Private: IFIAR’s 8th Inspection Workshop

Workshop Information

IFIAR’s 8th Inspection Workshop
10 – 12 March 2014
Kuala Lumpur, Malaysia

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08:00 – 09:00 Coffee and Registration
09:00 – 17:15 Workshop (13:00 – 14:00 Lunch)
  • The keynote speaker at the beginning of the Inspection Workshop is Mr. Alex Ng, Chief Investment Officer, Asia Pacific of BNP Paribas Investment Partners, Hong Kong. In his keynote speech, Mr. Ng will provide an overview of the current macroeconomic situation and what the future might hold.
  • The keynote speech will be followed by a Q&A session with the keynote speaker.
  • IFIAR Officers will provide an overview of the results of a second annual global survey conducted by IFIAR in 2013 in relation to findings from IFIAR Members’ inspections, following a first survey in 2012.
  • This will be followed by a Q&A Session.
  • Mr. Brian Hunt, CEO of CPAB (Canada) and Chair of the Global Public Policy Committee (GPPC) Working Group, will give an update on specific topics from the agenda of the GPPC Working Group. The GPPC Working Group serves as a platform for exchange of information and the dialogue between the IFIAR membership and the six largest global networks of audit firms that are members of the GPPC.
  • At the end of the day, a session on risk-based inspection approach will provide an overview of the components of a risk-based inspection program and discuss the key aspects, including inputs and outputs, of a thorough risk assessment process. Areas of focus will include the use of macroeconomic data, market and industry analysis, as well as the identification of company specific risk factors.
19:00 – 22:00 Dinner
  • Dinner reception is hosted by AOB, SC at Mega View Banquet Deck, Menara Kuala Lumpur. Transportation will be provided.
  • Dress code: Casual
08:30 – 09:00 Coffee
09:00 – 17:30 Workshop (12:45 – 13:45 Lunch)
Break-out Sessions

  • Two break-out sessions will build upon the plenary session discussions from the day before and give participants the opportunity to actively discuss topics in more depth in smaller groups.
  • The first session will be related to specific topics from the agenda of the GPPC Working Group. This will include a discussion on initiatives taken by global networks shared with the GPPC Working Group. Participants will be asked to share their observations on the use of such initiatives in their jurisdictions.
  • This will be followed by a second session which will deal with the issue of a risk-based inspection approach, in particular the use of risk assessment in selecting audit engagements for inspections. The IFIAR core principles for Independent Audit Regulators state that “audit regulators should ensure that a risk-based inspections program is in place”. One component of a risk-based inspections program is the selection of audit engagements and focus areas for inspection. This session will build upon the plenary session discussion by using case studies to facilitate discussion among breakout session participants about the approaches used in different jurisdictions to identify higher risk audit engagements and focus areas including:
    • Using macroeconomic, market and industry analysis to provide context for the risk assessment process.
    • Utilising financial reporting red flags and key risk factors to identify higher risk entities.
    • Analysing firm and engagement information to identify potential quality concerns.

Additionally, the session will address approaches for monitoring and evaluating the effectiveness of the risk assessment process to ensure accountability and drive continual improvement.

Elective Sessions

  • Four parallel sessions selected by participants from among 13 elective topics; a brief description of each elective session is provided below.
DAY 3: ELECTIVE SESSIONS – Wednesday, 12 March 2014
08:30 – 09:00 Coffee
09:00 – 14:00 Workshop (13:00 – 14:00 Lunch)
Elective Sessions

  • Two parallel sessions selected by participants from among 13 elective topics; a brief description of each elective session is provided below.
1. Inspection Issues in Specialised Industries
Certain industries have challenges in the application of accounting and auditing standards resulting in a specialised inspection focus. The session will highlight inspection issues encountered in software revenue recognition, auditor’s reliance on a management expert to estimate reserves in the extractive industries and contract accounting in the heavy equipment manufacturing industry. The session will also highlight areas of inspection focus in these industries and the challenges faced by audit firms.
2. Inspections of Small/Medium-sized Audit Firms
The session will describe issues commonly encountered in inspections of small- and medium-sized audit firms. The discussion will also focus on differences in the inspection approach in the planning and execution of inspections compared to larger audit firms. Additionally, the session’s objective is to address the question of staff allocation to inspections of small- and medium-sized audit firms.
3. Internal Control Testing and the Use of IT Specialists
In a financial statement audit, the auditor must plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement due to error or fraud. The session will identify considerations regarding the testing of internal control for both financial statement audits, as well as for the audits of internal control over financial reporting (as required by PCAOB Auditing Standard No. 5 “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements”). The session will also include considerations for the use of IT specialists and common procedures performed by IT specialists.  In addition, the session will discuss common inspection observations related to IT and internal control.
4. Inspection of Bank Audits (Basic)
This session will provide an overview of the inspection of bank audits. Besides methods to select bank audits, account balances or classes of transactions, the session will provide an overview of specific issues related to bank audits and areas of focus. Furthermore, the session will discuss examples of typical inspection findings. This session is designed for participants with little or no experience in the inspection of bank audits.
4. Inspection of Bank Audits (Advanced)
This session is designed for participants with comprehensive experience in the inspection of bank audits. The session will focus on selected topics and current challenges for inspectors reviewing bank audits reflecting the experience of different IFIAR members and current market developments. To ensure that every participant can participate fully in the debate and exchange experiences and points of views in an active discussion, a set of questions will be circulated in advance for preparation. Two hours have been allocated for this session so that there is sufficient time for an in-depth discussion on each topic covered.
5. Materiality of Inspection Findings and Disciplinary Actions
During this session, case studies will be used to explore different views as to the threshold for considering deficiencies as findings.

