooper, International Relations Manager at the UK Financial Reporting Council, and John Grewe, Project Manager at the Professional Oversight Board (also part of the UK Financial Reporting Council). Jon presented the initiative of the International Forum of Independent Audit Regulators (IFIAR) to guide development of POS methodologies and guidelines including its 11 core principles. John gave an overview of the UK's approach to audit regulation, explained how it related to the requirements of the Statutory Audit Directive, and described how the UK public oversight system works in practice. With the assistance of both Jon and John, Ranjan suggested a detailed POS methodology would assess a professional audit body's:

  1. Audit registration processes
  2. Audit quality monitoring processes
  3. Complaints and discipline processes
  4. CPD monitoring processes
  5. Student registration, tracking, training offices and examinations


POS workgroup to prepare analytical paper

The POS workgroup decided to prepare an analytical paper describing effective POS legislation, regulation and other policy instruments, as well as a comparative analysis of the effectiveness of more mature POS structures. This paper will be prepared over the next few months and shared with the entire AOCoP in early summer.

See the AOCoP wiki for detailed POS workplan.

At the AOCoP workshop

Rimas Butkevičius and Jon Hooper


John Grewe and Ranjan Ganguli at the AOCoP workshop

John Grewe and Ranjan Ganguli






3. Quality Assurance Systems


A regional approach to QAS can benefit everyone

Harryram Parmesar, President of the Institute of Chartered Accountants of the Caribbean, described how seven separate institutes from the countries of the Caribbean (which share a common reporting system and accounting standards) had come together to form the ICAC and had implemented a regional QAS Practice Monitoring System. The benefits of a regional approach to QAS Practice Monitoring System include:

  • ability to draw on a greater pool of expertise for QA of specialist audits;
  • reduction of conflicts of interest given the small number of audit firms who might otherwise be expected to QA each other in a peer-review system; and
  • cost savings both to develop common QAS methodologies and engage external QAS audit bodies to assist with QAS inspections.
Harryram Parmesar, President of the Institute of Chartered Accountants of the Caribbean

Harryram Parmesar, President of the Institute
of Chartered Accountants of the Caribbean

AOCoP shown detailed QAS methodology

Andrei Busuioc of the CFRR presented an approach to a QAS methodology. This followed presentations on organizational structures and approaches to QAS from participants and invited guests from Kosovo, Moldova, Lithuania and the United Kingdom. Andrei explained that QAS methodologies essentially comprise three parts:

  1. a risk assessment based on annual returns from auditors;
  2. a firm-wide assessment methodology; and
  3. an audit file review methodology.


QAS workgroup to lead next AOCoP workshop

The QAS workgroup expressed a keen desire to see the QAS methodologies developed for and being used in Croatia and Macedonia with a view to forming an understanding of how a QAS operates in practice rather than only in theory. Accordingly, and with sincere thanks to our Croatian and Macedonian colleagues, the next AOCoP workshop, tentatively planned for March 24-25, 2011, will be devoted to the QAS workgroups' examination of the Croatian and Macedonian QAS methodologies.

See the AOCoP wiki for detailed QAS workplan.


4. Sanctions & Discipline


S&D workgroup to compare approaches to sanctions and discipline

Invited guests, Anna Colban, Secretary to the Accountancy and Actuarial Discipline Board of the UK's Financial Reporting Council, Ben Johnson, Managing Director of FTI Forensic Accounting, and Paul Simkins, Director of Quality Assurance at the Institute of Chartered Accountants in England and Wales, presented various aspects of the UK's sanctions and discipline scheme, including the systems and due process requirements, transparency measures, skills and resources required to investigate and impose sanctions and disciplinary measures. It was clear that there are various approaches to sanctions and discipline which would be compatible with the Statutory Audit Directive and that it is not a straightforward business to develop a tariff of infringements and penalties.

Accordingly, the Sanctions & Discipline workgroup decided to prepare an analytical paper comparing the sanctions and discipline schemes of various mature countries. As with the POS workgroup's analytical paper, this paper will be prepared over the next few months and shared with the AOCoP in early summer.

See the AOCoP wiki for detailed Sanctions & Discipline workplan.


S&D workgroup invites CFAR to present its methodology for ranking auditors

As noted in the December 2008 World Bank report on the Romanian accounting and auditing framework (read the Romania A&A ROSC), the Chamber of Financial Auditors of Romania (CFAR) reviews and applies a ranking to its registered auditors. The CFAR have been invited to outline their ranking methodology and, in particular, how the CFAR computes a ranking and what are the consequences for an auditor of achieving any particular ranking. It is likely that this presentation will be made over the Global Distance Learning Network (GDLN) in early March 2011.

An announcement will follow nearer the time.

At the AOCoP workshop

The Financial Reporting Council's
Anna Colban presenting via web link


At the AOCoP workshop

Paul Simkins, Director of Quality Assurance at
the Institute of Chartered Accountants in
England and Wales,





5. Next AOCoP workshop in March

Audit and Oversight Community of Practice The next AOCOP workshop will likely take place on March 24-25, 2011 in Skopje, Macedonia with the focus being on Croatia's and Macedonia's QAS methodologies. Further details, including invitations and a detailed agenda, will follow early in 2011. In addition, the distance learning events series will be launched in 2011. The training will be provided to the members of Public Oversight Boards.


About REPARIS and the Audit & Oversight Community of Practice

The Road to Europe: Program of Accounting Reform and Institutional Strengthening (REPARIS) is a regional program aimed at creating a transparent policy environment and effective institutional framework for corporate reporting within South Central and South East Europe. Participating countries include Albania, Bosnia and Herzegovina, Croatia, Kosovo, Former Yugoslav Republic of Macedonia, Moldova, Montenegro and Serbia.

Further information may be found at worldbank.org/reparis

The objective of the AOCoP is to support REPARIS economies to address issues relating to audit and audit oversight, including alignment with the EU acquis communautaire. The AOCoP envisions enabling REPARIS economies to understand the issues, share experiences to address them, and ultimately develop and implement action plans at the regional as well as national level.

The AOCoP wiki may be found at auditingoversightcop.wikispaces.com.


About the CFRR

The Centre for Financial Reporting Reform (CFRR) is the World Bank's centre of expertise in the reform of financial reporting for Europe and Central Asia. It is based in Vienna and works with partners from the region, including ministries of finance, regulatory bodies, professional bodies for accountants and auditors and universities, to help them set up and operate effective frameworks for financial reporting.

The CFRR is also active in the wider policy discussion surrounding financial reporting – for example, it is part of the monitoring group which is evaluating the reforms to the International Federation of Accountants (IFAC) and has also been involved in recent discussions at the WTO on international trade in accountancy services.

About CFRR

Web: worldbank.org/cfrr

Address:
Praterstrasse 31 - 19th Floor
1020 Vienna Austria
Phone: +43 (0)1 2170 700
Fax: +43 (0)1 2170 701

Contacts:
Ranjan Ganguli
rganguli@worldbank.org
Andrei Busuioc
abusuioc1@worldbank.org

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