Monitoring Inspection Feedback

Monitoring Inspection Feedback

Recent feedback from professional accountancy body inspections which readers may find useful, has come to our attention. In no particular sequence, this selection of findings applies mainly to small/medium practices:

  • Systems of internal controls – there is only a basic understanding on the file – a more complete understanding (with flow diagrams) could be used properly to help reduce sample sizes and cut down on unnecessary audit work.
  • Work in progress – the evidence on the audit file of long term work in progress valuations and estimation of profit allocations, can be improved by auditors attending close out meetings as observers alongside senior client personnel when they are negotiating with third party contractors and/or quantity surveyors.
  • Recoverability of debtors – not well supported by evidence on the file. The auditor does not display sufficient scepticism (and seek sufficient, independent, corroborative evidence e.g. latest audited accounts of the debtor) and seems to believe, with little questioning, whatever they are told by management about debtor recoverability.
  • Net Realisable Value of some stock lines is verified but other material stock lines are ignored with no explanation given for the lack of consistent approach.
  • Valuation of investments/properties – no evidence on the audit file that the impact of Covid has been considered. The file could be improved if there was evidence of the auditor speaking with the valuation expert , even to establish a proper understanding of the basis of valuation.
  • Letters of representation – over reliance on these letters to close the gap in audit evidence that is apparent elsewhere on the audit file. For example with letters of support there needs to be sufficient, appropriate audit evidence on the audit file that the third party providing the support is ‘good’ for it i.e. a parent company audited accounts showing their solvency or perhaps the support is provided by a significantly wealthy related party Director, for which there ought to be an up to date statement of their personal financial affairs on the file, ideally prepared by an independent financial adviser.
  • Fraud – only a cursory consideration given to this area by accepting management assertions too easily. Audit files need to contain evidence of considering the possibility of Government Covid supports being abused in some circumstances and the related possibility of fraudulent accounting to cover up the abuse.
  • Going concern/subsequent events – budgets/forecasts not well evidenced on the file for up to 12 months from the date of approval of the financial statements.
  • Identification of related parties – not fully documented on file.
  • Long association – Responsible Individual in office longer than 10 years – ‘expect challenge’ to scepticism. Need to evidence hot file or second partner review of independence and any other contentious areas of the file, in line with Section 3 of the Auditor Code of Ethics. . Note that the current Ethical Standard for Auditors (Ireland) will be replaced with effect from 15 July 2021.

At www.jmcc.ie we have recently refreshed most of our letters or engagement templates and added some new ones which may be viewed at this link.

Don’t Panic in a Pandemic

Don’t Panic in a Pandemic

The title of the first session which I am presenting for the Cork Society Topical Practice Issues Event on Thursday 11 March is ‘Don’t Panic in a Pandemic’.  The event is online from 9.30am until 12.30pm.

My session (9.30am to 11am) will cover two topics:

  • Three new audit standards especially relevant for Covid-19 audits

ISA 540 Audit Estimates – getting the documentation right

ISA 570 Going Concern – challenging management’s numbers

ISA 700 Audit Reports – new style audit reports

  • Anti-Money Laundering in the Pandemic – latest developments and traps.

The other speakers at the event are:

Brendan Twohig, MK Brazil on Revenue Audits & Interventions – 2021 ‘hot topics looking at the details required from Revenue in relation to Audits from a practical and advisory manner.

Neil Hughes, Baker Tilly – Managing your Practice in a Pandemic – Neil will look at the Practice Management side of things such as profitability and new ways of working. He will also look at some of the new practices of work that evolved during the pandemic and what might be worth keeping as we come out the other side of it.

More details and bookings – visit this link.

At www.jmcc.ie we have recently refreshed most of our letters of engagement templates and added some new ones which may be viewed at this link.