Competition Commission Panel Visit to Deloitte · 2014. 3. 19. · Overview of audit process An...
Transcript of Competition Commission Panel Visit to Deloitte · 2014. 3. 19. · Overview of audit process An...
© 2012 Deloitte LLP. Private and confidential.
Competition Commission Panel
Visit to Deloitte
11 January 2012
These slides were prepared with the sole intention of facilitating an oral
presentation to members of the Competition Commission Panel. They
were not prepared to be viewed on a standalone basis and are not
necessarily exhaustive. Items in red indicate that the information shown
was confidential and has been removed from this version
© 2012 Deloitte LLP. Private and confidential.
Agenda
• Welcome and opening comments David Sproul
• The role of audit Vince Niblett
• Bringing an audit to life Panos Kakoullis
• Our talent strategy Heather Hancock
• Summary and closing comments David Sproul
Presentation for the Competition Commission Panel 2
© 2012 Deloitte LLP. Private and confidential.
The role of audit Vince Niblett
Presentation for the Competition Commission Panel 3
© 2012 Deloitte LLP. Private and confidential.
Bringing an audit to life Panos Kakoullis
Presentation for the Competition Commission Panel 4
© 2012 Deloitte LLP. Private and confidential. Presentation for the Competition Commission Panel 5
Dealing with ad hoc issues and adding value throughout the year
Overview of audit process An audit summarised in 10 stages
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate
audit findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek and
receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential. Presentation for the Competition Commission Panel 6
Appointment The reasons for appointing or changing auditors
Price Knowledge and insight
Global Network
Skills and expertise
Quality People
Issues with existing auditor
Corporate Governance
Merger or Acquisition
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential. Presentation for the Competition Commission Panel 7
Appointment Acceptance of appointment
Independence and conflicts of
interest
Responsibility of signing
partner
Unlimited liability
Acceptance of auditor
appointment
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential. Presentation for the Competition Commission Panel 8
Understand the business How we look at them
Legal
structure
Global
footprint
Location of finance
function(s)
Nature and extent
of IT systems
Press and analyst
comments
Industry and
sector issues
Nature of products
and services
Financial and
business model
Use of shared
services /
outsourcing
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential. Presentation for the Competition Commission Panel 9
Understand the business business model and associated audit risks
3.
1.
Obtain finance
Debt or equity
Going concern/ability to meet funding
obligations
2.
4.
Build operations
Capitalisation of costs
5.
Launch services
Revenue recognition
6.
7.
Earn revenue
Revenue recognition
8.
9.
Grow
New products and services
Revenue recognition
10.
Maintain margin
Asset valuation
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential. Presentation for the Competition Commission Panel 10
Understand the business Need for expertise to understand complex operations
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential. Presentation for the Competition Commission Panel 11
Plan the audit A risk based audit
Factors relevant to the industry
Changes to the business
(acquisition, product launches)
External economic environment Areas of accounting judgement
Availability of finance
Areas susceptible to fraud
Areas where internal control is weak
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential. Presentation for the Competition Commission Panel 12
Plan the audit Getting the resources right
Specialist expertise
• Actuaries
(pensions and
insurance)
• Taxation (direct and
indirect)
• Financial instruments
(e.g. bonds, derivatives)
• Valuations
• Controls
• IT
• Technical accounting
• US reporting
• Revenue assurance
• Shared services
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential. Presentation for the Competition Commission Panel 13
The global Deloitte network Over 180,000 people globally
Americas
79,000 Total
4,200 Partners
58,200 Professional staff
16,600 Administrative staff
Europe/Middle East/Africa
65,500 (inc. 12,760 in UK/Switzerland)
Total
3,200 (inc. 695 in UK/Switzerland)
Partners
50,900 (inc. 10,025 in UK/Switzerland)
Professional staff
11,400 (inc. 2,040 in UK/Switzerland)
Administrative staff
Asia Pacific
37,150 Total
2,250 Partners
29,750 Professional staff
5,150 Administrative staff
© 2012 Deloitte LLP. Private and confidential.
Conduct the audit How we do it in practice
The nature and extent of our audit procedures are undertaken in accordance with
applicable auditing standards and are based on the audit plan, typically involving:
Presentation for the Competition Commission Panel 14
To understand the end-to-end flow
of transactions in order to identify
risks and controls and to satisfy
ourselves that the company has
designed an effective system of
internal control.
To satisfy ourselves that the
controls that the company has in
place have been operating
effectively throughout the year.
To evidence the existence of
transactions occurring and
ensuring that they are recorded
accurately.
Process walkthrough Testing controls Testing transaction details
(substantive testing)
Conclude To satisfy ourselves that the balances recorded are correct or to quantify errors identified.
Follow the process from a
customer order being received to
the cash being collected and the
sale being recorded in the
company’s books.
Seek evidence that the credit
notes given to customers have
been appropriately authorised.
Tracing the company’s cash
balance to third party bank
confirmations.
We may identify sales that have been recorded but actually took place after the year end.
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Conduct the audit
Testing impairment
15 Presentation for the Competition Commission Panel
We consider the historical performance against the
forecasts and challenge the assumptions inherent in
achieving the plans
We review the appropriateness of macroeconomic
assumptions using external evidence and involvement
from our valuation team specialists
We assess the reasonableness of key assumptions including:
• Risk free rates
• Beta values
• Nominal GDP growth
• Tax rates
• Foreign exchange rates
We test the mechanical accuracy of
management’s valuation model
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Conduct the audit Testing pensions
Presentation for the Competition Commission Panel 16
Consider competence of third party who
prepares the financial information
We agree a sample of contributions and benefits
paid to the underlying books and records.
