The workshop opened with an update from CFRR staff on recent developments in the regulatory environment for auditing in the EU. This focused on the European Commission’s proposals to amend the Statutory Audit Directive and to introduce a new Regulation on Statutory Audit for public interest entities (PIEs). While the Commission’s proposals to limit audit terms to six years (nine years for joint audits), to prevent audit firms from offering non-audit services to their audit clients and to force large audit companies to separate their audit activities from their non-audit related work would clearly have a major impact on the European audit market, they are not likely to become law quickly and may well be significantly modified during the EU legislative process. As a result, CFRR staff suggested that, although REPARIS countries should monitor the evolution of the Commission’s proposals, they should concentrate on adapting their auditing frameworks to meet the requirements of the current Statutory Audit Directive.
Participants then reviewed the progress that each REPARIS country had made in implementing the provisions of the SAD. Several countries had set up public oversight systems, and some of these bodies were now taking their first operational steps to review auditors’ work. Participants also discussed progress in the three work streams that the Audit and Oversight CoP pursued in 2011: public oversight systems (POS), quality assurance (QA) systems and systems of sanctions and discipline.
On public oversight, Jon Hooper from the UK’s Financial Reporting Council summarized the approaches to setting up public oversight bodies that had been found to be successful in the EU. He emphasized that the way that POBs operated tended to evolve over time: in their initial stages, most POBs were close to government, especially as regards funding and tended to operate indirect systems of oversight. However, as POBs gradually became more established, they became less reliant on government, established their own sources of funding and increased their independence from the audit profession. In addition, they tended to take a more direct role in inspecting the audits of public interest entities.
Participants then saw some extracts from the learning DVD on quality assurance procedures that the CFRR has put together using material gathered at the AOCoP workshop held in March 2011. The DVD, which the CFRR will soon distribute to stakeholders, illustrates how QA reviews are carried out in Croatia and Macedonia. This was supplemented by presentations from Branka Stojanovska from the Institute of Certified Auditors of the Republic of Macedonia (ICARM) on recent developments in ICARM’s approach to QA and from Bosko Vidakovic from the Chamber of Authorized Auditors (KOR) in Serbia on the introduction of QA there. Ms Stojanovska said that ICARM was now well into its second round of QA reviews and, though it had not imposed any sanctions as a result of these reviews, it had made several recommendations to audit firms, focusing on the application of International Standards in Auditing (ISAs) and internal controls. Mr Vidakovic said that the Serbian QA system lay somewhere between the Croatian and Macedonian systems and had drawn on previous Hungarian experience. The first QA meetings with firms would take place over the next few weeks and, as in other countries setting up QA systems, the initial focus was on helping firms to improve their performance rather than imposing sanctions. However, following the release of the Chamber’s plans for carrying out QA reviews, several firms have already announced that they would no longer be carrying out audits.
Lulzim Zeka from the Society of Certified Accountants and Auditors of Kosovo (SCAAK) and Ranjan Ganguli from the CFRR compared the systems of investigations and discipline (I&D) in six current EU member states (Austria, Denmark, France, Germany, Lithuania, Slovenia and the UK). They found that in four of the six countries initial responsibility for I&D lay with the professional bodies; only in France and Denmark did the professional bodies play no role in I&D. Countries varied in the types of sanctions imposed – some (for example, Austria) imposed financial fines for less serious offences, while others put more emphasis on direct interventions (warnings, reprimands, temporary suspensions). However, all the systems used permanent removal from the list of authorized auditors as the punishment for serious breaches.
At the end of the workshop’s first day, Alex Fawcett from the CFRR commented on the main points that had emerged. In particular, he stressed that the cost of QA systems, which would ultimately be borne by the audit client, needed to taken into account when the systems were being designed.
The second day of the workshop was devoted to issues of building auditors capacity and, in particular, the education of auditors. Staff from the CFRR opened the discussion by presenting the educational requirements set by the SAD and the guidance for audit education provided by the IAESB’s educational standards, and especially the audit education standard (IES 8). The presentation highlighted the changes to IES reflected in the IAESB’s current Exposure Drafts and encouraged users to reflect on the responses to the ED from national accountancy organizations as an indicator of how much change was likely to take place. The European Commission’s “single passport” for auditors seeks to increase the ability of auditors from one member state to carry out audits in another member state and implies a greater commonality in audit qualification systems. These developments are part of a general trend to reduce artificial barriers to the movement of audit professionals in Europe. Similarly, the IAASB was revising the system of IES to reduce the barriers to becoming an accountant or auditor and to replace some “input”-based requirements (such as a minimum period of study) with “output”-based requirements (such as practical assessments). One implication for the REPARIS countries is that, with increasing mutual recognition of qualifications in Europe, it is sensible to take a common approach across the region to curriculum design. In addition, the role of universities in educating accountants and auditors is currently less developed in the REPARIS countries than in the EU members; this provides an opportunity for the universities.
The role of universities was explored further in the next presentation, in which Lejla Begtasevic from the CFRR compared the coverage of first degrees in accounting and auditing at three universities in the region (Zagreb, Sarajevo and Belgrade) with the requirements of the SAD and the guidance provided by IES. She found that there was considerable variation in coverage but that advanced courses in financial reporting and auditing were not offered at this level in any of the three institutions. Indeed in Zagreb, only a third of the educational requirements of the SAD were covered in first degree courses. However, Ivan Cevizovic from Zagreb University pointed out that these topics were covered in masters-level courses. 90% of their students went on to take such courses and Croatia was moving towards a system in which a masters-level qualification was a requirement to become an auditor.
Ardiana Bunjaku from SCAAK and IFAC’s Professional Accountancy Organisation Development Committee then discussed some of the practical problems that Kosovo had faced in modernizing audit education. These included difficulties in getting the universities to modify courses to meet current market requirements and funding the provision of up to date teaching materials. In response, SCAAK had taken on the challenge of organizing audit education itself, working together with a private education provider (BPP) to offer fee-based courses meeting SAD requirements and IFAC guidelines.
To complement this, Jan Tyl from the CFRR described how, as part of the FRTAP program, the CFRR was supporting the training of auditors in the Czech Republic and Poland on clarified ISAs. In the Czech Republic, ISAs had been adopted by the audit chamber, while in Poland, there were separate national audit standards. As a result, Polish auditors were much less familiar with the content of ISAs. This meant that the courses had a strong technical content in the Czech Republic but were more directed to the fundamentals of auditing in Poland. In both countries, the focus of the courses was on training auditors from small and medium practices.
Jacques Potdevin, Bernard Paris and Herve Puteaux from JPA International described the systems of regulation and education of auditors in France, comparing it with the systems in Germany, the UK, and the US. They also discussed how the approach to auditing had been adopted in France to meet the particular needs of SMEs, while still maintaining the principle that “an audit is an audit”. This involved a national standard for auditing small enterprises (providing they fulfilled certain conditions) and a toolkit, which was fully compliant with ISAs, to help auditors carry out audits of such firms.
The final sessions of the workshop were devoted to discussing this year’s plans for the REPARIS program and, in particular, the activities of the EduCoP and the CFRCoP. These include a Train the trainers course on auditing and ISAs as well as several workshops and GDLN sessions. The main event of the year would be the REPARIS Ministerial Conference to be held on May 31 in Vienna.