Optimising assurance for shareholders
Maximising the value for money of the audit
Ensuring the best standards of corporate governance
STOP PRESS!
NEW BUSINESSES CAUGHT UNDER ‘PUBLIC INTEREST ENTITY’ (PIE) DEFINITION
"Two consultations, which have just been issued by BIS and the FRC, now clarify the applicability of the new EU Audit Regulation and Directive to smaller and non-quoted financial institutions. The definition of a "Public Interest Entity" is being extended from June 2016 to include all banks and insurance companies of whatever size, where as previously only PLCs and the largest financial institutions were affected. These new PIEs will be subject to the same re-tendering rules, prohibited non-audit services (NAS), 5 year partner rotation and auditor engagement with the audit committee as the largest PLC. From around 2019, they will also be subject to the 70% cap on NAS. This extension of the rules has passed many smaller financial institutions by.

Worse still, the EU Audit Regulation is law and fully applicable in the UK, so breach of these rules is a serious offence. June 2016 is now very close and new PIEs need to understand when the new rules affect them and how. It is quite possible that some will need to organise an audit tender during 2016 so as not to break the law. Audit Review can help. We have a range of services to help firms comply regardless of size and experience".

Reviewing external audit effectiveness

The UK Corporate Governance Code requires audit committees annually to review the effectiveness of the external audit. Following this review, the audit committee should recommend to the board on the appointment, reappointment and removal of external auditors. Regulators and shareholders are showing increasing interest in the processes audit committees go through in making this recommendation. One of the best ways of complying with the spirit of this regulatory requirement is to involve an independent third party. Audit Review provides that expert review service which

  • highlights areas where the audit process and the external audit relationship can be strengthened

  • looks at the audit plan, the auditor's risk analysis and whether the auditor has used resources in the correct areas, especially on global audits

  • considers how specialist or country teams from the auditor are used and how they share their knowledge

  • reviews the level of audit fees in the context of any non-audit fees paid to the audit firm and whether they are competitive but allow the audit to be conducted without cutting corners

  • critically assesses the levels of service and quality of relationships with key personnel.

Optimising assurance for shareholders

The audit is the one area where shareholders are able to obtain an external opinion on the stewardship of the directors whom the shareholders appoint. It is still viewed as the most important control over the financial performance of a company. Reviewing the performance of the auditors and the effectiveness of the audit provides assurance for shareholders that their interests are being looked after – particularly in the light of well publicised cases where companies have had the same auditors for long periods of time.

Maximising the value for money of the audit

Audit fees are often companies’ largest professional expenditure. It makes sense for companies to ensure that both the auditors and their finance teams are carrying out an efficient process, but one which fulfils its prime task of providing assurance to shareholders as to the accuracy of the accounts. The prime purpose of a review is to ensure an audit is effective, but it also allows companies to get greater value from the amount they spend.