On 18 July 2012 the Financial Reporting Council (FRC) published the annual report as prepared by the Professional Oversight Board (“the Oversight Board”) to 31 March 2012. A full copy of the Annual report can be downloaded at Professional Oversight Board Annual Report 2012.
The Professional Oversight Board was established in 2004 as part of the reformed. This FRC introduced independent statutory oversight over the regulation of auditors by recognised professional bodies.
Role of the Oversight Board
The Oversight Board is responsible for the oversight of Registered Supervisory Bodies (RSBs) and Recognised Qualifying Bodies (RQBs), including:
- Association of Chartered Certified Accountants (ACCA);
- Institute of Chartered Accountants in England and Wales (ICAEW);
- Chartered Accountants Ireland (CAI);
- Institute of Chartered Accountants of Scotland (ICAS);
- Association of Authorised Public Accountants (AAPA); and
- Association of International Accountants (AIA)
The principle responsibilities of the Oversight Board are:
- Statutory oversight of the audit qualification and the regulation of statutory auditors by recognised professional bodies;
- Direct Inspection, by the Audit Inspection Unit, of the quality of statutory audits of public interest entities;
- Non-statutory independent oversight of the regulation of actuaries by the Actuarial profession;
- As the Independent Supervisor of Auditors General, for the purpose of the Companies Act, 2006; and
- Non-statutory independent oversight over the regulation of accountants by the six chartered accountancy bodies.
One area of focus for the Oversight Board is the monitoring of supervisory and qualifying bodies for statutory audit. In the year ended 31 March 2012 the Oversight Board reviewed five of the six recognised bodies listed above to test how they had applied regulatory requirements in practice.
Through its review process it examined approximately 150 completed audit monitoring visits.
The key recommendations of the Oversight Board were to:
- Encourage each body to maximise the effectiveness of its audit monitoring visits and reports to individual firms. The Oversight Board is concerned that follow up visits, which suggest continuing poor audit practice, are not always as effective as they should be;
- Recommend that examinations provide a sufficiently rigorous test of audit knowledge and of the practical application of that knowledge; and
- Recommend that each body monitors member’s CPD with a view to ensuring that members undertake CPD which is effective in maintaining competence.
One of the recommendations of the Oversight Board is that each body prepares a three year plan to raise audit quality designed to identify the issues underlying the results of monitoring.
Particular mention is given within the report to Chartered Accountants Ireland, through the Chartered Accountants Regulatory Board (CARB) and the statutory obligation to inspect all audit firms undertaking audit work in the UK at least once in six years. This is a requirement since June 2008 in the UK and May 2010 in ROI due to later implementation of the Statutory Audit Directive (SAD) in Ireland. Since mid 2010 CARB resources have been engaged on the review of the audits of certain financial institutions in the Republic of Ireland and this is not expected to be complete until the second half of 2012. As a result to meets its statutory visit obligation on audit firms with UK audits, CARB will be expected to visit and report on approximately 100 firms in 2012 and 115 in 2013 with UK audits.
What this means for your firm?
It is expected that regulating bodies will review CPD, in particular output basis CPD, with a view to assessing the learning outcomes and benefits and contribution to maintaining competence. Also, if your audit firm conducts UK audits and you have not received a monitoring visit to date you can expect to be listed for a monitoring visit in the next 18 months.
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