Non-audit financial engagements are critical for many businesses, providing essential financial information without the rigors of a full audit. However, monitoring visits have revealed recurring issues that can undermine the reliability and credibility of these engagements.
In Non-Audit Matters – 5 Key Areas To Watch Out For , Colm Owens delves into five key areas where practitioners often stumble.. This session was aired during CPD Fest in association with Swoop and will be live again on the 19th of December. For more information please click here.
Financial Statement Issues
One of the most glaring problems identified during monitoring visits is the application of incorrect financial reporting frameworks. This misstep can lead to financial statements that do not accurately reflect the company's financial position. For instance, we're still seeing instances where FRS 105 is used when FRS 102 should be applied, and vice versa. Such errors not only compromise the integrity of the financial statements but also put the reputation of the accounting firm at risk. It's crucial to ensure that the appropriate framework is used and that an accountant's report complies with the regulatory guidance to maintain the institute's reputation.
Lack of Evidence of Planning and of Consideration of Independence
A robust planning process is the backbone of any financial engagement. Unfortunately, there's often a lack of documented planning and consideration of independence issues. This oversight can result in engagements that are not tailored to the specific needs and risks of the client, potentially leading to significant oversights. Moreover, independence is a cornerstone of professional standards, and failure to adequately consider and document independence can raise questions about the objectivity and impartiality of the engagement.
Lack of Backup Documentation Supporting Documentation
Backup documentation is essential to substantiate the financial figures presented. Monitoring visits frequently uncover a deficiency in evidence demonstrating the extent of work carried out. Without proper backup, it becomes challenging to reconcile financial statements with underlying documents and records. This gap can leave firms vulnerable to challenges regarding the adequacy of their procedures, especially if they are subsequently reviewed by a regulatory body or during a file review.
Lack of Use of Structured Programme
The absence of a structured programme is another common issue. A structured approach ensures that all necessary steps are taken and that nothing is overlooked. Non-audit engagements, regardless of their size, require a systematic process to ensure thoroughness and accuracy. Without this, the engagement may lack consistency and completeness, leading to potential errors and omissions that could have been avoided with a more disciplined methodology.
Lack of Review of Engagement
Finally, the engagement review process is often found wanting. The engagement partner or principal must evidence their involvement throughout the planning, fieldwork, and completion stages. It's not enough to delegate tasks to senior managers or directors; the ultimate responsibility lies with the engagement partner. A lack of written representations from directors is a related concern, highlighting the need for clear communication and confirmation of the financial information provided.
Non-audit financial engagements are far from being low-risk or straightforward. They demand the same level of care and professionalism as audit engagements. By addressing these five key areas, practitioners can significantly improve the quality of their work and uphold the standards expected by their clients and regulatory bodies. Remember, the goal is not just to satisfy the immediate needs of the engagement but to protect the public interest and the profession's reputation.
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.