Public audit oversight and quality assurance system in Switzerland


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Sabine D'Amelio

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Public audit oversight and quality assurance system in Switzerland

  1. 1. Public audit oversight and quality assurance system in SwitzerlandVienna, December 15-16. 2009<br />Sabine D‘Amelio<br />Deputy Head Legal and International Affairs<br />Federal Audit Oversight Authority, FAOA<br />
  2. 2. Overview<br />2<br />Introduction<br />Organization<br />Licensing<br />Oversight<br />International cooperation<br />
  3. 3. Introduction (1)<br />Main characteristics of the Swiss market<br />Population of 7.7 million <br />GDP per capita (PPP) of approximately USD 40,000<br />98% of Swiss Market Capitalization is audited by PwC, KPMG and EY<br />17 audit firms audit listed companies <br />29 audit firms under state oversight<br />Switzerland - unlike the other EFTA-Member-State - is not part of the European Economic Area (EEA) and therefore does not have to implement the 8th EU Directive<br />Small domestic market -&gt; export oriented economy: Swiss PIE are often listed on foreign stock exchanges<br />3<br />
  4. 4. Introduction (2)<br />Reasons for creating an independent oversight authority<br />Obvious limits to Self-regulation of the profession<br />Objective to improve audit quality<br />International developments (SOX USA / 8th EU-Directive)<br />4<br />
  5. 5. Introduction (3)<br />September 2007 <br />Audit Oversight Act (AOA) comes into force<br />FAOA starts its operational activities<br />January 2008<br />Revised Company Law comes into force <br />Different levels of audit are introduced (limited vs. ordinary audit)<br />April 2008<br />FAOA begins its inspection activities for public interest entities<br />5<br />
  6. 6. Organisation (1)<br />6<br />
  7. 7. Organisation (2)<br />7<br />Purpose of Audit Oversight Act<br />Assuring proper performance and quality of audit services<br />Responsibilitiesofthe FAOA <br />Licensing ofauditorsandauditexperts<br />Oversightofauditfirmsauditinglistedcompanies<br />International cooperation<br />
  8. 8. Organisation (3)<br />Resources<br />8<br />
  9. 9. Organisation (4)<br />9<br /><ul><li>Budget 2009</li></li></ul><li>Licensing (1)<br />Categories of licenses<br />10<br />
  10. 10. Licensing (2)<br />Licensing process <br />Electronic licensing via internet:<br />After decision, automatic inclusion in the Public Register<br />Information in the register has to be updated by the license holder<br />License for individuals are unlimited (possibility to withdraw)<br />License for audit firms are reviewed every 5 years<br />11<br />
  11. 11. Licensing (3)<br />Provisionallicensingsystem<br />12<br />01.09.07<br />30.06.10<br />31.12.07<br />provisionallicense<br />final license<br /><ul><li> conversion prov. license in final license
  12. 12. auditservicesprovidedwith a provisionallicense</li></ul>remain valid evenif final licensecannotbegiven<br />
  13. 13. Licensing (4)<br />Licensing statistics as of november 2009<br />13<br />
  14. 14. Oversight (1)<br />Inspections of audit firms under state oversight<br />Inspections at least every three years<br />The three largest Audit Firms are inspected every year:<br />98% of the market capitalization of the Swiss stock exchanges<br />international practice<br />All others every three years<br />FAOA may stagger the inspections by time and content <br />14<br />
  15. 15. Oversight (2)<br />1 Data fromthe Register ofthe FAOA (accordingtheselfdeclarationoftheauditfirmsunderstateoversight). As August 27, 2009 thebasicsetare 499 publiclytradedcompanies (including 157 substantial rolecompaniesand 42 companieswithbondsoutstanding). <br />2 Data fromthe Register ofthe FAOA (accordingtheselfdeclarationoftheauditfirmsunderstateoversight). As August 27, 2009 thebasicsetare 300 publiclytradedcompanies (without substantial rolecompaniesandcompanieswithbondsoutstanding). <br />15<br />
  16. 16. Oversight (3) <br />Principles of the inspection process<br />Cooperative approach vs. formal investigation<br />Risk based<br />Fact based<br />International recognized inspection standards<br />Same principles for all audit firms under state oversight<br />16<br />
  17. 17. Oversight (4)<br />General process of an inspection<br />Initial contact with firm<br />Formal letter with document and interview request<br />Communication of engagements selected for review<br />“Surprise list” for file review<br />On-site engagement review and quality control process evaluation<br />Reporting <br />Maximum time limit of 12 months to restore orderly situation<br />Investigation<br />17<br />
