APESB and Auditor Independence

Transcription

1 APESB and Auditr Independence Financial Reprting Cuncil Audit Quality Cmmittee 14 May 2014 Channa Wijesinghe MBA, FCPA, FCA Technical Directr Overview Rle f the Accunting Prfessinal & Ethical Standards Bard (APESB) APESB Prnuncements t date Auditr Independence requirements APESB s amendments t the IESBA Cde Definitin f Public Interest Entity (PIE) SMSFs and referral fees Prhibitin f accunting, bkkeeping, taxatin services t PIEs and direct assistance by internal auditrs 2 1

2 Overview (cnt.) Recent IESBA amendments incrprated in the Cde Breaches f the Cde Cnflicts f Interest Current IESBA prjects in respect f auditr Independence requirements Mre infrmatin 3 Rle f the Accunting Prfessinal & Ethical Standards Bard (APESB) Established in February 2006 by CPA Australia and ICAA. The IPA jined later that year. APESB is an independent, natinal bdy that sets the cde f ethics and prfessinal standards by which Members f Australia s three majr prfessinal accunting bdies must abide. T date APESB has released 15 Standards and 3 Guidance Ntes. 4 2

3 APESB Prnuncements t date All Members APES 110 Cde f Ethics fr Prfessinal Accuntants APES 205 Cnfrmity with Accunting Standards APES 210 Cnfrmity with Auditing and Assurance Standards APES 215 Frensic Accunting Services APES 220 Taxatin Services APES 225 Valuatin Services APES 230 Financial Planning Services APES GN 20 Scpe and Extent f Wrk fr Valuatin Services 5 APESB Prnuncements t date Members in Public Practice APES 305 Terms f Engagement APES 310 Dealing with Client Mnies APES 315 Cmpilatin f Financial Infrmatin APES 320 Quality Cntrl fr Firms APES 325 Risk Management fr Firms APES 330 Inslvency Services APES 345 Reprting n Prspective Financial Infrmatin APES 350 Due Diligence Cmmittees APES GN 30 Outsurced Services 6 3

4 APESB Prnuncements t date Members in Business APES GN 40 Ethical Cnflicts in the Wrkplace 7 Auditr Independence requirements Independence requires Auditrs t act with integrity and t exercise bjectivity and prfessinal scepticism. Independence cmprises bth: Independence f mind; and Independence in appearance. Auditrs must nt nly act in an independent manner but they must als be perceived, by an infrmed third party, t be independent. 8 4

5 Auditr Independence requirements The Cde has tw sectins dealing with Auditr Independence: Sectin 290: Independence requirements fr Audit and Review Engagements; and Sectin 291: Independence requirements fr all Other Assurance Engagements. APES 110 revised in December 2010 t align with the IESBA s Cde Key changes t APES 110 in respect f auditr Independence requirements were: Auditr independence requirements extended frm Listed Entities t audits f all Public Interest Entities (PIEs) 9 Auditr Independence requirements Mandatry Partner rtatin requirements fr audits f PIEs Extended frm Engagement Partner and Engagement Quality Cntrl Review Partner t all Key Audit Partners i.e.» Engagement Partner» Quality Cntrl Review Partner» Other Partners respnsible fr key decisins r judgments n the Audit Engagement Key Audit Partner rtatin required after 7 years and time-ut f 2 years» An exemptin available where there are nly a few peple with knwledge & skill t serve as a Key Audit Partner;» Independent regulatr has prvided an exemptin; and» Independent regulatr has prvided safeguards. 10 5

