UNIT 5. REGULATION OF EXTERNAL AUDIT

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UNIT 5. REGULATION OF EXTERNAL AUDIT

• IFAC AND E.C.

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5.1. REGULATION IFAC

• THE MOST IMPORTANT ORGANIZATION TO REGULATE THE
  EXTERNAL AUDITING IS THE IFAC.
• IFAC INTERNATIONAL FEDERATION OF ACCOUNTANTS.
  ITS MISSION IS THE WOLDWIDE DEVELOPMENT AND
  ENHANCEMENT OF AN ACCOUNTANCY PROFESSION WITH
  HARMONIZED STANDARDS, ABLE TO PROVIDE SERVICES OF
  CONSISTENTLY HIGH QUALITY IN THE PUBLIC INTEREST.
• IFAC MAKES RECOMMENDATIONS. MEETS REQUIREMENTS OF
  REGULATORS AND OTHER EXTERNAL OBSERVES IN TERMS
  OF ITS EFFICIENCY, TRANSPARENCY AND CREDIBILITY.

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5.1.REGULATION .IFAC

• THE MAIN OBJECTIVES ARE
• TO DEVELOP AND ISSUE STANDARDS AND STATEMENTS ON
  AUDITING,
• TO ASSURANCE AND RELATED SERVICES,
• TO DEVELOP QUALITY CONTROL STANDARDS FOR USE
  AROUND THE WORLD.
• THE IFAC ISSUES INTERNATIONAL STANDARDS ON
  AUDITING (ISAS) AS THE STANDARD TO BE APPLIED IN
  REPORTING ON THE CREDIBILITY OF HISTORIC
  FINANCIAL INFORMATION.

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5.1. REGULATION IFAC

• THE INTERNATIONAL STANDARD ON AUDITING PROVIDES
  AN OPPORTUNITY TO FOCUS THE STRUCTURE OF THE
  HANDBOOK OF AUDITING AND ASSURANCE PRONOUNCEMENTS
  TO BEST ACCOMMODATE CURRENT AND FUTURE DOCUMENTS.
  
• THEY ARE LIKELY TO FALL INTO THE FOLLOWING
  CATEGORIES
• STANDARDS FOR QUALITY CONTROL
• STANDARDS FOR AUDITS AND HISTORIC FINANCIAL
  STATEMENTS
• STANDARDS FOR REWIES OF HISTORIC FINANCIAL
  STATEMENTS

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5.1. REGULATION IFAC

• STANDARDS FOR ASSURANCE ENGAGEMENTS ON SPECIFIC
  SUBJECT MATTERS OTHER THAN HISTORIC FINANCIAL
  STATEMENTS
• STANDARDS ON GENERIC ASSURANCE TOPICS SUCH AS
  EVIDENCE AND DOCUMENTATION
• STANDARDS FOR RELATED SERVICES
• PRACTICE STATEMENTS AS NECESSARY FOR EACH OF THE
  ABOVE.

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5.1. REGULATION IFAC

• ISAs ARE TO BE APPLIED IN THE AUDIT OF FINANCIAL
  STATEMENTS. ISAs ARE TO BE APPLIED TO THE AUDIT
  OF OTHER INFORMATION AND TO RELATED SERVICES IN
  THE COUNTRIES THAT ARE MEMBERS OF THE IFAC.
• ISAs DEVELOP THE IFAC CODE ABOUT ETHICAL
  REQUIREMENTS (PRINCIPLES OF PROFESIONAL ETHICS)
• INTEGRITY
• OBJECTIVITY
• PROFESIONAL COMPETENCE AND DUE CARE
• CONFIDENTIALITY
• PROFESIONAL BEHAVIOR

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5.2. REGULATION E.C.