  18. 18. Oversight (5)<br />Scope of FAOA inspections<br />Examination of accuracy of information provided and updated in the licensing application<br />Firm reviews: Internal Control Review on quality assurance system and compliance with other provisions<br />File reviews: Inspection of audit work papers<br />18<br />
  19. 19. Oversight (6)<br />Firm Review <br /> BASIS = QUALITY CONTROL SYSTEM = ISQC1<br />Tone at the top – Leadership responsibilities for quality within the Firm<br />Ethical requirements – Monitoring of Independence Standards<br />Acceptance and continuance of client relationship<br />Human resources (recruiting, development, remuneration, etc.)<br />Engagement Performance - Audit methodology<br />Engagement Quality Control Review (Concurring partner review / Consultation process)<br />Monitoring (internal quality review)<br />19<br />
  20. 20. Oversight (7)<br />File Reviews <br />Goal: Compliance with internal and external standards<br />Continuous improvement of audit quality<br />Large firms probably have good systems but are they followed?<br />Risk based selection (influence of internal quality assurance – monitoring)<br />No audit of the audit<br />20<br />
  21. 21. Oversight (8)<br />Extractofcommunfindings in thepasttwoyears<br />EQCR participationis not sufficient/not documented/toolate.<br />ISA 545: fair valueconsiderations<br />ISA 600, 610 and 620: Expert workandprof.competence not challenged/workofotherauditors not challenged<br />ISA 230: documentation not sufficient<br />ISA 240: prof.skepticism = rely on pastexperience<br />Goodwill Testing: keyassumptions not challenged<br />Revenue recognition not adressedassignificantrisk<br />21<br />
  22. 22. Oversight (9)<br />Reporting<br />Comment Form for each finding<br />Draft written inspection report including comment forms made available to the Audit Firm for comment<br />Firm to respond and propose measures for remediation<br />FAOA issues final written report<br />Annual activity report ( <br />22<br />
  23. 23. Oversight (10)<br />Logistics<br />Templates <br />Formal announcement of inspection with all information required<br />Comment forms<br />Inspection reports<br />IT-software to document the inspections<br />Clear inspection strategy: On-site inspections versus questionnaires, risk based approach, criteria for risk selection, etc.<br />23<br />
  24. 24. International cooperation (1)<br /><ul><li>Multilateral level
  25. 25. FAOA is a member of the International Forum of Independent Audit Regulators (IFIAR :
  26. 26. German/Austrian/Swiss forum
  27. 27. Bilateral level
  28. 28. Rules for the implementation of a system of mutual recognition for companies operating internationally
  29. 29. Rules for cooperation/transfer of information with foreign oversight authorities
  30. 30. Rules for cross-border oversight activities</li></ul>24<br />
  31. 31. International cooperation (2)<br /><ul><li>Registration/oversight of third country auditors
  32. 32. If third country audit firm is subject to oversight by a recognized foreign oversight authority
  33. 33. Only minimal registration requirements with the FAOA
  34. 34. No direct oversight by the FAOA
  35. 35. Full recognition of inspection activities of the foreign oversight authority
  36. 36. Transmission of inspection reports only if deemed necessary</li></ul>25<br /><ul><li>Registration/oversight arrangements for third country auditors will enter into force once the main partner oversight authorities have been recognized by the FAOA/Swiss Government
  37. 37. No need for a transitional period</li></li></ul><li>International cooperation (3)<br /><ul><li>Conditions for mutual recognition
  38. 38. Equivalence of the foreign oversight authority
  39. 39. Principle based approach
  40. 40. In principle no joint inspections to assess equivalence
  41. 41. Authority complies with requirements for cooperation (Art. 26/27 AOA)
  42. 42. Possibility to rely on the assessment by other authorities
  43. 43. Possibility to require reciprocity</li></ul>26<br /><ul><li>Swiss FAOA will start mutual recognition assessments in 2010</li></li></ul><li>International cooperation (4)<br />Transfer of confidential information<br />Foreign authority uses information received exclusively for the direct oversight of persons and firms that provide audit services<br />Foreign authority is bound by official or professional secrecy<br />Information received can only be passed on to authorities and bodies that carry out oversight duties that are in the public interest and are bound by official and professional secrecy, on the basis of authorization in a treaty or with the prior consent of the FAOA<br />27<br />
  44. 44. Thankyouforyourattention<br />For further information please contact:<br /><br />28<br />