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Fr And AO Regulation


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Jon Cooper on Financial Reporting and Audit Regulation

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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>