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![Page 1: Quality Assurance Building Effective Oversight Systems Paul F.M. Hurks Director NBA International Accountancy (Royal NIVRA) Paul F.M. Hurks Director NBA.](https://reader035.fdocuments.us/reader035/viewer/2022062314/56649e4e5503460f94b452c2/html5/thumbnails/1.jpg)
Quality AssuranceBuilding Effective Oversight SystemsQuality AssuranceBuilding Effective Oversight Systems
Paul F.M. HurksDirector NBA International Accountancy (Royal NIVRA)
Paul F.M. HurksDirector NBA International Accountancy (Royal NIVRA)
![Page 2: Quality Assurance Building Effective Oversight Systems Paul F.M. Hurks Director NBA International Accountancy (Royal NIVRA) Paul F.M. Hurks Director NBA.](https://reader035.fdocuments.us/reader035/viewer/2022062314/56649e4e5503460f94b452c2/html5/thumbnails/2.jpg)
Quality Control & Quality Assurance
Why do we need – Quality Control (QC), and – Quality Assurance (QA)
for high quality financial reporting?
– Specific responsibility of the profession– Principle based standards– Assessments are highly judgmental– Human behavioural characteristics
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Specific Responsibility: Public Interest
IFAC/PIOB (PPP5) definition of public interest:
“The net benefits derived for, and procedural rigor employed on behalf of, all society in relation to any action, decision or policy”
Elements:- Public (broad scope)- Interests of the public (economic in nature, management of
resources)- Responsibility of the profession (in a large variety of roles)- General assessments (cost/benefit; processes, trade-offs)
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Principle based Standards
Principle-based regulation
• Code of Ethics (Attitude)• Clarified ISAs (Processes)• ISQC1: Quality Control (Governance)• SMO1: Quality Assurance (Enforcement)
All assessments are highly judgmental
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Code of Ethics (IESBA)
Fundamental Principles:
• Integrity• Objectivity• Competence & Due Care• Confidentiality• Professional Behaviour
(and Independence)
Conceptual Framework• Safeguards & Evaluation
All assessments are highly judgmental
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Clarified ISAs (IAASB)
Standards for Auditing & Assurance
• An audit is an audit• Principle-based requirements for processes• Requirements to interprete in a case-systemic way• Tailor made application
All assessments are highly judgmental
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ISQC1 (IAASB) (1)
Standards for Quality ControlControl: firms are required to design and implement a system of Quality Control, tailor made, according to the following concept:
All assessments are highly judgmental
.
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ISQC1 (IAASB) (2)
Obligations for Quality Control
• Leadership responsibility• Client relationships and assignments• Human resources• Engagement performance• Monitoring• Documentation
All assessments are highly judgmental
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SMO1 Quality Assurance (IFAC)
Obligations for Quality Assurance
• Implementation by the PAO of a Quality Assurance Review Program for Audit Engagements (minimum) of Financial Statements: “enforcement”
• For audits of listed entities (minimum)
• Best endeavours to encourage and assist other responsible authorities (government, regulators);
• Publish QC-standards and guidance (ISQC1) requiring firms safeguarding compliance with ISA 220 for audit professionals
3 or 4? levelsAll assessments are highly judgmental
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When high quality FR is safeguarded? (1)
Agency Theory for Audit & Assurance
former (3 parties): client – shareholder – auditor
current (4 parties): client – stakeholder – auditor – PAO, or
current (5 parties): client – stakeholder – auditor – PAO - regulator
(N.B.: stakeholder = public)
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When high quality FR is safeguarded? (2)
FR Infrastructure UNCTAD Capacity Building Framework
Pillar A: Legal and Regulatory Frameworks
Pillar B: Institutional Frameworks
Pillar C: Human Resources
Pillar D: Capacity Building Process
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When high quality FR is safeguarded? (3)
Why do we need oversight bodies overseeing
PAO’s and auditors?
