Reflections from the AUASB: Rebuilding trust and audit quality through evidenceinformed

Transcription

1 Reflections from the AUASB: Rebuilding trust and audit quality through evidenceinformed standard-setting December 2018 Presented by: Professor Roger Simnett AO Chair AUASB

2 Structure for Session 2 The environment International reflections National reflections Evidence informed standard-setting - implications for academics

3 The Assurance Environment 3

4 The Assurance Environment 4

5 The Trust Deficit Globally 5

6 The Trust Deficit in Australia 6

7 The Trust Deficit in Australia 7

8 Responding to the Trust Deficit 8 Organisations doing the right thing Organisations communicating this doing to stakeholders (Reporting including EER) Do we believe this communication? (Credibility)

9 The Assurance Environment 9 AUASB Set the standards Firms Implement and apply the standards ASIC Enforce the standards Who oversees audit quality in Australia? AUASB has no audit quality mandate. Resides with Financial Reporting Council (FRC), a statutory oversight body whose functions include broad oversight of the processes for setting auditing standards in Australia. FRC cannot be involved in technical deliberations of the AUASB.

10 Responsibilities 10 AUASB FRC ASIC Established by section 227A of the ASIC Act Mandate to: make auditing standards under section 336 of the Corporations Act 2001; formulate auditing and assurance standards for other purposes; and formulate guidance on auditing and assurance matters. Established by Part 12 of the ASIC Act Mandate to: provide broad oversight of standard-setting in Australia; facilitate the economy, by having auditing and accounting standards that are clear and easy to understand; maintain investor confidence in the Australian economy including capital markets Established by the ASIC Act Mandate to: Inspect audit firms, including reviewing selected quality control areas at large audit firms, and reviewing the effectiveness of action plans to improve audit quality Review auditors role and responsibilities, including culture, behaviours, risk appetite, governance, accountability and quality control, in supporting financial reporting quality and companies transparency to the market

11 Responsibilities 11 FRC Strategic Direction to the AUASB (2005) Develop Australian Auditing Standards (ASAs) that have a clear public interest focus and are of the highest quality. Use International Standards on Auditing (ISAs) of the IAASB as a base from which to develop ASAs.. Continue to develop auditing and assurance standards other than for historical financial information.., and may participate in audit research that is conducive to, and which significantly benefits, the standard-setting activities of the AUASB.

12 The AUASB s Strategic Objectives 12 Objective 1 Objective 2 Objective 3 Objective 4 Develop, issue and maintain high quality Australian auditing and assurance standards that meet the needs of report users. Use IAASB Standards or develop Australian-specific standards and guidance. With the AASB, play a leading role in reshaping the Australian external reporting framework by working with regulators to develop objective criteria on: Who prepares external reports. The nature and extent of assurance required. Actively influence international auditing and assurance standards and guidance by demonstrating thought leadership and enhancing key international relationships. Attain significant levels of key stakeholder engagement, through collaboration, partnership and outreach. Objective 5 Objective 6 Objective 7 Influence initiatives to develop assurance standards and guidance that meet user needs for external reporting beyond financial reporting. Monitor and respond to emerging issues impacting the development of auditing and assurance standards and guidance, including changing technologies. Develop guidance and education initiatives, or promote development by others, to enhance consistent application of auditing and assurance standards and guidance.

13 Reflections on the International Landscape In this section - Global concerns about: - Audit standard-setting; and - Audit quality. - How can we influence internationally?

14 Global Audit Quality Concerns 14

15 Influencing internationally 15 Working with the IAASB Working with other National Standardsetters Other international groups, (mainly EER) Evidence-informed standards setting

16 Reflections on the National Landscape In this section - AUASB Strategic Projects - Expectations of Government and working with the FRC - Audit Quality debate currently driven by ASIC inspection findings

17 Audit Quality Concerns in Australia 4

18 Expectations of the AUASB Expectations of Government and the FRC 18 No audit failures on our watch. Measuring audit quality through surveys (Audit Committee Chairs and Investors). Auditor disciplinary processes. SMSF audits (one versus three years). FRC expects AASB and AUASB to work together where meaningful, as do our stakeholders.

19 Strategic projects for the local environment 19 The use of technology in audits, including data analytics; Public sector auditing and assurance issues; Continuing activities to support Auditor Reporting Implementation; Extended External Reporting, both locally and globally; Less Complex Entities; Conceptual and Reporting Frameworks; Charities/NFPs; Financial services.