• AUDITING IN CONFIGURED UNDER THE DIRECTIVE OF THE
  EUROPEAN PARLIAMENT AND OF THE COUNCIL ON
  STATUTORY AUDIT OF ANNUAL ACCOUNTS AND
  CONSOLIDATED ACCOUNTS AND AMENDING COUNCIL
  DIRECTIVES 78/660/EEC AND 83/349/EEC.
• AUDITING ACTIVITY THAT, THROUGH USE OF CERTAIN
  REVIEW TECHNIQUES, IS AIMED AT ISSUING A REPORT
  CONCERNING THE RELIABILITY OF THE ACCOUNTING
  DOCUMENTS AUDITED. TRUE AND FAIR VIEW.
• IT IS ACTIVITY COMPRISED OF REVIEW AND
  VERIFICATION OF ACCOUNTING DOCUMENTS.

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5.2. REGULATION E.C

• DIRECTIVE ON STATUTORY AUDIT OF ANNUAL ACCOUNTS
• STATUTOTY AUDIT IN DEFINED AS THE AUDIT OF ANNUAL
  OR CONSOLIDATED ACCOUNTS OF ENTITIES COVERED BY
  COMMUNITY LAW DIRECTIVES.
• EACH MEMBER STATE SHALL DESIGNATE COMPETENT
  AUTHORITIES WHICH ARE RESPONSIBLE FOR APPROVING
  STATUTORY AUDITORS AND AUDIT FIRMS.

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5.2. REGULATION E.C

• AUDITING ACTIVITY INCLUDES THE VERIFICATION OF
  THE RESULTS OF ITS OPERATIONS AND THE RESOURCES
  OBTAINED AND APPLIED DURING THE PERIOD EXAMINED,
  ACCORDING TO THE COMMERCIAL CODE AN OTHER
  LEGISLATION APLLICABLE THERETO.
• UNDERSTAND THE FINANCIAL SITUATION AND ASSETS OF
  THE COMPANY OR BODY AUDITED.

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5.2. REGULATION E.C

• FOR THE PURPOSE OF THIS DIRECTIVE, THE FOLLOWING
  DEFINITIONS SHALL APPLYgt
• STATUTORY AUDITgt MEANS AN AUDIT OF ANNUAL
  ACCOUNTS OR CONSOLIDATED ACCOUNTS INSOFAR AS
  REQUIRED BY COMMUNITY LAW.
• STATUTORY AUDITORgt MEANS A NATURAL PERSON WHO IS
  APPROVED IN ACCORDANCE WITH THIS DIRECTIVE BY THE
  COMPETENT AUTHORITIES OF A MEMBER STATE TO CARRY
  OUT STATUTORY AUDITS.
• AUDIT FIRMSgt MEANS A LEGAL PERSON OR ANY OTHER
  ENTITY, REGARDLESS OF ITS LEGAL FORM, THAT IS
  APPROVED IN ACCORDANCE WITH THIS DIRECTIVE.

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5.2. REGULATION E.C

• UNDER THE DIRECTIVE VIII, THE REQUISITES TO BE AN
  AUDITOR ARE
• TO BE OF LEGAL AGE.
• TO BE A NATIONAL OF THE MEMBER STATES OF THE
  EUROPEAN COMMUNITIES.
• TO LACK A CRIMINAL RECORD FOR FRAUD RELATED
  OFFENSES.
• TO HAVE OBTAINED THE RELEVANT AUTHORIZATION FROM
  THE ACCOUNTING AND AUDITING INSTITUTE

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5.2. REGULATION E.C

• THE AUTHORIZATION CONDITIONS
• HAVING ATTAINED UNIVERSITY ENTRANCE LEVEL
• HAVING COMPLETED THEORETICAL TEACHING PROGRAMMES
  AND CARRIED OUT PRACTICAL TRAINING
• HAVING PASSED A PROFESSIONAL PROFICIENCY
  EXAMINATION ORGANISED AND RECOGNISED BY THE STATE.