Because regulation often is only adopted, ‘not really’ implemented,
reflecting elements of:
– lack of awareness of the concepts– lack of professional knowledge and practical experience
(techniques (science) versus judgements (art))– lack of substance over form (mirror-approach)– characteristics of human behaviour (threats, pressures)
Public society heard too much of: “All this is not illegal”
The profession is responsible for reliability
It is all about TRUST
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When high quality FR is safeguarded? (4)
Cascade effect of IFAC development program
influencing attitude
- IFAC: SMO’s, CAP
- PAO: QA, CPD, including Regulator
- Firm: QC, daily practice
- Client: ethical behaviour, CSR
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When high quality FR is safeguarded? (5)
Client Auditor PAO Regulator Public
Legal & RegulatoryFramework √ √ √ √ √
Institutional Framework
√ √ √ √ √
Human Resources
√ √ √ √ √
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Challenges for PAO development (1)
Development categories towards
“Center of Excellence”
– Managerial support
(business model, governance, practices)
– Technical support
(rules, regulation, tools, guidance)
– Intellectual support
(ethics, values, mindset, principles, attitude, concepts, judgment)
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Challenges for PAO development (2)• Quality Control (firm)
- Concept of ‘Public Interest’- Definition of ‘Quality’- Concept of ‘Control’- Ethics & Attitude- Nature of clients- Sole Practitioners- Competence- Practical Experience- Judgments- Availability of tools (IT)- Language- Transparency
• Quality Assurance (PAO)
- Nature of PAO- Legal environment- Government support- Size of the profession- Competition (clients/tools)- Requirements reviewers- Authority reviewers- Judgments- SMO1 business model- Language- More PAOs- Transparency
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Challenges for PAO development (3)
What can we do improve QC and QA practices?
Step by step approach: 5 years (usually it will take at least double time):
Year 1: legal framework and regulation (international, convergence)
Year 2: education & CPD (QC, QA, auditing)
Year 3: design of Firm’s QC manual (customized)
Year 4: perform assignments accordingly (documentation)
Year 5: first time availability of audit documentation for review*)
*) recommendation to start reviews earlier for the learning process
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Lessons Learned (1)What can we do improve QC and QA practices?
– Education and training: tone at the top, mindset, attitude, public interest, quality, control concepts, professional skepticism, unbiased judgment, awareness of individual/collective professional responsibility, practice examples, transparency;
– Firms, big & small: tone at the top, culture, recruiting, promotion, incentives, training on the job, macro-responsibility, governance code;
– Audit regulation: visualize in documentation, reviews, monitoring, liability;
– Ethics regulation: implementation of CoE, substance over form;
– Guidance: best practices, lessions learned, war stories and success stories, whistleblowers, IFAC tools;
– Clients, big & small: review culture, CSR, governance, audit committee, transparency;
– Government: support, legislation, collaboration (donor support)
– Academia: further research.
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Lessons Learned (2)
What can be done to implement QC and QA?
– Step by step approach following local economy developments– Patience: the 5 year strategy (at the minimum)– Start self assessments and QA-reviews early in the process (learning)– Accept learning process of all stakeholders involved (coaching)– Liaison with government / regulator (combine competence and authority)– Joint effort (postpone naming and shaming, avoid duplication)– Share experience and /or collaborate cross border (language / size)– Train members, reviewers and trainers (ttt) in QC, QA and audit practice– Make available sufficient tools (IFAC and local; local language, IT-based)– Start easy; postpone perfection; manage expectations– Design proper (country-) business model for QA (viability)– Include assurance and related services in the reviews (learning, viability)– No one size fits all > customized solutions
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Conclusions (1)
Elements are essential for accountants/auditors in a large variety of roles and environment:
–In all roles and services: Preparer, Assurance provider and Oversight;
–In all environments and sectors: from PIE to SME environment; in Private Sector and Public Sector
–Joint effort: Government support in PAO development facilitates donor support
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Conclusions (2)
Professional: > contribute to reliable FR
Profession: > contribute to effective and efficient markets
“High quality financial reporting will not create economic growth,
but for creating economic growth you cannot do without it*)”
*) quote Ian Ball IFAC CEO
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Thank you for your attentionThank you for your attention
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