Change of Audit Regulations in the UK and the Republic of Ireland - Research Paper Example

Change of Audit Regulations in the UK and the Republic of Ireland ID 19714 Order No. 269208 27 January 2009 Table of Contents: It was a smart thought & move by the APB to engage closely with the IAASB to support their "Clarity Project". APB anticipated that at some stage the statutory audit directives of European Council shall adopt the outcome of the "Clarity Project" of IAASB which would finally be implied upon the Government of UK to adopt by modifying existing laws or introducing new laws. This was anticipated as a major change in UK auditing system and may increase time & cost of implementation if APB is not involved proactively with the IAASB. With this understanding APB engaged with IAASB proactively to help them in their "Clarity Project" thereby completely stopping the release of their own versions of standards except for the ones required by the local laws & regulations. By doing so, APB completely fine-tuned their thought process towards the expected outcomes of the IAASB clarity project such that they can influence the outcomes of the project to ensure that they are in the interest of United Kingdom & Republic of Ireland. In this context they are also issuing proactive consultation papers to the Government of UK such that the country can be prepared for the forthcoming changes much in advance. This will ensure faster & cost effective implementation of European Council directives post completion of IAASB clarity project and adoption of the new standards by the entire Europe. This process shall not only enable the branding of APB as an active contributor to evolution of global best practices (which has always been the Key Result Area of United Kingdom - given that British Standards Institution is the founder member of ISO and the majority of ISO standards popular globally are originally designed by BSI) in the area of auditing but also will demonstrate the commitment of United Kingdom towards adoption of standards that are evolving globally. [Morris, David. 2007; http://www.frc.org.uk/apb/publications/pub1281.html] 8 Directive on statutory audit. European Commission. Retrieved on 27 January 2009. Available at http://ec.europa.eu/internal_market/auditing/directives/index_en.htm. 9 IAASB Clarity Project - Background and Current Status. The Auditing Practices Board. Retrieved on 27 January 2009. Available at http://www.frc.org.uk/apb/publications/pub1281.html 10 Morris, David. Should you care about the IAASB Clarity Project. Retrieved on 27 January 2009. Available at http://www.allbusiness.com/finance-insurance/4497620-1.html. Financial Executive. 2007. 10 Introduction: The Auditing system in United Kingdom and the Republic of Ireland is a well controlled & governed framework as per the guidelines published by The Auditing Practices Board (APB) which is currently a part of Financial Reporting Council (FRC). Auditing Practices Board, UK is the leading organization in development of auditing practices in the United Kingdom and the Republic of Ireland. The primary objectives of APB is to establish high standards of financial auditing, assess & meet the continuously developing need of end users of the financial information and to achieve confidence of the public in the auditing process of the nation. The Financial Reporting Council (FRC) is established primarily to support the confidence of investors, the market and the general public in the financials & corporate governance of listed companies & such other entities. FRC is accountable to monitor, enforce & govern compliance to the auditing standards developed and published by APB. APB supports FRC by setting high quality standards & guidelines to achieve high performance of external audits by external auditors by virtue of their independence, objectivity and integrity. APB is also accountable to enhance the public understanding of the roles & responsibilities of external auditors. APB is also accountable for recommending essential changes in the audit regulations which are later communicated via their free newsletters published through their website. Looking back in the History, UK Auditing Standards were originally developed by the Accounting Practices Committee (APC) that were established in 1976 and were in operation till 1991. In 1991, the Consultative Committee of Accountancy Bodies (CCAB) established the Auditing Practices Board (APB) that took over the accountability to develop & publish the Auditing Standards of UK and Republic of Ireland. APB was taken over by the Financial Reporting Council (FRC) in 2004 such that it became a subsidiary board of the FRC. Since December 2004, after FRC has taken over APB, the audit standards in UK & Republic of Ireland are being adopted from the consultation by International Auditing and Assurance Standards Board (IAASB). The Standards thus published are the International Standards modified to be applied in UK & Ireland and hence are named as ISA (UK & Ireland). [Institute of Chartered Accountants in England and Wales (ICAEW). 