1. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 1 THE STRUCTURE OF THE PROFESSION CHAPTER 2

2. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 2 PROFESSIONAL STATUS OF THE AUDITOR I Professional occupations can be distinguished by five common attributes. These are: systematic theory professional authority community sanction regulative codes, and well-established culture.

3. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 3 PROFESSIONAL STATUS OF AUDITOR II Reliance on an underlying theory of accounting and auditing, Expertise, Ability to control admissions to the profession, Self-regulatory mechanisms employed, and Conservative behavioural subculture. Auditing can be said to be a profession because of its:

4. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 4 REGULATION OF AUDITING I Australian Accounting Research Foundation (AARF) Established by ICAA and CPA Australia Prime responsibility is to support the AuASB Auditing and Assurance Standards Board (AuASB) Responsible for development of auditing and assurance services standards  11 members  Reports to National Councils of ICAA and CPA Australia

5. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 5 REGULATION OF AUDITING II Australian Securities and Investments Commission (ASIC) — the administering authority for the Corporations Act 2001. Companies Auditors and Liquidators Disciplinary Board (CALDB)— determines whether a registered auditor or liquidator has failed to carry out their duties properly or is not a fit and proper person to be registered. Two government agencies also involved in regulation of auditors:

6. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 6 REGISTERED COMPANY AUDITOR In order to be appointed as a company auditor under s. 1280 of the Corporations Act, a person must ordinarily: be resident in Australia; be a member of an approved body (CPA Australia or ICAA or affiliated bodies); be an accounting graduate of a prescribed university or other prescribed institution in Australia; have sufficient auditing experience; and be a fit and proper person.

7. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 7 REGULATION OF SUBJECT MATTER OF AUDITS Financial Reporting Council (FRC) — responsible for oversight of accounting standard-setting process. Australian Accounting Standards Board (AASB) — responsible for development of accounting standards in Australia. Urgent Issues Group (UIG) — provides authoritative guidance on accounting issues that are otherwise likely to receive divergent or unacceptable treatment.

8. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 8 INTERNATIONALISATION OF AUDITING I Increased international trade has contributed to the development of international auditing practices Multinational organisations wish to ensure quality of financial information from subsidiaries and related entities. IOSCO support harmonisation of international auditing standards. Most countries carefully consider International Standards on Auditing (ISAs) in the development of their own standards.

9. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 9 INTERNATIONALISATION OF AUDITING II Key groups include: International Federation of Accountants — (IFAC) guides efforts to develop technical (accounting and auditing) and ethical standards. Members are 156 accounting bodies (including ICAA and CPA Australia) in 114 countries. International Auditing and Assurance Standards Board (IAASB) — technical committee of IFAC that develops standards and guidance for audit and assurance services. Transnationals Auditors Committee (TAC), executive arm of the auditing firms that perform auditing across national boundaries. IFAD — created in 1999 by IFAC and World Bank. Consists of a range of public and private organisation aiming to improve financial reporting, accountability and transparency worldwide.

10. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 10 PROFESSIONAL ACCOUNTING ORGANISATIONS Currently two key accounting organisations in Australia: CPA Australia. The Institute of Chartered Accountants in Australia (ICAA). CPA Australia and ICAA regulate the actions of their members by issuing technical and ethical rulings. Ethical rulings issued separately, while technical rulings issued jointly through the Auditing and Assurance Standards Board (AuASB)

11. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 11 MEMBERSHIP OF ICAA OR CPA AUSTRALIA To become a full member of either organisation a person must have: completed a recognised degree from a university, completed the relevant educational entry programme of the professional body, have appropriate employment experience, and be considered a fit and proper person.

12. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 12 MEMBER PROFILE OF CPA AUSTRALIA AND ICAA CPA Australia ICAA No. of members (2001)94,00035,670 Public practice19%47% Commerce49%39% Others (govt, retired, academic)32%14%-------100%

13. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 13 PROFILE OF THE AUDIT PROFESSION AND AUDIT FIRMS The audit profession in Australia has two levels; (i)national and international (including the Big Four (since the demise of Arthur Andersen) and second tier firms); (ii)regional or local firms. The largest international firms are known as the Big Four and dominate the practice of public accountancy:  Deloitte Touche Tohmatsu  Ernst & Young  KPMG  PricewaterhouseCoopers Big Four audit approximately two-thirds of listed companies in Australia

14. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 14 PROFILE OF THE AUDIT PROFESSION AND AUDIT FIRMS While audit and assurance services forms a substantial part of a public accounting firm’s client base and revenue stream, most firms also offer: taxation, management consulting, internal audit, and accounting and insolvency services.

15. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 15 INTERNAL STRUCTURE OF AN AUDIT FIRM Audit firms generally practise as a partnership, as functions of a company auditor cannot lawfully be performed by a company. Most large audit practices usually structured along industry specialisations.

16. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 16 Fig. 2.1 Positions and duties in an audit firm

17. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 17 QUALITY CONTROL I AUS 206.06 requires that: Persons at all levels in a firm adhere to the principles of integrity, objectivity, independence, confidentiality and professional behaviour; Firms should employ appropriately qualified personnel; Personnel assigned to tasks have necessary proficiency; Work delegated should be directed, supervised and reviewed; Consultation with people who have appropriate expertise; Prospective and on-going clients should be evaluated in decision to accept or retain client; and Quality control procedures are to be monitored.

18. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 18 QUALITY CONTROL II Key quality control procedures employed by the professional bodies are Practice reviews and rotation of auditors:  Internal review — auditor subject to review by another partner in the practice  periodical rotation of auditors to limit length of time spent on one client  Peer review — independent periodic review by another firm of public accountants, and Continuing professional education requirements.