6 Auditr Independence requirements Refer t Chapter 8 f JAB Independence Guide fr mre infrmatin n Auditr Rtatin Requirements The Act* 5-year rtatin rules (Listed Entities) The Cde 7-year rtatin rule (Public Interest Entities) Fr listed entities, the Crpratins Act cntinues t apply the mre restrictive 5-year rtatin rules t individuals wh play a significant rle (i.e. Lead Auditr and Review Auditr as defined in Sectin 324 AF) in the audit. Recent amendments t the Crpratins Act has resulted in a 2-year extensin t the general 5-year perid with the specific apprval f the Audit Cmmittee. The Cde has established a 7-year rtatin rule that applies t all Key Audit Partners f audits and reviews f Public Interest Entities. The new definitins f Public Interest Entity and Key Audit Partner will have the effect f expanding the rtatin requirements t include additinal partners wh make significant judgements n an Audit Engagement f a Listed entity and als apply t unlisted entities which are nw classified as PIEs. 11 Auditr Independence requirements Mandatry cling ff perid fr a Key Audit Partner befre jining frmer Audit Client that is a PIE as a: Directr; Officer; r Emplyee with significant influence ver accunting recrds r Financial Statements Cling ff perid: Senir r managing Partner = 1 year Key Audit Partner = 1 audit pinin cvering 12 mnths 12 6

7 Auditr Independence requirements Additinal requirements and guidance n prvisin n internal audit services t Audit Clients Additinal requirements and guidance n prviding ther services t Assurance Clients n a Cntingent Fee basis Relative size f fees - where ttal fees frm a PIE Audit Client and its related entities exceed 15% f ttal fees f the Firm fr tw cnsecutive years: Pre-issuance review required; r Pst-issuance review required; and Must be perfrmed by a prfessinal accuntant wh is nt a member f the Firm 13 Auditr Independence requirements Partner cmpensatin and evaluatin - Evaluatin r cmpensatin based n Key Audit Partner s success in selling nn-assurance services t Audit Clients is prhibited - Cmpensating r evaluating ther members f the audit team fr selling nn-assurance services may als create a threat 14 7

8 Auditr Independence requirements Management respnsibilities A Firm shall nt perfrm management functins fr an Audit Client Management functins: Leading and directing an entity, including making significant decisins regarding the acquisitin, deplyment and cntrl f human, financial, physical and intangible resurces When prviding nn-assurance services management is respnsible fr: Making the significant decisins and judgements; and Accepting respnsibility fr the actins t be taken as the result f the service. 15 Auditr Independence requirements Valuatin Services Nn-public interest entities Cannt prvide valuatins services that are material and invlve significant subjectivity Public Interest Entities Cannt prvide valuatin services if it wuld have a material effect, separately r in the aggregate, n the financial statements 16 8

9 Auditr Independence requirements Crprate Finance Services Auditr Shall nt prvide services when Effectiveness f advice depends n a particular accunting treatment Advice is material Reasnable dubt as t apprpriateness f accunting treatment 17 Auditr Independence requirements Tax Planning and Other Advisry Services Self-review threat may be created when advice affects matters reflected in the financial statements. Assistance in Reslutin f Tax Disputes Advcacy threat may be created when a Firm represents an Audit Client in reslutin f a tax dispute If services invlve acting as an advcate fr an Audit Client befre a public tribunal r curt in the reslutin f a tax matter and the amunts are material t the financial statements the threat created wuld be t significant 18 9

10 APESB s amendments t the IESBA Cde - Public Interest Entities (PIEs) APESB issued an amending standard in 2011 t incrprate what cnstitutes a Public Interest Entity (PIE) in the Australian cntext. Stricter Independence requirements f the Cde apply t PIEs Public Interest Entity is defined as: A Listed Entity; r An entity (a) defined by regulatin r legislatin as a public interest entity r (b) fr which the audit is required by regulatin r legislatin t be cnducted in cmpliance with the same Independence requirements that apply t the audit f Listed Entities. Such regulatin may be prmulgated by any relevant regulatr, including an audit regulatr. 19 APESB s amendments t the IESBA Cde - Public Interest Entities (PIEs) Additinal AUST paragraph added t the Cde t specify the type f entities that are likely t be classified as PIEs: Authrised depsit-taking institutins (ADIs) and authrised nn-perating hlding cmpanies (NOHCs) regulated by the Australian Prudential Regulatry Authrity (APRA) under the Banking Act 1959; Authrised insurers and authrised NOHCs regulated by APRA under Sectin 122 f the Insurance Act 1973; Life insurance cmpanies and registered NOHCs regulated by APRA under the Life Insurance Act 1995; Disclsing entities as defined in Sectin 111AC f the Crpratins Act 2001; Registrable superannuatin entity (RSE) licensees, and RSEs under their trusteeship that have five r mre members, regulated by APRA under the Superannuatin Industry (Supervisin) Act 1993; and Other issuers f debt and equity instruments t the public

