2. The global body for professional accountants Practice monitoring in Cyprus

3. The global body for professional accountants LOUIS THEODOTOU KYRIACOS KARAOLIS HAROULLA ARKADE NICOLAOU Senior Practice Reviewers

4. The global body for professional accountants INTRODUCTION THREE PARTS The monitoring process Common deficiencies on ISQC 1 and ISAs Common ethical issues

5. The global body for professional accountants THE MONITORING PROCESS 1.The visit 2.Examination of audit files 3.Assessing the outcome of an audit file examination 4.Assessing the overall outcome of an audit monitoring visit 5.Action plans 6.ICPAC & ACCA rules and regulations 7.How firms should prepare for an audit monitoring visit

6. The global body for professional accountants THE VISIT Arranging the visit: - Firm contacted by telephone - Information in PVQ and audit clients discussed - Date of visit agreed and confirmed in writing Undertaking the visit - Opening meeting - background /quality controls procedures - Examination of practice records and audit files - Closing meeting - discuss and agree the findings and overall outcome and guidance on any improvements given Post-visit procedures - Report on visiting findings, conclusion and guidance drafted - Internal quality control of review of report/visit papers - Report / action plan template sent to the firm - Firm’s response including action plan received and reviewed - Report and firm’s response /action plan sent to ICPAC

7. The global body for professional accountants EXAMINATION OF AUDIT FILES

8. The global body for professional accountants EXAMINATION OF AUDIT FILES Use an audit file inspection checklist (AFIC) to document findings Selection to cover audits of all engagement partners Focus on high risk audits i.e. complex and larger entities Review file without engagement partner or staff present Only recognise work recorded on the file

9. The global body for professional accountants EXAMINATION OF AUDIT FILES Findings discussed with engagement partner / practitioner Seriousness of deficiencies assessed to conclude whether file is satisfactory

10. The global body for professional accountants ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION

11. The global body for professional accountants ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION Perfect audit files do not exist Number of deficiencies does not necessarily determine whether audit is unsatisfactory Key concept is “reasonable assurance” that financial statements are free from material misstatement The “test” is whether there is a significant risk that the financial statements could contain an undetected material misstatement as a result of the deficiencies found in the audit work An audit file may only have one deficiency and be considered unsatisfactory if significant in a key area

12. The global body for professional accountants ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 1 Inventories are material No continuous inventory system and auditor does not attend client’s physical inventory count No alternative procedures to obtain reasonable assurance that stock count was undertaken reliably and results were recorded accurately No other serious deficiencies noted on file and clean report issued Failure to verify inventory could mean a material misstatement remains undetected Conclusion: Unsatisfactory audit

13. The global body for professional accountants ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 2 Inventories are significantly material Auditor attends physical inventory count but does not adequately record the work performed. For instance it is not clear that test counts were done in both directions. Work on value of inventory adequately addressed No other deficiencies on evidence identified Conclusion: Deficiency, but not sufficiently serious to render outcome unsatisfactory

14. The global body for professional accountants ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 3 Audit client was an international business company which is an investment holding Its main activities are holding of investments in subsidiaries and financing group entities Auditor did not verify the validity and recoverability of material receivables and did not assess impairment of investments which are carried at cost Conclusion: Unsatisfactory file

15. The global body for professional accountants ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 4 Indicators of financial difficulty and cash flow problems Auditing standard on going concern (ISA 570) not followed Conclusion: Unsatisfactory audit

16. The global body for professional accountants ASSESSING THE OUTCOME OF AN AUDIT FILE EXAMINATION – EXAMPLE 5 No indication of financial difficulty and surplus cash generated Auditing standard on going concern (ISA 570) not followed Conclusion: Deficiency, but not sufficiently serious to render outcome unsatisfactory

17. The global body for professional accountants ASSESSING THE OVERALL OUTCOME OF AN AUDIT MONITORING VISIT

18. The global body for professional accountants EVALUATING THE OVERALL OUTCOME OF THE AUDIT MONITORING VISIT Prior to June 2012 – Outcome satisfactory if all audits examined satisfactory From June 2012 – Outcome satisfactory if half or more of audit files inspected are satisfactory, subject to the following two conditions: None of the unsatisfactory audit files are seriously deficient (virtually no audit work); and/or None of the unsatisfactory audit files are in respect of public interest entities or large clients of the firm Outcome unsatisfactory if serious ethical or other breaches found even where audit file examination outcome satisfactory

19. The global body for professional accountants ACTION PLANS

20. The global body for professional accountants ACTION PLAN Firms required to provide detailed action plans to address the deficiencies at monitoring visits Appropriate action plan template together with written instructions enclosed when monitoring visit report issued to the firm Guidance on how to complete the template also given at the monitoring visit

21. The global body for professional accountants ACTION PLAN Submitted action plans reviewed for reasonableness. Revised plans required if original not adequate or appropriate Copy of the action plan enclosed when the report is sent to ICPAC Firms are expected to implement the action plan and ensure that a satisfactory outcome is achieved at the next visit See example

22. The global body for professional accountants ICPAC RULES AND REGULATIONS

23. The global body for professional accountants ICPAC RULES AND REGULATIONS Scope of visit also includes to verifying compliance with certain ICPAC’s rules and regulations Professional indemnity insurance Ensure that cover is adequate i.e.at least €85.000 or 10% of annual practice income Ensure that retroactive date is specified, and this is set at the policy’s inception date, irrespective of the insurance firm used Ensure the insured party is correctly stated on the policy Continuing Professional Development Ensure that each practitioner has covered 40 units of CPD each year, from which 21 must be verifiable Ensure that CPD undertaken includes an adequate proportion of units in auditing Ensure adequate records kept

24. The global body for professional accountants ICPAC RULES AND REGULATIONS (continued) Continuity of practice Ensure that have a provision for the firm’s continuity of its practice in writing Money Laundering Regulations Ensure that firm is aware of ML regulations and of its responsibilities Ensure that has notified MOKAS for appointment of MLRO Ensure that adequate training is provided to staff Ensure that KYC procedures are duly followed.

25. The global body for professional accountants ICPAC RULES AND REGULATIONS (continued) Client money (IFAC Code of Ethics) Client money should be banked in a separate bank account with title “Client account” No right of set-off between client account and office accounts Referral fees ICPAC members should not given or offer commission or remuneration to a third person who is not an employee of the member ACCA Rules and Regulations Holders of ACCA PC should also ensure compliance with ACCA practicing rules and regulations – Similar to ICPAC

26. The global body for professional accountants HOW FIRMS SHOULD PREPARE FOR AN AUDIT MONITORING VISIT

27. The global body for professional accountants PREPARING FOR A MONITORING VISIT Key – firm to ensure that it complies with ISAs Key – firm to establish appropriate policies and procedures and document them (ISQC 1) Effective planning leading to use of an effective audit programme Record all audit work and reasoning in detail to support the conclusions Ensure compliance with ICPAC rules and regulations Ensure all documents are ready before the visit Get the most out of the visit by listening carefully to what is said

28. The global body for professional accountants ANY QUESTIONS?

29. The global body for professional accountants THANK YOU