by John McCarthy Consulting Ltd. | Aug 30, 2023 | News
It is timely to draw auditor’s attention to two important developments that have taken place in the audit arena since the beginning of the year.
Updated Audit Programmes
The first of these are the updated Audit Programmes available from the various, well-known sources. Audit Programmes needed to be updated for important changes made to two audit standards in particular, ISA 315 ‘Identifying and Assessing the Risks of Material Misstatement’ and ISA 240 on ‘The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements’.
Both standards became effective for the audits of accounting periods commencing 15 December 2021 or in practical terms, years ended 31 December 2022.
The audits of these periods have already concluded in many cases, but many are still in progress. Auditors please take note that there are significant additional requirements/changes in emphasis in these standards, especially in ISA 315, which has grown to 106 pages (regardless of the size of entity involved)! Therefore, the need to implement new audit programmes for these audits is imperative. The same applies to specialist audit assignments like charities, multi-unit developments and Central Bank regulated entities, like insurance brokers.
We will be writing more blogs on these changes in the coming months.
ISA 315 IT Controls
One of the significant changes in emphasis in ISA 315 is the additional detail in documentation of IT systems and controls. All audit files, regardless of the size of the audit, need to have sufficient/appropriate evidence on file of testing their internal IT and accounting controls in action.
Where weaknesses are found the implications need to be assessed – for example, weaknesses identified could trigger additional/wider scope audit testing.
Also, management need to be informed, in writing, of significant weaknesses identified and the severity/implications of these weaknesses – see more in ISA 265.
The purpose is to identify areas where there may be a risk of misstatement due to error or fraud.
This will influence the sample sizes and tailoring of the audit programmes.
So the results of controls testing needs to be assessed before progressing to do substantive testing. This is because the results of substantive tests cannot be used, as the scope and extent of these tests cannot be determined until the risk assessment process is complete.
For an easy to implement additional (two page) IT Controls Questionnaire to help document the above process, please click on this link to download immediately for only €60 + VAT.
Please go to our website to see our:
- letters of engagement and similar templates. Please visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
- ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
by John McCarthy Consulting Ltd. | Jun 19, 2023 | News
Sometimes it’s worthwhile learning from significant audit disciplinary cases held by the Financial Reporting Council and in this particular case we are looking at the use of ‘blended’ or ‘average’ materiality as a benchmark. This is especially relevant for all auditors carrying out audits right now.
Using an average of benchmarks, such as
- Turnover;
- Profit before tax; or
- Assets
does not produce an appropriate materiality figure.
The detail of the case is reported here, involving the audit of the Laura Ashley Group for the YE 30 June 2016.
The level set for materiality in this audit, was more than three times the level that the FRC believed was appropriate under the circumstances. Group materiality was calculated by taking an average of:
- 5% of profit before tax (PBT) and
- 5% of revenue (later increased to 2%).
Unfortunately, the benchmark chosen was not appropriate. Revenue was chosen, but, as the Financial Reporting Council commented, ‘It would be extremely unusual for an auditor to use revenue as a materiality benchmark for a retailer’. This is because Laura Ashley was a profit-oriented entity, especially a high-volume low-margin business, and therefore revenue wasn’t the best choice of benchmark.
The calculations carried out produced an initial materiality of £3.5m (13.2% of estimated PBT) which was later increased to £4.3m (16.2% of estimated PBT) during the audit.
This error was compounded by the key matters in the auditors’ report then incorrectly stating both the materiality and the way in which it had been calculated, as a percentage of revenue.
Calculation of materiality can sometimes cause an issue in audits, especially when averages are used to find the figure.
Another problem is where materiality is changed during the audit without clear documentation or justification.
One needs to consider which the important figure is for the client and how the different levels interact. So, for instance here, the turnover figure is far too big to be used to calculate materiality, as errors of below materiality would have a big effect on profit (up to 16.2%) which would clearly be material.
Also relevant here is the (still very relevant) December 2017 Financial Reporting Council Audit Quality Thematic Review on Materiality and ISA (Ireland) 320.
Please go to our website to see our:
- letters of engagement and similar templates. Please visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
- ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
by John McCarthy Consulting Ltd. | Jun 3, 2023 | News
The public consultation by the Department of Enterprise, Trade and Employment on proposals to enhance the Companies Act 2014 officially closes this week at 5:00 PM on Friday 9 June 2023. Submissions are invited from stakeholders and interested parties no later than this date.
There are several areas being consulted upon, which are too many to cover in this blog, but some of them include the:
- Companies (Miscellaneous Provisions) (COVID-19) Act, 2020;
- Corporate Governance;
- Obligations on examiners and interim examiners;
- Provisions to do with enhancing company law administration;
- Investigation of companies affairs by court appointed inspectors on the application of the company;
- Miscellaneous Company law administration matters to do with the Companies Registration Office.
Change the Audit Exemption Rules
In this blog, we want to concentrate on the proposals to change the audit exemption rules.
The proposal is that the audit exemption regime for small and micro companies should be amended to provide for a two-step graduated regime to deal with late filing, rather than automatic loss of audit exemption for two years, under the current rules.
The two step regime would operate as follows:
On the occasion of the first instance of late filing, and there would be no loss of audit exemption.
If there was a further instance of late filing within the following five years, late filing fees would be incurred and the entitlement to audit exemption would be lost for the following two financial years, with the company required to file audited financial statements for these years.