Questions addressed will include the following:

  • Should all departures from generally accepted accounting or auditing standards be considered deficiencies and communicated to the firm?
  • Should departures from such professional standards be considered deficiencies only if the inspection team determines that their impact is material or could have been material?
  • In situations where the audit firm did not obtain sufficient appropriate audit evidence at the time the audit firm issued its audit opinion, should it be relevant for the classification of findings if subsequent audit procedures reveal an accounting error?

In addition, the session will address approaches by different IFIAR members regarding disciplinary actions resulting from inspection findings including who initiates disciplinary actions and what the threshold is.

6. Follow-up on Evaluation of Firms’ Action Plans
The audit firm’s system of quality control (“firm-wide review”) and completed audit engagements (“file review”) are the subject of routine inspections. The firm-wide and file reviews may lead to findings and, for some IFIAR members, recommendations or remedial actions that must be implemented by the audit firm. In some cases, where the audit quality deficiencies are pervasive, IFIAR members have requested audit firms to develop more substantive action plans to address these deficiencies with a view to improve audit quality. The initiatives in these action plans need to have both demonstrable and measurable steps. This session will discuss the interactive process between the regulator and the audit firms when developing the plan, and how the plan is monitored and evaluated both by audit firms and regulators.Specific examples will be provided for the actions taken by audit firms to address the culture of the firm, including messages from firm leadership and consultation on audit issues; the experience and expertise of partners and staff, including greater and better use of experts; supervision and review, including increased real time independent quality reviews of engagements; and accountability, including impacts on remuneration of engagement partners, review partners and in some cases the firm leadership for poor audit quality.
7. Inspection Documentation – Requirements, Experiences and Views
This session will explore current documentation standards used by individual IFIAR members. What do inspection teams document? Are inspection teams required to follow any documentation standards, such as a minimum level of detail, or do inspection teams have discretion regarding the documentation prepared and retained? Are work programs/checklists required to be completed and how is the documentation retained? Does the documentation prepared by the inspection team include the audit procedures performed by the audit firm engagement teams, or is the documentation limited to inspection procedures performed? Are inspection procedures only documented if there are findings communicated to the audit firm? What are the pros and cons of different approaches?
8. Thematic Inspections
This session will explore the use of thematic inspections as a tool to identify ranges of practice across the profession in specific areas, including best practice and matters that require improvement. It will include details of the planning, execution and results of certain thematic inspections performed by audit regulators.
9. Second Annual IFIAR Survey on Inspection Observations – Selected Topics 
Building on the overview of the results from the second annual IFIAR survey provided in the plenary session, this session will highlight the most common inspection findings as reported by IFIAR members in this year’s survey and compare and contrast them with results from last year’s survey. The session will also include a discussion of similarities and differences between common findings noted in the survey and findings observed in session attendees’ jurisdictions.
10. Integration of Corporate Reporting Inspections and Audit Quality Inspections
This session will explore different models for how audit inspection teams work with those in their country responsible for the enforcement of financial or corporate reporting requirements. Short presentations will be given by three IFIAR members who have different models and the advantages and drawbacks of each operating model will be explored within the group focussing on the benefits for the audit inspection regime.
11. The UK Model for Reporting to Audit Committees
This session will explore reporting of inspection findings to Audit Committees and the transparent model now adopted by the UK Audit Quality Review team. This model includes grading of individual audits and reporting those grades by individual audit firm, as well as reporting findings and the overall audit grade direct to Audit Committees of companies whose audits have been inspected. The session will be presented by the UK, who will outline some of the challenges faced in implementing the regime, provide example reports to Audit Committees and explain how the reports and future plans for making their contents public aim to stimulate greater competition in the audit market.
12. Fees Charged by Auditors for Non-audit Services: How to Detect Potential Regulatory Risks
Audit fees are generally required to be disclosed by type and nature of service in the financial statements (or in other forms of communication) between “audit”, “audit-related” and “non-audit” services. Non-audit services performed by the auditors may be permissible, restricted or prohibited according to their nature and the rules applicable in the circumstances. Failure to be independent by violating ethics rules, even inadvertently, may result in disciplinary and regulatory actions that may raise financial and reputation issues for the auditors.This session will explore how a review of audit fees during the course of an inspection may identify a breach of independence for auditors and audit firms. Firms with a robust independence work program and a system of pre-approval and consultation with those charged with governance and regulatory bodies may prevent breach of independence for auditors and audit firms. The session will also highlight what type of expertise is required to perform reviews of non-audit services, and why independence should be a systematic focus area when inspecting audit firms.
13. Inspecting the Auditors’ Responsibility Relating to Fraud and Anti-money Laundering
Auditors should have an appropriate level of professional knowledge and experience to avoid material misstatements in the financial statements including misstatement due to fraud. During the course of an inspection, the ordinary role of an inspector is to review the work performed by the auditor, to determine whether the relevant auditing standards have been appropriately applied and whether the conclusions were consistent with the findings of the audit procedures performed.This session will explore the difficulties and challenges of inspecting the auditor’s responsibilities relating to fraud and money-laundering. A critical factor relating to fraud and money-laundering is the exercise of skepticism and professional judgment by the auditor. This is why, apart from the appropriate application of auditing standards, interviews with the auditor on the facts and circumstances relating to fraud should be undertaken. In addition, the inspector should review a firm’s specific fraud and anti-money laundering tools, resources, and training plans.