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5.2.REGULATION E.C

• A./ THE THEORETICAL TRAINING COURSES COVER TO THE
  FOLLOWING SUBJECTS
• INTERNATIONAL AUDITING STANDARD
• ECONOMIC, FINANCIAL AND ASSETS ANALYSIS
• GENERAL ACCOUNTING THEORY AND PRINCIPLES
• CONSOLIDATION
• ANALYTICAL OPERATIONS ACCOUNTING AND MANAGEMENTE
  ACCOUNTING
• INTERNAL CONTROL AND RISK MANAGEMENT
• RULES RELATED TO ANNUAL ACCOUNTS AND CONSOLIDATED
  ACCOUNTS

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5.2. REGULATION E.C

• JURIDICAL AND PROFESSIONAL RULES RELATED TO
  CONTROL OF AUDITS AND AUDITORS
• INTERNATIONAL ACCOUNTING STANDARDS
• COST AND MANAGEMENT ACCOUNTING
• AUDITING
• PROFESSIONAL SKILLS, ETHICS AND INDEPENDENCE

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5.2. REGULATION E.C

• OTHER MATTERS LIKE gt
• CORPORATE LAW, TAX, CIVIL AND MERCANTILE LAW,
  LABOUR AND SOCIAL SECURITY LAW, INFORMATION
  SYSTEM AND COMPUTING, CORPORATE ECONOMICS,
  ECONOMIC POLICY AND FINANCIAL ECONOMICS,
  MATHEMATICS, STATISTICS AND FUNDAMENTAL
  PRINCIPLES OF CORPORATE FINANCIAL MANAGEMENT.

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5.2.REGULATION E.C

• B./THE PRACTICAL TRAINING MUST LAST AT LEAST
  THREE YEARS, ON WORK CARRIED OUT IN THE FINANCIAL
  AND ACCOUNTING FIELDS, SUBJECTS RELATED TO
  CONTROL OF ANNUAL ACCOUNTS, CONSOLIDATED ACCOUNTS
  OR SIMILAR FINANCIAL STATEMENT.
• AT LEAST TWO YEARS OF WHICH SHALL BE PERFORMED
  WITH A STATUTORY AUDITOR OR AUDIT FIRM.

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5.2. REGULATION E.C

• AUDITORS RESPONSIBILITIES
• RESPONSIBILITY AUDITORS SHALL BE DIRECTLY
  RESPONSIBLE, IN SOLIDUM AND WITHOUT LIMIT, TO THE
  COMPANIES OR BODIES AUDITED AND TO THIRD PARTIES,
  FOR THE DAMAGE AND LOSSES ARISING FROM FAILURE TO
  FULFIL THEIR DUTIES.
• SECRECY AUDITORS SHALL BE OBLIGED TO KEEP
  SECRECY AS TO ALL INFORMATION THAT COMES TO THEIR
  KNOWLEDGE WHILE PERFORMING THEIR ACTIVITY, AND
  MAY NOT MAKE USE OF SAME FOR PURPOSE OTHER THAN
  THOSE INHERENT TO AUDITING

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5.2. REGULATION E.C

• DUTY OF CUSTODY AUDITORS AND AUDITING FIRMS
  SHALL CONSERVE AND SAFEGUARD THE DOCUMENTATION
  RELATED TO EACH AUDIT THEY PERFORM, FOR THE TERM
  OF FIVE YEARS AS FO THE DATE OF THE AUDITORS
  REPORT, INCLUDING THE AUDITORS WORKING PAPERS
  CONSTITUTING THE PROOF AND BASIS FOR THE
  CONCLUSIONS RECORDED IN THE REPORT.
• INDEPENDENCE STATUTORY AUDITOR IS INDEPENDENT
  FROM THE AUDITED ENTITY AND IN NOT IN ANY WAY
  INVOLVED IN MANAGEMENT DECISIONS OF THE AUDITED
  ENTITY.

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5.2. REGULATION E.C

• STATUTOTY AUDITOR OR AN AUDIT FIRM SHALL NOT
  CARRY OUT A STATUTORY AUDIT IF THERE IS ANY
  FINANCIAL, BUSINESS, EMPLOYMENT OR OTHER
  RELATIONSHIP, INCLUDING THE PROVISION OF
  ADDITIONAL SERVICES.
• OBJECTIVITY.
• THE AUDITOR WILL CONSIDER THE PRINCIPLES OF THE
  INTERNATIONAL FEDERATION OR ACCOUNTATS, IFAC,
  CODE OF ETHICS.

