External confirmations
The Irish Auditing and Accounting Supervisory Authority (IAASA) is proposing to amend its auditing standard ISA (Ireland) 505, External Confirmations, for periods beginning on or after 15 December 2024, with early adoption permitted. The amendments do not substantively change the existing standard but they do clarify the role of the use of electronic external confirmation (through web portals, software interfaces or other digital means) and ban the use of negative confirmations.
The amendments confirm that ‘shoulder surfing’ (eg observing a client over their shoulder while they access online banking and documenting or screenshotting what you as auditor observe) can be good audit evidence but needs to be used with care.
Audit of completeness
ACCA has issued a guide to the audit issues arising from assessing management’s assertion on completeness. Completeness in this context means:
- all business events to which the company was subjected have been recorded
- all reported asset, liability and equity balances have been fully reported
- all transactions that should be disclosed have been disclosed.
The observations include a description of poor practices observed and suggestions on how the work could be improved.
Large audit clients
In Ireland there are only seven audit firms licensed to undertake the audit of public interest entities (PIEs). Some smaller audit firms have the resources and expertise to undertake the smaller PIE audit assignments but are effectively barred from this work because of the very high up-front fixed compliance cost.
In the UK, there is a similar issue, and the Financial Reporting Council (FRC), the audit regulator in the UK, is trying to increase competition and choice in the audit market while still ensuring the highest standards of audit quality.
Recruiting suitably qualified audit staff at all levels is a major issue
The FRC has identified a number of barriers to entry into the PIE audit market and published research into why there are so few firms in that market. The UK research identifies the difficulty of attracting and retaining suitably qualified audit personnel at all levels as a major issue.
In terms of UK audit work in general, the FRC research report stresses the importance of the ‘waterfall effect’ of larger firms referring new audit work to smaller firms. In terms of the cause of firms exiting from the SME audit market, the retirement of audit partners and a view that ‘standards and regulation were becoming too challenging’ were frequently cited.
UK audits
The UK and Irish ethical standards for auditors require an auditor to consider what, in certain situations, would be the opinion of an objective, reasonable and informed third party (ORITP). For example, the ethical standards require that while an auditor may feel fully independent and objective in a particular circumstance, they still need to assess whether an ORITP would share that view. Stepping into the shoes of a hypothetical person is not always easy, and the UK’s FRC has issued guidance on how this might be done.
Legislation regarding late filing by companies and audit exemption is set to change
The FRC has also published an update to its ethical standard for auditors, effective from 15 December 2024. The main matter of concern is a new targeted restriction on fees from entities with the same beneficial owner or controlling party (ie not necessarily in a group but owned by one person). The existing 10% and 15% rules that previously applied only to the entity and its subsidiaries will now also apply to ‘a collection of entities with the same beneficial owner or controlling party’. Both the guidance and the revisions to the ethical standard are expected to be adopted by IAASA for Ireland in due course.
Irish legislation
In the recently published government legislative programme for Spring 2024, the Companies (Corporate Governance, Enforcement and Regulatory Provisions) Bill is still listed as ‘heads [of bill] in preparation’. This legislation should, among other matters, allow a company to be late filing an annual return one year in five and still not lose audit exemption.
The other piece of legislation of note is the Charities (Amendment) Bill 2023, which at the time of writing is at second stage. This legislation will bring charitable companies’ financial statements within the scope of the Charity Regulators and increase exemption limits from €100,000 to €250,000.
