1. BUSINESS WITH CONFIDENCE icaew.com QAD WEBINAR 2012 Presented by: Stacey Hillyard, QAD reviewer Henrietta Thompson, QAD reviewer

2. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Contents Audit Monitoring Report 2011 Clarified ISAs – common problem areas Professional scepticism Q & A

3. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Ask a question Participate in today’s webinar – send us a question

4. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 QAD audit visit outcomes 2011 Visits closed without follow-up action69% Some further follow-up action21% Detailed report to Audit Registration Committee10%

5. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Reports to ARC

6. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 QAD initiatives in 2011 Roadshows Webinars Mid visit cycle

7. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Clarified ISAs – common problem areas Accounting estimates Related parties Risk of fraud – – revenue recognition – management override of controls Performance materiality Group audits

8. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 ISA 540 - Accounting estimates Planning stage: – Estimates either not identified or recording vague/incomplete – Lack of evidence of discussion with management – review of outcome of PY estimate – either not performed or poorly recorded – High level of estimation uncertainty – not assessed as a significant risk

9. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 ISA 550 - Related parties Inquiries with management Discussion of RP fraud risk at team meeting Weak documentation of RPs

10. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 ISA 240 - Fraud considerations Revenue recognition: – no justification of low risk assessment “N/A covered by audit work” !! “No risk as no cash income” – If significant risk assessed – unclear if sufficient work performed Management override controls: – Para 32 procedures – work missing or poorly documented

11. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 ISA 320 - Materiality F/S level materiality: – No consideration for using separate levels – Questionable benchmark used Performance materiality: – Not calculated – Some cases too low!

12. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 ISA 600 - Group audits Lack of communication with component auditors and weak documentation: – Understanding of CA, recording of the assessment and scope of work – Significant components – involvement in risk assessment/communication – Review and conclusion on adequacy of CA audit work

13. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Professional scepticism

14. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Characteristics A questioning mind Self confidence Not jumping to conclusions Understanding management behaviour and motivations

15. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Professional scepticism Fraud risk – Team meeting “fraud is low risk as no previous history of fraud” “fraud is low risk as the client is long standing”

16. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Professional scepticism Substantive analytical review – Management explanations Provisions – Review of prior year outcome – Lack of provision Going concern – Recording of discussions

17. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Professional scepticism

18. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Cold file reviews – the first line of defence! Identify where audit work can be improved Evidence of follow up CFR process – small firms – Annual CFR (either internal or external) – External CFR every 3 rd year External reviews

19. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 Resources and support Audit & Beyond CPD aide memoire Audit News ICAEW Practice Support Services Technical Advisory Services ICAEW website

20. BUSINESS WITH CONFIDENCE icaew.com © ICAEW 2012 QUESTIONS & ANSWERS

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