20 Audit Quality debate currently driven by ASIC inspection findings 20 Last June 2017 ASIC reported 23% of key audit areas firms had not obtained "reasonable assurance" (up from 18% at last inspection) The AUASB has been a key part of a profession-wide response to regulator concerns, supporting the local oversight body (FRC) through: Broaden discussion Learn from results Knowledge sharing Surveys of Audit Committee Chairs and Investor Groups on their perceptions of Audit Quality Separate dialogue with regulator and firms to identify common areas where additional guidance or revision is required Improve transparency and knowledge sharing with local regulator on Audit Quality Inspection process and outcomes

21 Evidence-informed Standard Setting and the implications for academics In this section - AUASB s Evidence-Informed Standard-Setting Strategy (EISS) - Impact of research on our contemplations - Working with the AUASB

22 AUASB s Evidence Informed Standard- Setting Strategy (EISS) 22 Big push to ensure we have evidence informed decision-making. Draft of an evidence informed standard setting strategy presented to AUASB in December (slow progress). IAASB is planning to have a defined research stage before project approval. Is a no-brainer. For each IAASB project, can we get a team together to synthesise the relevant research?

23 Academic Research 23 The Opportunity for Academics Need for evidence-informed standard-setting and policy making. Academics in a unique position to play a leading role: - Independent. - Expert at devising appropriate research questions, research design and analysis. All other parties have vested interest, or lack the expertise.

24 EISS The Strategy 24 Ensures the AUASB has a robust and transparent evidence gathering process Encourages formalising collaboration with academics Key components: Research and Stakeholder Engagement IAASB is also building a defined research stage into their international strategy

25 Issues with Informing IAASB Standards 25 Environment Audit profession is truly international, with regard standard-setting (through IAASB, exception PCAOB), Regulation is national (but regulators co-operate through IFIAR). Audit firms truly international through GAFN and FoF. This a unique structure. Audience The structure gives academics natural audiences for their research. There is a natural interest in cross-country research. But we do not do it well. Many studies are motivated

26 Trends in International Archival Research (Simnett Carson and VanStraelen AJPT 2016) 25 The largest % of international archival research (30%) Sample encompasses articles from in 8 leading accounting and auditing journals: AOS, AJPT, CAR, JAE, JAPP, JAR, RAST, TAR. 130 international studies in total from these journals. Only 10 refer to auditing standards, and 6 refer to non-financial statement audit IAASB Framework Most Examined and Least Attention What We Have Learned Inputs/Processing/Out puts Input-Values Independenceand auditor tenure Independence and NAS Input-Knowledge Input-Knowledge at Engagement Level (16.9%): e.g. Partner and staff competency Processing Processing at all levels (4.0%) Auditor expertise and audit fee premium Audit market competition and audit fees Client firm ownership structure and auditor choices Outputs Outputs at Engagement Level (18.6%): e.g. Audit reports Auditor reporting and market reaction Audit quality and management Key Interactions Auditors -Those Charged with Governance (46.0%) Auditors - Regulators (24.2%) Auditors - Users (2.4%) Contextual Factors Audit Laws and Regulations (26.6%) Audit Industry and Structure (25.0%) Information Systems (0.8%)

27 Trends in Behavioural Experimental Research 27 Sample encompasses articles from in 10 leading accounting and auditing journals: AOS, AJPT, BRIA, CAR, EAR, JAE, JAPP, JAR, RAST, TAR. (Simnett and Trotman BRIA, 2018) The largest % of international experimental research (27%) Participants External auditors (70.0%): Seniors auditors, auditors from all ranks are the most popular. over 25 years, especially audit managers (2.4% in to 0.6% in ) and audit partners (0.6% in to 0.0% in ) Conditions Controlled environment (57.8%) over 25 years (14.0% in to 11.0% in ) Students (8%) over 25 years (0.6% in to 3.0% in ), along with other categories such as judges or jurors, investors Non-controlled environment (31.3%) Experimental survey (mail and contact persons) (5.0% in to 2.6% in ) Mechanised ( /link, mechanical turk) (0.0% in to 6.5 % in )

28 Opportunities for academics EISS - Summary 28 Very little cross-border research. Research issues have not been very clear on what is in the research for the audit firms, standard-setters, and regulators. Very few studies refer to auditing standards and regulation. Most of those that do refer to this work in motivation, not in conclusion. Implications are very generic rather than specific.

29 Summary Environment is one where audit quality is forefront of mind Great push for evidence-informed decision making Opportunities for academics to help inform.