2008; http://www.frc.org.uk/apb/about/.] Analysis of Change in Audit Regulations Audit regulations in UK are governed by "The Account and Audit (England) Regulations, 2003 & the subsequent amendments made in 2006 and the Companies Act 2006. The laws in these regulations reflect the European (EU) Company Law Directives. Adoption of International Standards of Auditing (ISAs) issued by IAASB throughout Europe is the latest requirement of the European Council's Statutory Audit Directive in June 2006. APB updates the ISA (UK and Ireland) standards and related Bulletins in line with changes in law and regulations arising primarily from the Companies Act 2006 which in turn is influenced by the directives issued by the European Council. The current challenge faced by the Government of UK is to devise the methodology to implement the various audit provisions required by the European Union's Eighth Directive. Once the directives take shape as laws in the UK, it is the responsibility of APB to modify the International Standards of Auditing (UK & Ireland) standards published through the website of FRC. Once published, the accountability of governance & compliance of external auditing as per the modified standards lies with FRC. The communication to all Auditors & Chief Executives of the companies pertaining to the modified standards is carried out through the newsletters published on the FRC website and the latest standard documents are made available for downloading. The modified clauses within the standards are highlighted with the ones adopted that are basic & essential principles are presented in bold letters. To present a bigger picture of the activities by APB, the "Yearly Review of Activities" is published by APB through the FRC website. Overall, the APB is accountable for the following publications released through the website of FRC and made available in hard copy on requests: (a) Auditing Standards - ISA (UK and Ireland) - details as mentioned above (b) Ethical Standards - These contain the basic principles and essential procedures (identified in bold letters in all the published standards) along with related guidance in the form of explanatory material (c) Standards for Investment Reporting These are basic & essential procedures for the reporting accountants accountable for public reporting of financial information (d) Practice Notes - These are published to help the auditors in application of auditing standards; these are however persuasive and not prescriptive. (e) Bulletins - These are published to extend timely information & guidance to auditors regarding new or emerging issues; these again are persuasive and not prescriptive. (f) Exposure Drafts - These are consultation drafts on specific issues that are open to debate. (g) IAASB Clarity Documents - This is a separate section dedicated to the clarity documents published by IAASB against the IAASB Clarity Project (h) Statements of Standards for Reporting Accountants - This section includes standards for reporting accountants facing the independent auditors (i) Others - This section includes miscellaneous publications as deemed essential by APB (j) Superseded Standards - This section presents an archive of standards that have been superseded by new ones. Recently, APB has increased their involvement with IAASB to contribute to defining the auditing standards at an International level. In this context, APB has successfully responded to exposure drafts issued by the IAASB pertaining to their clarity project. Completion of the clarity project of IAASB is expected to result in adoption of International Standards throughout Europe. APB anticipated this development quite early in this process and hence got actively involved with IAASB rather than issuing own developed standards except for the ones required by the laws & regulations of United Kingdom. Involvement in the bigger picture early during the IAASB developments ensured that APB is able to contribute actively to the evolving International Standards and also able to provide proactive consultation papers to the Government of UK which shall help in better, faster and cost effective adoption of the EC Statutory Audit Directives which anyway is expected to be based on the outcome of the IAASB Clarity Project. The primary objective of IAASB clarity project is to ensure that the ISAs can be better read & understood whereby, each ISA shall have its own overall objective, requirements & application guidelines are presented in separate sections, obligations imposed on the auditors by ISAs are clarified in a better way and ambiguity in non bold text are eliminated. The IAASB expects international adoption of the "clarified ISAs" to begin on or after 15 December 2009. APB is still open on the thought process whether to adopt the "clarified ISA's" as per the time table of IAASB or should wait for the full suite of clarified ISAs to be adopted by Europe. These are expected to be implied on the Government of UK anyways through the forthcoming European Council's Statutory Audit Directives. [The Auditing Practices Board. 2005; Crown. 2006; The Auditing Practices Board. 2009; Morse, Geoffrey. 