Fr And AO Regulation


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Jon Cooper on Financial Reporting and Audit Regulation

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  • First delighted to be invited back to Moscow and grateful to Geoff for the invitation. What I can’t do is to say - this is what the role of professional organisations should be in Russia – you should organise in such and such a way and have such and such powers. What I can do is to set the scene and say what the role of the professional accountancy organisations is in the UK, a little bit how it developed and suggest some of the good and the bad things about this. So my first point is that what is right in one country not necessarily right in another – we always say of US regulatory arrangements for example that they do not always travel very well. How they do things may be well suited to their needs - and there may be good ideas we want to take from the US – but we certainly do not slavishly follow the US approach!
  • Just worth putting up this slide which shows diagrammatically how the professional bodies fit into the regulatory regime
  • Just worth putting up this slide which shows diagrammatically how the professional bodies fit into the regulatory regime
  • In the UK the role of the professional bodies is still closely bound up with the history and development of the profession. The ICAEW is 125 years old and ICAS 150 years old – for the vast majority of that time those bodies have been entirely responsible themselves for regulating their members. Membership of the professional body simply came to be seen as a mark of someone who would act in a professional way and was subject to codes of ethics and of regulation set by the body. As the law developed - for example to introduce an audit requirement on companies,– the law simply acknowledged that these private associations could also support a public function and thus work for the public interest as well as for the private interests of the members. So the right to audit was restricted by law to those who were members of specified bodies - but it did not seek to regulate those bodies further.
  • That situation of pure self regulation, which remained for most of the 20 th century in the UK, has changed substantially in the last 15 years. However, it is still the case that the professional accountancy bodies continue to have a central role in UK audit regulation This slide shows that the professional associations continue to carry out most of the day to day regulation- But 2 things have changed substantially in recent years First – as this slide shows, what are seen as the most important regulatory activities from a public interest perspective have been taken away from the associations and into an independent body – inspection of public interest audits and the investigation of auditors in cases which raise significant public interest
  • Fr And AO Regulation

    1. 1. <ul><li>Jon Hooper </li></ul><ul><li>Head of Communications and </li></ul><ul><li>International Relations </li></ul><ul><li>UK Financial Reporting Council </li></ul>Regulation of Financial Reporting and Auditing – an international perspective
    2. 2. What I will cover <ul><li>What Financial Reporting and Auditing Regulation is </li></ul><ul><li>International regulatory models and organisations </li></ul><ul><li>US Case </li></ul><ul><li>German case </li></ul><ul><li>UK Case </li></ul><ul><li>Questions and Discussion </li></ul>
    3. 3. What is FR and A regulation? <ul><li>Setting rules for financial reporting by companies </li></ul><ul><li>Enforcing those rules </li></ul><ul><li>Setting rules for the auditing of companies’ financial information </li></ul><ul><li>Enforcing those rules </li></ul>
    4. 4. International models of FR and A regulation <ul><li>Directly by government only </li></ul><ul><li>Government and agency </li></ul><ul><li>Government and professional body </li></ul><ul><li>Government, agency and professional body (preferred by 8 th Directive) – Best Practice? </li></ul><ul><li>FR and A – unified or separate regulation </li></ul>
    5. 5. International organisations <ul><li>FR - IASB, NSS, WSS, IOSCO, BCBS, IAIS, FSB, EC, EFRAG, CESR </li></ul><ul><li>A - IFIAR, IOSCO, EGAOB </li></ul><ul><li>IFAC – IAASB, IESBA, IAESB </li></ul><ul><li>FEE </li></ul>
    6. 6. US Case - Overall regulatory framework <ul><li>Financial Reporting for listed companies regulated by SEC </li></ul><ul><li>FR standards set by FASB, enforced by SEC </li></ul><ul><li>Auditing standards set and enforced by PCAOB </li></ul><ul><li>FR and A for non-listed companies regulated by state law </li></ul>
    7. 7. German Case - Overall regulatory framework <ul><li>FR standards for listed companies set by IASB, enforced by Financial Reporting Enforcement Panel </li></ul><ul><li>FR standards for non-listed set by various sources – law, common practice etc. Not enforced in practice </li></ul><ul><li>Auditing standards set by professional body (IDW) </li></ul><ul><li>Auditing standards enforced by Chamber of Auditors, overseen by APAK/AOC </li></ul>
    8. 8. UK Case - Overall regulatory framework <ul><li>FR standards for listed companies set by IASB, enforced by FRC (FRRP) </li></ul><ul><li>FR standards for non-listed set by FRC (ASB) </li></ul><ul><li>Auditing standards set by FRC (ISA+) </li></ul><ul><li>Auditing standards enforced by FRC for audits of listed companies, professional bodies for other audits </li></ul>
    9. 9. UK Case – In more detail <ul><li>FR and A are regulated by EU Company Law Directives – 4 th , 7 th and 8 th </li></ul><ul><li>UK Companies Act (CA) implements the EU requirements </li></ul><ul><li>CA sets out financial reporting requirements for all companies and regulates statutory auditors – it does not regulate accountants! </li></ul><ul><li>Financial Reporting Council regulates financial reporting by companies </li></ul>
    10. 10. UK Case - Regulatory framework UK Government Insolvency service Pensions regulator Public sector accounting and audit (e.g. NAO) FSA Professional Bodies ICAEW, ACCA, ICAS, ICAI, CIMA, CIPFA 10,000 Auditors FRC 270,000 Accountants Stock Exchanges (LSE, AIM) Banks Insurers Financial advisers Listed companies Bonds etc European Union
    11. 11. UK Case - Financial Reporting Council , UK FRC AIU AUDIT INSPECTION UNIT AADB ACCOUNTANCY & ACTUARIAL DISCIPLINE APB AUDITING STANDARD SETTING ASB ACCOUNTING STANDARDS BOARD POB PROFESSIONAL OVERSIGHT BOARD FRRP FINANCIAL REPORTING REVIEW PANEL Professional Bodies Independent audit regulators Professional body regulators Auditors Public Interest Auditors Non Public Interest
    12. 12. UK Case - FRC Funding <ul><li>FRC is funded from three sources: </li></ul><ul><ul><ul><li>professional accounting bodies </li></ul></ul></ul><ul><ul><ul><li>listed companies via FSA </li></ul></ul></ul><ul><ul><ul><li>government budget (reducing) </li></ul></ul></ul><ul><li>FRC sets its own strategy and work plan that is reviewed by the FRC Board. </li></ul>
    13. 13. UK Professional Organisations of Auditors and Accountants Institute of Chartered Accountants in England & Wales – 111,000 UK members Association of Chartered Certified Accountants – 61,000 Institute of Chartered Accountants of Ireland – 14,000 Institute of Chartered Accountants of Scotland – 15,000 Chartered Institute of Management Accountants – 56,000 Chartered Institute of Public Finance and Accounting – 13,000
    14. 14. Professional Organisations Involvement in Audit Regulation <ul><li>Still responsible for: </li></ul><ul><li>Education and training of auditors </li></ul><ul><li>Registration of auditors – firms and individuals </li></ul><ul><li>Inspection of audit firms - but not auditors of “public interest entities” </li></ul><ul><li>Investigation and disciplining of auditors – but not cases which raise serious public interest issues </li></ul>