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5.2. REGULATION E.C

• THE COMMISSION SHALL ADOPT INTERNATIONAL AUDITING
  STANDARDS FOR APPLICATION IN THE COMMUNITY ONLY
  IF THEY
• ARE GENERALLY ACCEPTED INTERNATIONALLY AND ARE
  DEVELOPED WITH PROPER DUE PROCESS, PUBLIC
  OVERSIGHT AND TRANSPARENCY
• PROVIDE A HIGH LEVEL OF CREDIBILITY TO THE ANNUAL
  ACCOUNTS
• ARE CONDUCTIVE TO THE EUROPEAN PUBLIC GOOD

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5.2. REGULATION E.C

• THE TECHNICAL STANDARDS ON AUDITING ESTABLISHES
  THE PRINCIPLES AND REQUISITES THAT MUST
  NECESSARILY BE COMPLIED WITH BY AUDITORS IN
  PERFORMANCE OF THEIR DUTIES AND TO EXPRESS AN
  EXPERT TECHNICAL OPINION.
• THE TECHNICAL STANDARDS ON AUDITING COVER THE
  FOLLOWING MATTERS
• T.S. OF A GENERAL NATURE
• T.S. OF PERFORMANCE OF THE WORK
• T.S. ON REPORTS

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5.2. REGULATION E.C

• TECHNICAL STANDARDS OF A GENERAL NATURE
• AFFECT THE CONDITIONS THE AUDITOR MUST COMPLY
  WITH, AND HIS BEHAVIOUR IN PERFORMANCE OF THE
  AUDITING ACTIVITY. MATTERS
• REGULATION OF THE CRITERIA THAT MUST BE APPLIED
  BY AUDITORS IN PERFORMANCE OF THEIR ACTIVITIES,
  IN ORDER TO GUARANTEE THEIR INDEPENDENCE.
• THE PRINCIPLES THE AUDITOR MUST FOLLOW TO
  GUARANTEE AFFECTIVE PROFESSIONAL SECRECY.

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5.2. REGULATION E.C

• REGULATION OF PRINCIPLES THAT MUST BE FOLLOWED AS
  TO REMUNERATIONS.
• REGULATION OF CONTROL SYSTEM THAT ALL AUDITORS OR
  AUDITING FIRMS MUST ESTABLISH IN ORDER TO
  REASONABLY ASSURE THAT THEIR PROFESSIONAL
  ACTIVITY WITH ACT AND REGULATIONS.
• OTHER ASPECTS THAT AFFECT THE AUDITORS IN
  PERFORMANCE OF THEIR ACTIVITY.

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5.2. REGULATION E.C

• TECHNICAL STANDARDS ON PERFORMANCE OF THE WORK
• REFER TO PREPARATION AND PERFORMANCE OF THE WORK
  TO BE CARRIED OUT BY AUDITORS.
• REGULATE THE SET OF INVESTIGATION AND INSPECTION
  TECHNIQUES APPLICABLE TO THE ACCOUNTING DOCUMENTS
  SUBJECT TO EXAMINATION.
• REFER THE INTERNAL CONTROL SYSTEMS AT THE COMPANY
  OR BODY AUDITED.

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5.2.REGULATION E.C

• PLANNING AND PROGRAMING THE WORK.
• PERFORMANCE OF THE WORK, INCLUDING THE ADEQUATE
  METHODS AND PROOF TO OBTAIN THE EVIDENCE
• DEVELOP THE METHODS AND PROCEDURES FOR SPECIFIC
  APPLICATION TO THE DIFFERENT SECTORS OF ECONOMIC
  ACTIVITY.
• THE CONTENT, CUSTODY AND PRINCIPLES RELATED TO
  THE DOCUMENTATION THAT JUSTIFIES THE WORK CARRIED
  OUT.

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5.2. REGULATION E.C

• TECHNICAL STANDARDS ON REPORTS
• REGULATE THE PRINCIPLES THAT MUST BE COMPLIED
  WITH TO PREPARE AND PRESENT THE AUDITING REPORT.
• ESTABLISH THE EXTENT AND CONTENT OF THE DIFFERENT
  TYPES OF REPORT, AS WELL AS THE CRITERIA TAKEN AS
  THE BASIS FOR THE MODEL OF REPORT, TO BE USED IN
  EACH CASE.