by John McCarthy Consulting Ltd. | Apr 17, 2024 | News
If you have an upcoming AML Compliance Review from your professional body, be sure to follow these six essential steps to prepare.
- Ensure that you have an appropriate Policies & Procedures document and a Firm-Wide Risk Assessment accompanied by a note of annual reviews of and amendments to the assessment.
- Ensure that relevant staff have received money laundering training accompanied by a record of training completion.
- Carry out some test checks of records of your client Risk Assessments and Client Due Diligence documentation to assess whether the firm’s Policies & Procedures are being properly implemented.
- Check whether an external AML Compliance Review beforehand might be beneficial.
- Check that the information held by your supervisory body about the firm and its MLRO are up to date and correct according to the firm’s most recent Annual Return.
- Ensure that all the work which the firm is doing is correctly licensed under the terms of the firm’s authorisation from your supervisory body (e.g. insolvency work and Clients’ Money).
Following these six steps will ensure that your firm is well prepared for its AML Compliance Review.
All our CPD courses are listed here, including our Audit Update webinar.
To hear more about the latest AML developments and how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021, see our latest Anti-Money Laundering webinar here.
Please also go to our website to see our:
- Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- 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. | Apr 7, 2024 | News
Following on from last week’s blog about the Financial Reporting Council publication on professional judgement, today we look at the final three biases mentioned in Professional Judgement Guidance. Awareness of these factors allows auditors to make more objective professional judgements and maintain a higher overall quality of work.
The Financial Reporting Council publication looks at six biases (taken from International Standard on Auditing (Ireland) 220 (Revised December 2021), ‘Quality Management for an Audit of Financial Statements’, paragraph A35 which states that the six biases set out here are not intended to be a complete list of all biases that could affect audit judgements, just an illustrative list of some that might be especially relevant.
The last three biases alert auditors to be aware of:
- Groupthink: a tendency to think or make decisions as a group that discourages creativity or individual responsibility.
- Overconfidence: a tendency to overestimate one’s own ability to make accurate assessments of risk or other judgements or decisions.
- Automation bias: a tendency to favor output generated from automated systems, even when human reasoning or contradictory information raises questions as to whether such output is reliable or fit for purpose.
The following example given in the publication helps illustrate how these types of bias affect professional judgement.
Example: A trainee auditor is using automated tools, specifically audit data analytics, in the identification of high-risk journal entries. She uses the program’s default selection parameters, without tailoring them based on the entity and its environment. The generated selection of “high-risk” journal entries includes several items categorised as such due to having been posted at the weekend by members of the finance team.
The trainee auditor knows from her prior work on the audit that the finance team often works weekends, especially at month-end, and thus she ought not to take the output of the analytic at face value. However, the trainee auditor places a lot of weight on the fact that a specialised piece of software deemed the journal entries unusual, and plans to perform further procedures over all of these journal entries. This is an example of automation bias, because she relies on the system output without considering whether her wider understanding might imply it is not fit for purpose.
Finally, the FRC publication encourages auditors to cultivate qualities to proactively support effective professional judgement, especially self-awareness, perceptiveness, listening skills, and willingness to consult with others.
To hear more about the latest AML developments and how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021, see our latest Anti-Money Laundering webinar here.
All our CPD courses are listed here including our Audit Update webinar .
Please also go to our website to see our:
- Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- 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. | Mar 28, 2024 | News
Making professional judgements is one of the most crucial and frequent tasks of an auditor. Failure to consistently practice good professional judgement can lead to a significant decrease in audit quality; therefore, it is essential to have an effective methodology for making professional judgements. In 2022 the Financial Reporting Council published guidance entitled Professional Judgement Guidance to address the key aspects which ought to be considered in every professional judgement.
One key aspect discussed in the document is “Mindset,” particularly understanding biases and other relevant psychological factors which can subconsciously hinder logical reasoning.