We select a sample of asset valuations and agree
them into third party evidence.
We use in-house specialists to conclude upon the
assumptions used in calculating the pension liabilities:
• the discount rate
• the inflation rate
• the return on assets
• the mortality rates
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Conduct the audit Testing fixed assets
Presentation for the Competition Commission Panel 17
We test construction in progress for validity and recording
by selecting a sample of projects and assessing:
• the current status of projects
• the committed future spend
• the current treatment of assets (i.e. in service,
depreciated, impaired)
We review other projects considered to be high risk
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
We substantively test both fixed asset additions
and disposals
© 2012 Deloitte LLP. Private and confidential.
Collate audit findings Collate and consolidate
Presentation for the Competition Commission Panel 18
Reporting
Entity
Reporting
Entity
Audit Team
Audit Team
B
Unit
C
Audit Team
C
Unit
A
Unit
B
Audit Team
A
Reporting
process
Formal sign-off
from unit partner to
reporting entity
partner
Reporting entity
audit partner
reviews unit
auditor’s
conclusions
Unit audit team
concludes
on audit findings
Findings reported
to unit’s
management
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Collate audit findings How this works in practice
In practice, the extent of audit work will vary between units depending on their size and
nature.
Presentation for the Competition Commission Panel 19
Additionally, unit auditors will also have to undertake procedures required for local
reporting purposes.
Scope 1
Unit A Unit B
Scope 2
Unit C
Scope 3
Unit D Unit E
Scope 4
Unit F Unit G
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Audit the financial statements Consolidation and reporting process
Presentation for the Competition Commission Panel 20
Consolidation
process
Unit results Financial Statements
• Typically a pack of financial
data audited by a local audit
team
• Includes financial and non-
financial data
• Forms basis of local statutory
reporting
• Includes lengthy disclosures
and management
commentary in accordance
with relevant laws and
regulations
• Nature and extent of
disclosure is a key area of
judgement and requires
expertise
• The process of aggregating
the results of each Unit,
which is audited by a central
team
• Process includes making
adjustments to align to a
common basis of accounting
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Report our findings Written reporting throughout the year
Presentation for the Competition Commission Panel 21
• Audit scope
• Locations
• Team
• Audit areas of focus
• Fees
• Summarise progress
of work to date
• Changes to the audit
plan
• Issues and
conclusions to date
• Changes to the audit
plan
• Conclusions on key
judgement areas
• Control observations
Audit Plan Early Warning Final Report
2 – 4 months
before year end
1 – 3 months
before year end
1 – 2 months
after year end
• Half year review
findings
• Management letter
(report on control
observations)
Other
Issued as
appropriate
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Seek and receive feedback Typical feedback mechanisms
Presentation for the Competition Commission Panel 22
Company-led internal
evaluations
UK Corporate
Governance Code
Feedback sought from Type of feedback requested
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Quality assurance Scrutiny of our audit work
Presentation for the Competition Commission Panel 23
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
Embedded quality “Cold” file reviews
In-process reviews Regulatory review of financial reporting
Audit system Training
Policies and processes
Tools and resources
Practice review Audit Inspection Unit
(AIU)
Public Company Accounting and Oversight Board
(PCAOB)
Financial Reporting Review Panel (FRRP)
Securities and Exchange Commission (SEC)
Professional Standards Review (PSR)
Independent Review Partner (IRP)
© 2012 Deloitte LLP. Private and confidential.
Decision to re-appoint Active decision undertaken annually
• Typically based on results of internal assessment
• Requirements of auditor may change
• Shareholders required to approve our re-appointment
• Opportunity for open dialogue with Auditors at Annual General Meeting
Presentation for the Competition Commission Panel 24
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Year-round effort Dealing with ad hoc issues
Presentation for the Competition Commission Panel 25
• Leverages knowledge from audit
• Requires specialist resource
(e.g. capital markets)
Addressing queries
from regulatory bodies
(e.g. FRRP, SEC)
Review of interim
financial statements
Audit procedures to
satisfy third parties
(e.g. grant claims,
regulatory returns)
Providing accounting
opinions on significant
transactions
Bank covenant
certification Bond issues
Class 1 transactions
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Year-round effort Adding value
Presentation for the Competition Commission Panel 26
Publishing
accounting
literature
Thought leadership
(e.g. surveys, points
of view)
Investing in our relationships Examples
1.
Appointment
2.
Understand
the business
3.
Plan
the audit
4.
Conduct
the audit
5.
Collate audit
findings
6.
Audit the
financial
statements
7.
Report our
findings
8.
Seek
and receive
feedback
9.
Quality
assurance
10.
Decision to
re-appoint
© 2012 Deloitte LLP. Private and confidential.
Our talent strategy Heather Hancock
Presentation for the Competition Commission Panel 27
© 2012 Deloitte LLP. Private and confidential.
Why people want to join Deloitte
Presentation for the Competition Commission Panel 28
© 2012 Deloitte LLP. Private and confidential.
Being distinctive for talent
:
Competition Commission – Statutory Audit Services - Talent 29
© 2012 Deloitte LLP. Private and confidential.
Competition Commission – Statutory Audit Services - Talent 30
© 2012 Deloitte LLP. Private and confidential.
Recruitment and our networks
Competition Commission – Statutory Audit Services - Talent 31
© 2012 Deloitte LLP. Private and confidential. 32 Presentation for the Competition Commission Panel
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