11 APESB s amendments t the IESBA Cde - SMSF and multiple referrals APES 110 revised in May 2013 t address fee dependence risk identified in the Self Managed Superannuatin Fund (SMSF) sectr Key change t APES 110 in respect f auditr Independence requirements is a new AUST paragraph (AUST ) t address circumstances where auditrs may be receiving multiple referrals frm a single surce. Where ttal fees in respect f multiple Audit Clients represent a large prprtin f ttal fees f the Firm this intrduces a selfinterest and intimidatin threat The significance f threat is t be evaluated and safeguards applied 21 Prhibitin f accunting, bkkeeping, taxatin services t PIEs and direct assistance by internal auditrs Prvisin f accunting and bkkeeping services and preparatin f tax calculatins fr Audit Clients which are Public Interest Entities are prhibited even in emergency situatins APESB wrked with AUASB t prhibit internal auditrs prviding direct assistance t external auditrs in Australia by amending the definitin f Engagement Team in the Cde 22 11

12 Applicable independence standards 23 Recent IESBA amendments incrprated in the Cde Breaches f the Cde APES 110 revised in Nvember 2013 in accrdance with the IESBA s revisin f their Cde t address breaches f the Cde Key changes t APES 110 in respect f auditr Independence requirements: Terminate, suspend, r eliminate the interest r relatinship that caused the breach f the Cde; Evaluate the significance f the breach and determine whether actin can be taken and is apprpriate in the circumstances t satisfactrily address the breach f the Cde; 24 12

13 Recent IESBA amendments incrprated in the Cde Cmmunicate all breaches with Thse Charged with Gvernance; Dcument, amng ther matters, the actin taken, and all the matters discussed with Thse Charged with Gvernance. Amendments t the definitin f Thse Charged with Gvernance. 25 Recent IESBA amendments incrprated in the Cde Cnflicts f interest APES 110 revised in Nvember 2013 in accrdance with the IESBA s revisin f their Cde t prvide mre cmprehensive guidance in identifying, evaluating and managing cnflicts f interest: Sectin 220 fr Members in Public Practice; and Sectin 310 fr Members in Business

14 Current IESBA prjects in respect f auditr Independence requirements IESBA is undertaking a number f prjects that are likely t impact auditr Independence requirements: Lng Assciatin f Senir Persnnel (Including Partner Rtatin) with an Audit Client prject is fcussed n recnsidering and enhancing the prvisins n lng assciatin f senir persnnel IESBA is currently debating the mandatry partner rtatin prvisins fr Public Interest Entities (PIEs) and the apprpriate cling ff perid 27 Current IESBA prjects in respect f auditr Independence requirements (cnt.) Nn-Assurance Services prpsed changes t clarify the nn-assurance service prvisins cncerning management respnsibilities clarificatin f the phrase rutine r mechanical as it pertains t the prvisin f accunting and bkkeeping services deletin f emergency exceptin prvisins related t bkkeeping and taxatin services Expsure Draft t be issued in the near future 28 14

15 Mre infrmatin Fr mre infrmatin, Visit: Fr timely updates, fllw the APESB page n LinkedIn 29 Q & A sessin 15