PROPOSED CHANGE TO THE DEFINITION OF ENGAGEMENT TEAM. Comments from ACCA May 2012

Transcription

1 PROPOSED CHANGE TO THE DEFINITION OF ENGAGEMENT TEAM Comments from ACCA May 2012

2 Page 1 ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. We support our 147,000 members and 424,000 students throughout their careers, providing services through a network of 83 offices and centres. Our global infrastructure means that exams and support are delivered and reputation and influence developed at a local level, directly benefiting stakeholders wherever they are based, or plan to move to, in pursuit of new career opportunities.

3 Page 2 COMMENTS ACCA welcomes the opportunity to comment on the exposure draft concerning the proposed change to the definition of engagement team within the Code of Ethics for Professional Accountants ( the Code ). The proposed change provides an instance of grammatical clarity (inserting the word by ) and then specifically excludes individuals within an audit client s internal audit function from the definition of engagement team, so long as they are providing direct assistance on the engagement in accordance with ISA 610 (Revised). The objectives of the proposed change, as stated in the explanatory memorandum, are: to address an apparent inconsistency between the use of internal auditors under ISA 610 (Revised) to perform external audit procedures and the requirement under the Code for external auditors to be independent of the audit client to rectify a possible unintended consequence of the recent revision of ISA 610, whereby internal auditors performing external audit procedures would, by definition, be part of the engagement team. The intention of the change proposed in the exposure draft is one of clarification. However, it is also important to address possible negative perceptions regarding the independence of the audit, and so there is a balance to be drawn between achieving both adequate direction and supervision of the internal auditors (to demonstrate their effective independence from the audit client) and making clear the fact that the internal auditors (and other employees of the audit client) are not members of the engagement team. The proposed revised definition of engagement team relies on the reader s understanding of the term internal audit function. This is defined (for the purposes of the ISAs) in paragraph 14 (a) of ISA 610 (Revised) as a function of an entity that performs assurance and consulting activities designed to evaluate and improve the effectiveness of the entity s governance, risk management and internal control processes. Further, paragraph 10 of ISA 610 (Revised) also attempts to clarify the meaning of internal audit function in the situation in which individuals in an entity perform procedures similar to those performed by an internal audit function. It states that unless performed by an objective and competent function that applies a systematic and disciplined approach,

4 Page 3 including quality control, such procedures would be considered internal controls. Paragraph A2 of ISA 610 (Revised) states that [a]ctivities similar to those performed by an internal audit function may be conducted by functions with other titles within an entity. Neither the title of the function, nor whether it is performed by the entity or a third-party service provider, are sole determinants of whether or not the external auditor can use the work of the function. Rather, it is the nature of the activities; the extent to which the internal audit function s organizational status and relevant policies and procedures support the objectivity of the internal auditors; competence; and systematic and disciplined approach of the function that are relevant. References in this ISA to the work of the internal audit function include relevant activities of other functions or thirdparty providers that have these characteristics. Therefore, we believe that the proposed revised definition does not provide clarification in respect of individuals providing direct assistance on the engagement who fall outside the definition of the internal audit function. Given that internal audit staff are not members of the engagement team regardless of a particular activity that the internal audit staff may be performing at any given time, we believe that the proposed extension to the definition (which is supposed to provide clarity) is unduly complicated. Internal audit staff should not only be excluded from the definition of engagement team when providing direct assistance to the external auditor, but also when not providing such assistance. Therefore, we propose that the definition, in fact, be amended as follows: Engagement team All partners and staff performing the engagement, and any individuals engaged by the firm or a network firm who perform assurance procedures on the engagement. This excludes external experts engaged by the firm or by a network firm. It also excludes individuals within an audit client s internal audit function and other individuals within the client entity who perform procedures similar to those performed by an internal audit function.

5 TECH-CDR-1109 The Association of Chartered Certified Accountants 29 Lincoln s Inn Fields London WC2A 3EE United Kingdom tel: +44 (0) fax: +44 (0)