The Financial Reporting Council publication looks at six biases (taken from International Standard on Auditing (Ireland) 220 (Revised December 2021), ‘Quality Management for an Audit of Financial Statements’, paragraph A35 which states that the six biases set out here are not intended to be a complete list of all biases that could affect audit judgements, just an illustrative list of some that might be especially relevant.
The first three biases alert auditors to be aware of:
- Availability bias: a tendency to place more weight on events or experiences that immediately come to mind or are readily available than on those that are not.
- Confirmation bias: a tendency to place more weight on information that corroborates an existing belief than information that contradicts or casts doubt on that belief.
- Anchoring bias: a tendency to use an initial piece of information as an anchor against which subsequent information is inadequately assessed.
To illustrate anchoring bias, the FRC uses the example of an audit senior manager tasked with determining performance materiality for a company’s current year’s engagement. He starts by looking at the audit file from the prior year and sees that the engagement team set performance materiality at 75% of materiality; however, he is aware that a higher than expected number of misstatements were identified in the prior year, and that the control environment remains relatively weak. To compensate for this he resolves to choose a lower percentage of materiality for performance materiality, setting it at 70% of materiality.
His judgement here may have been affected by anchoring bias, if he put undue weight on the initial piece of information gathered, namely the prior year figure. If he had started from a broader consideration of the entity and its environment and a range of factors that affect the expected level of misstatements in the current year, he may have arrived at a different figure.
Awareness of biases such as these can help auditors avoid falling into these traps, and thus enables the auditor to make more objective professional judgements.
We will cover the last three biases in next week’s blog.
To hear more about the latest AML developments and how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021, see our latest Anti-Money Laundering webinar here.
All our courses are listed here.
Please also go to our website to see our:
- Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- 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. | Oct 14, 2019 | Blog
In a rare speech, Sir Donald Brydon, chair of the Future of Audit in the UK, told a packed conference room that he is a little troubled at the current mood that ‘reaches for a shotgun aimed at auditors every time there is a corporate problem’.
Speaking at the first ICAEW Audit & Assurance Faculty Audit Conference on 4 October 2019, Brydon, former chair of the London Stock Exchange, stressed the importance of balancing the responsibility and the blame for company failures between auditors, audit committees and company boards.
Ultimately, Brydon said it was directors and their actions, not auditors, that should be to blame for recent audit failures. He did not name any names but recent failures like Carillion and BHS have likely triggered this response along with other reviews.
The Brydon Future of Audit review, an independent UK government review, received 120 responses – a total of 2,500 pages of comment, while over 100 meetings and roundtables were also held to gather views.
Brydon plans to report back to the UK government on his recommendations by the end of December 2019 and all the consultation responses will be published.
In his speech, Brydon revealed that the review would seek ‘to consider how audit can become a more informative process and product whilst not losing its compliance aspect’.
Brydon insisted that it was not his intention to ‘redesign Western capitalism’, adding that, it was ‘important to note that many people and organisations have expressed their frustrations with what they see as, essentially, a narrow, backward looking and increasingly rules-obsessed approach to audit’.
He said that one of the respondents to the Review ‘compared the audit to a high jump, in which auditors have little incentive to do more than the minimum required to “clear the bar”. I repeat that there is a hunger for audit to be informative and not just evidencing compliance.’
But what does this mean for the future of Irish audit practices? Much of the audit standards that are implemented in the UK, soon follow suit here.
As they say, watch this space.
For more on best practice in Audit , see our up-to-date webinar here.
Also watch out for our new fully updated AML Policies & Procedures Manual June 2019 edition – includes the latest requirements of the Criminal Justice (Money Laundering and Terrorist Financing) Acts, 2010 to 2018 which came into force on 26 November 2018
For on-demand webinars on AML and developments in Investment Property Accounting, FRS 105 – part of the Company Law Update, Common Errors in FRS 102 Accounting, visit our online webinar training website. Once viewing is completed customers will receive a CPD Certificate confirming their learning.
