Quinta-feira, 26 de Novembro de 2015
Creating an Optimized Environment for Audit Quality
by Monica Foerster, Deputy Chair, IFAC SMP Committee and Rogério Garcia, Technical Director, IBRACON
Tamanho do Texto: a A
The business environment around the globe is in constant change and getting more and more complex almost on a daily basis. Auditors have been challenged by regulators and other stakeholders to demonstrate that they can keep pace with such changes while maintaining a high level of quality in their work. While initiatives taken by auditors are essential on the path to enhancing audit quality, external factors also play an important role. An analysis as to how to enhance audit quality should consider a holistic view that includes auditors, preparers, other market participants, and regulators.
First, we need to step back and understand the quality of education in a country. Colleges and universities are the backbone of an appropriate professional education. The quality of their educational programs will drive the quality of professionals entering the market as accountants in business (preparers) or auditors in the future. Afterwards, effective continuous education programs for preparers and auditors are key to keeping those professionals up to date with relevant changes in rules and regulations. For many years, the continuing education program in Brazil was focused on auditors only. However, more recently, the Federal Accounting Council (CFC) has taken a significant step forward by requiring preparers of larger entities, regulated entities, and listed entities to obtain a minimum number of training hours starting in 2016 on an annual basis.
Companies can also contribute to audit quality by having a robust corporate governance structure. The adoption of an ethical culture within the organization, as well as a recruitment and training policy for employees, especially those involved directly or indirectly in key internal control and financial reporting processes, is critical. These factors contribute to improving the quality of information prepared by the entity, which directly affects the evaluation of, nature, extent, and timing of audit procedures. The Audit Committee is also a valuable tool for improving interactions between the entity´s governing bodies and the auditor, supervising the financial reporting activities, and the work of auditors.
Internally, audit firms of different sizes, including small- and medium-sized practices (SMPs), in Brazil have been continually investing time and resources to enhancing audit quality. ISA™ and ISQC™ 1, which are the International Standards on Auditing™ and International Standard on Quality Control™ developed exclusively by the International Auditing and Assurance Standards Board®, are required by all audit firms in Brazil—contributing to an improvement in process for firms of all sizes.
This continuous improvement process is affected directly or indirectly by several factors, such as:
a) Markets: Due to the increasing complexity of transactions and constant development of new technologies, auditors need to consider a wide range of specialists to address specific risks, such as information technology, valuation, actuarial, forensic, and financial instruments, just to name a few. For this reason, nowadays, auditors are required to have not only technical skills to adequately perform the audit but also the ability to effectively coordinate the work of all those specialists due to the fact that the auditor retains ultimate responsibility for the work performed by them when the audit report is issued;
b) Internal and external inspections: Regulators are more active, connected, and collaborative (e.g., formation of the International Forum of Independent Audit Regulators) and have expectations regarding systems of audit quality control, regardless of the size of the firm. External inspections performed by regulators, then, tend to be more focused, consistent, and with common goals. For this reason, it is essential that auditors devote appropriate time to analyzing the deficiencies identified in internal and external inspections in order to properly identify their actual root causes. By developing a structured and adequate process to getting to the root causes of deficiencies, audit firms will be able not only to resolve the specific findings identified in the inspection but also to minimize the risk of finding other potential deficiencies in the firm´s audit processes.
c) Litigation: An environment with a higher risk of litigation is an additional ingredient that can influence an audit firm´s capacity to develop and retain talent. Some jurisdictions are currently more litigious than in the recent past, which can result in fewer professionals being interested in entering in or building a career that may last for more than twenty years in that jurisdiction. Ultimately, this can have a negative impact on the ability of such firms to attract and retain talent (a recent Gateway viewpoint sees this as a major challenge for the profession).
d) Mandatory firm rotation (MFR): Many countries are considering or implementing rules imposing MFR, which brings more complexity to the objective of enhancing audit quality. Such requirements may result in severe consequences to the profession in the medium and long term, including the ability of an audit firm to specialize in certain industries (especially in emerging markets), the career of professionals who devote years of experience to better understanding the industry and the related risks of entities subject to rotation, and the ability of the audit firm to attract and retain talent. Further, it may have a significant impact on a firm´s decision to invest in technology.
e) Laws and regulations: In Brazil, the enactment of law 12683 included auditors in the list of “obliged persons” to report suspected acts and evidence that can be configured as money laundering crimes and concealment of assets, rights, and values identified in the course of their audit work. Other countries also have similar requirements for auditors. Although the law definitely contributes to a more ethical business environment, auditors are required to develop a robust internal process to ensure that communications to authorities occur on a timely basis (24 hours when the auditor concludes that there is a suspected act). Failure to comply with such law may result in significant damage to the audit firm, including, but not limited to, monetary penalties.
The Institute of Independent Auditors of Brazil (IBRACON), together with other market participants and regulators, has worked on several initiatives with the objective of contributing to audit quality in firms of different sizes, which are periodically disseminated to all its members through training, roundtable discussions, and issuance of technical communications.
Some of these key initiatives are:
a) Discussion forums: The structure of the institute includes working groups specialized in certain industries (e.g., financial institutions, real estate, agribusiness, insurance, energy, SMPs, etc.). These working groups meet regularly with the objective of discussing emerging issues that may have a pervasive impact on the profession. Regulators and other industry representatives are often invited to participate in the discussions, which result in more robust and comprehensive analysis of the issues included in the agenda of the institute. There is a special focus on SMP activities, including the quality of their services;
b) Training programs for university professors: Since 2008 through a project partially funded by the Inter-American Development Bank to contribute to the convergence of Brazilian accounting practices with international standards, IBRACON has been providing a complete online training for university professors. The program aims to reach at least one professor at each university in Brazil that provides undergraduate degree programs in accounting sciences. This online training is free of charge, covering modules on how to prepare classes on International Financial Reporting Standards (IFRS) and ISA. After completion of the training, professors are also entitled to updates deployed in the training platform. More than 500 teachers have already completed such training, which will positively affect future generations of accountants and auditors in Brazil.
c) Support for SMPs: The institute also believes that all of its members, regardless of their size, should have equal access to information. The institute take specific actions to provide SMPs with training and tools that contribute to their engagement performance, including practical guidance in quality control and in performing audits of lower complexity.
Enhancing audit quality should be a constant goal for all market participants. The capital market has changed significantly in the past decade and the audit profession remains an important vehicle for increasing users’ confidence in financial information. IBRACON is proud to contribute in this process in Brazil and will continue to welcome any initiative that can support our professionals in fulfilling our responsibility to serve the capital markets.
See audit implementation and related resources, on the Resources tab.
Monica Foerster is the Deputy Chair of the IFAC Small and Medium Practices Committee. She is also the SMP Director of the Brazil Ibracon and coordinator of the SMP WorkGroup at Ibracon. Monica is the coordinator of the Committee of Audit Studies (“Comissão de Estudos de Auditoria”) from the Accounting Council (CRCRS). She holds an MBA in financial management, controllership and audit from the FGV – Fundação Getúlio Vargas, Brazil, and a degree in accounting from the Universidade Federal do Rio Grande do Sul – UFRGS, Brazil.
Rogério Garcia is the technical director of the Brazilian Institute of Independent Auditors (IBRACON) for the 2015-2017 term. He is also a partner at KPMG Brazil and has been working in the profession since 1997. He has experience in audit engagement and capital markets related engagements. Rogério has worked in the department of professional practice at KPMG New York and KPMG Sao Paulo in consultations involving auditing and accounting issues and risk management.