2007; Fleck, Richard (Chairman APB).2009; http://ec.europa.eu/internal_market/auditing/directives/index_en.htm; Chartered Accountants Regulatory Board. UK. 2008] Conclusions The legal & statutory framework for auditing in UK & Republic of Ireland has been largely influenced by the statutory audit directives issued by the European Council in addition to domestic developments. The Government of UK is accountable to implement appropriate laws in line with the directives (in addition to evolution of audit laws & regulations in line with domestic industry requirements) and the Audit Practices Board is accountable to modify the audit & ethical standards as per the new laws. The European Council's Statutory Audit Directives have been lately (from 2006) supporting adoption of International Standards of Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB). In this context, the APB has published the standards as ISA (UK & Ireland) - which means ISA applicable to UK & Ireland. Once the standards are published by APB, the accountability of their implementation, control and governance lies with the Financial Reporting Council. On the other hand the accountability of clear & precise communication about the changes & modifications of auditing standards to the practicing community of external auditors lies with the APB and the same accountability of communication to Chartered Accountants lies with the Chartered Accountants Regulatory Board. Recommendations (Strictly My Own Views) It was a smart thought & move by the APB to engage closely with the IAASB to support their "Clarity Project". APB anticipated that at some stage the statutory audit directives of European Council shall adopt the outcome of the "Clarity Project" of IAASB which would finally be implied upon the Government of UK to adopt by modifying existing laws or introducing new laws. This was anticipated as a major change in UK auditing system and may increase time & cost of implementation if APB is not involved proactively with the IAASB. With this understanding APB engaged with IAASB proactively to help them in their "Clarity Project" thereby completely stopping the release of their own versions of standards except for the ones required by the local laws & regulations. By doing so, APB completely fine-tuned their thought process towards the expected outcomes of the IAASB clarity project such that they can influence the outcomes of the project to ensure that they are in the interest of United Kingdom & Republic of Ireland. In this context they are also issuing proactive consultation papers to the Government of UK such that the country can be prepared for the forthcoming changes much in advance. This will ensure faster & cost effective implementation of European Council directives post completion of IAASB clarity project and adoption of the new standards by the entire Europe. This process shall not only enable the branding of APB as an active contributor to evolution of global best practices (which has always been the Key Result Area of United Kingdom - given that British Standards Institution is the founder member of ISO and the majority of ISO standards popular globally are originally designed by BSI) in the area of auditing but also will demonstrate the commitment of United Kingdom towards adoption of standards that are evolving globally. [Morris, David. 2007; http://www.frc.org.uk/apb/publications/pub1281.html] Reference List: About the APB. The Auditing Practices Board (Part of Financial Reporting Council Limited). London. Retrieved on 27 January 2009. Available at http://www.frc.org.uk/apb/about/. Audit exempt companies: APB Bulletins. The Auditing Practices Board (Part of Financial Reporting Council Limited). London. 2009. Audit Regulations - Briefing Note For Audits of UK Companies. Chartered Accountants Regulatory Board. UK. 2008. Directive on statutory audit. European Commission. Retrieved on 27 January 2009. Available at http://ec.europa.eu/internal_market/auditing/directives/index_en.htm. Fleck, Richard (Chairman APB). Review of APB Activities 2008. The Auditing Practices Board (Part of Financial Reporting Council Limited). London. 2009. Guidance on the Accounts & Audit Regulations 2003. Department for Communities and Local Government. London. 2006. History and Development of UK Auditing Standards. UK Auditing Standards. Institute of Chartered Accountants in England and Wales (ICAEW). Retrieved on 27 January 2009. Available at http://www.icaew.com/index.cfm/route/156348/icaew_ga/en/Library/Links/Accounting_and_auditing/Auditing/UK_Auditing_Standards IAASB Clarity Project - Background and Current Status. The Auditing Practices Board. Retrieved on 27 January 2009. Available at http://www.frc.org.uk/apb/publications/pub1281.html Morris, David. Should you care about the IAASB Clarity Project. Retrieved on 27 January 2009. Available at http://www.allbusiness.com/finance-insurance/4497620-1.html. Financial Executive. 2007. Morse, Geoffrey. Palmer's Company Law: Annotated Guide to the Companies Act 2006. Sweet & Maxwell, Great Britain. 2007 Publications. The Auditing Practices Board (Part of Financial Reporting Council Limited). London. Retrieved on 27 January 2009. Available at http://www.frc.org.uk/apb/publications/. The Accounts and Audit (Amendment)(England) Regulations 2006. Statutory Instrument 2006 No. 564. Crown. 2006. The APB's Procedures. The Auditing Practices Board (Part of Financial Reporting Council Limited). London. 2005. Read More