The consultation also includes a potential provision to enhance the deterrent effect for failure to deliver an annual return in time to allow that the court can request a contribution to a charity be made.
Another proposal allows for a strike off a company for failure to file details of the company secretary with the CRO.
There’s also provision to provide additional grounds for involuntary strike-off of companies by permitting the RBO Registrar to request that the CRO strike off a company for its ‘failure to comply with its obligation to file its beneficial owner details with the RBO
Make your voice heard and send your submissions. to the Department by 5:00 PM on 9 June 2023.
Please go to our website to see our:
- Letters of Engagement and similar templates. Please visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
- ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
by John McCarthy Consulting Ltd. | May 19, 2023 | News
One of the biggest problems that people face is that the legislation, which is the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021, does not define the term ‘suspicion’.
When it comes to reporting people that they think may be suspicious they feel that they’re not quite certain whether what they’re feeling is actually a suspicion. The very nature of a suspicion is that it is an emotion and therefore very personal, and it can be difficult to give any hard definitions of the word.
It may be helpful to look at a spectrum of potential definitions of the word, which may range in order of certainty from:
- Curiosity
- Unease
- Doubt
- Concern
- Suspicion
- Belief
- Knowledge
One should also be careful to remember that thanks to the personal nature of suspicion, it doesn’t have to be shared. So just because person X is suspicious doesn’t mean that person Y should also be. And just because person Y is not suspicious doesn’t mean that person A should not be.
For example, you might be uneasy about something that a client does, and so you discuss it with a colleague. The tipping-off offence does not necessarily stop you doing this because it’s only relevant once you know or suspect that a report of money laundering suspicion has been made, and if you do not know or suspect this, you cannot tip off.
After the chat with your colleague, you find that you have now moved up the scale from unease to suspicion. Your colleague, on the other hand, is not worried. It would be very foolish, not to say potentially criminal, of you not to report your suspicion on the basis that your colleague is not suspicious.
You should have confidence in your own interpretation of a situation and not be put off taking the correct action just because no one else seems to share your concerns.
Having a suspicion of money laundering or terrorist financing and not reporting it is a serious offence. The legal obligation is quite simple: if you’re suspicious, you must make a report to your MLRO.
‘if you’re suspicious, you must make a report to your MLRO*’
(From the book ‘Anti-Money Laundering – What You Need to Know UK Banking Edition’ by Susan Grossey (Thinking About Crime Ltd.)’
Please go to our website to see our new ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
We typically tailor training and brainstorming sessions to suit your firm’s unique requirements.
Publications and AML webinars:
- The ISQM TOOLKIT 2022 is available to purchase here.
- See our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- Also we have an updated AML webinar (March 2022) available here, which accompanies the AML Manual. It explains the current legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- To ensure your letters of engagement and similar templates are up to date visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
by John McCarthy Consulting Ltd. | May 6, 2023 | News
It is often difficult to verify the authenticity of client identity documents for anti-money laundering purposes. This becomes even more difficult when the client concerned lives overseas.
Did you know that the European Union has created a website called the ‘Public Register of Authentic Identity and Travel Documents Online’ (PRADO)? The website allows one to check examples of identification documents specific to different countries around the world.
The site contains screenshots of documents such as passports and driving licences specific to different countries and gives you an idea of what you are looking at and whether it is a valid document for that country.
The link to PRADO is here.
Please go to our website to see our new ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
We typically tailor training and brainstorming sessions to suit your firm’s unique requirements.
Publications and AML webinars:
- The ISQM TOOLKIT 2022 is available to purchase here.
- See our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- Also we have an updated AML webinar (March 2022) available here, which accompanies the AML Manual. It explains the current legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- To ensure your letters of engagement and similar templates are up to date visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
by John McCarthy Consulting Ltd. | Apr 28, 2023 | News
Following on from our earlier blogs on 11 April and 18 April about the introduction of the new Solicitors Accounts Regulations 2023, we thought that a worked example about the transition to the new rules, would be helpful.
The existing Solicitors Accounts Regulations 2014 remain applicable for any accounting period that commenced before 1 July 2023, until such time as the solicitor has filed the Reporting Accountant’s report with the Law Society. The full text of the Regulations is here.
The 2023 Regulations apply for accounting periods commencing on/after 1 July 2023. Let’s take two practical examples to clarify the position:
Law Firm Client with YE 30/4/2023 – apply the existing 2014 regulations for the full financial year to 30/4/2023 because the 2023 regulations don’t commence until 1 July 2023.
Apply the 2023 regulations from the accounting period starting on 1 May 2024 for this client, with the first quarterly test being on 31 July 2024.
Law Firm Client with YE 31/12/2023 – the existing 2014 Regulations apply for the full financial year 2023 and the new 2023 Regulations apply to this client from 1 January 2024 with the first quarterly reconciliation happening on 31 March 2024.
Please go to our website to see our new ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
We typically tailor training and brainstorming sessions to suit your firm’s unique requirements.
Publications and AML webinars:
- The ISQM TOOLKIT 2022 is available to purchase here.
- See our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- Also we have an updated AML webinar (March 2022) available here, which accompanies the AML Manual. It explains the current legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- To ensure your letters of engagement and similar templates are up to date visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
