Audit CPD
The auditing CPD rules have changed. From the start of this year there has been a requirement for auditors to document and attend to their audit CPD requirements more carefully. An auditor needs to plan their audit CPD and document this plan.
Matters arising during cold and hot file reviews, quality checks and new auditing requirements should be considered, and a plan developed to meet all the requirements in International Education Standard 8 (IES 8) over a three-year period, and most of the IES 8 requirements every year.
A good guide is to undertake seven hours of audit CPD annually
There is no prescribed number of hours of CPD, but a good guide is to undertake seven hours of audit CPD annually. Not all of the seven hours needs to be verifiable CPD – some of it may be based on non-verifiable reading and self-study.
IES 8 has matters listed that cannot be ‘studied’, but are learned by doing. These activities still need to be planned and documented. An example is a requirement in IES 8 to ‘evaluate whether an entity has prepared, in all material respects, financial statements in accordance with the applicable financial reporting framework…’. It will be necessary to cross-reference the performance of this activity to a specific audit.
Records of audit CPD need to be maintained for six years.
An excel spreadsheet is available from aidan.clifford@accaglobal.com, which lists the requirements of IES 8, allows space to document an audit CPD plan and includes an easy cross-referencing to a member’s main CPD records where the learning activity is documented. One spreadsheet is required for each calendar year.
Check out ACCA's CPD hub for more resources.
Reporting errors
The Corporate Enforcement Authority (previously the office of the Director of Corporate Enforcement) has published a list of the most common Category 2 offence reports by auditors.
It should be noted that the ‘Entity financial statements’ category refers to an error being discovered in a prior year’s financial statements. This sort of report arises most frequently when there is a change in auditor and can arise where the incoming auditor has a different interpretation of the requirements of an accounting standard and encourages the directors to make a prior year adjustment.
The Corporate Enforcement Authority notes that entity financial statements reports are usually dealt with administratively and would not normally result in a prosecution.
Audit quality
The Financial Reporting Council (FRC) has published its annual inspection and supervision results of the largest UK audit firms (BDO, Deloitte, EY, Grant Thornton, KPMG, Mazars and PwC). Overall, 75% of audits inspected were good or required limited improvement (compared to 71% in 2021 and 67% in 2020).
The findings have some learnings for Ireland, with matters such as the audit of revenue, the audit testing of journals, a culture of challenge, the audit of going concern and the risk of management control override, and the audit of estimates being mentioned as arising on Irish quality inspections conducted by IAASA.
There is an opportunity for smaller firms to specialise in audit
FRC gave quite detailed reviews of each firm’s file inspections and provided a summary and podcast presentation on the outcomes at this link.
Whereas previously audit has been viewed as at best barely profitable, the situation is changing. The IAASA statistics show a year-on-year reduction in the number of auditors in Ireland and, anecdotally, members are reporting a substantial increase in the fees charged for an audit; upwards of 20% year on year.
The fee increase has been caused by a reduction in the number of auditors in the market and some of the bigger Irish accounting practices are declining new or resigning existing audit appointments due to staffing shortages or due to the independence requirements of the revised ethical rules.
Therefore, there is an opportunity for smaller firms to specialise in audit, and reviewing the monitoring visit outcomes in the larger firms is a good place to start developing that specialisation.
Review of enforcement activities against UK auditors
The Financial Reporting Council (FRC) has published its Annual Enforcement Review 2022. The report identifies those financial sanctions amounting to £46.5m (before early settlement discount) that were imposed in the year ended 31 March 2022 arising from 13 cases.
The matters giving rise to the sanctions were:
- lack of audit evidence
- lack of professional scepticism
- inadequate audit documentation
- auditing estimates and judgements
- long-term contract accounting and auditing
- the audit and accounting for goodwill
- the audit of supplier rebates
- scrutinising documents and challenging management explanations
- compliance with law and regulation.
The remedial action required to be implemented usually involved undertaking a root cause analysis, hot file reviews, training and updating a firm’s audit methodology.
