Comparative Study Report: Survey on Auditor Independence in the context of SAFA Member Bodies (Date of Report : 7 September 2014)

Transcription

1 Comparative Study Report: Survey on Auditor Independence in the context of SAFA Member Bodies (Date of Report : 7 September 2014) Final Version Question ICAB ICMAB** ICAI ICAI (Cost) ICAP ICMAP** ICASL CMASL** ICAN 1. Do you have any requirement for mandatory audit rotation in your jurisdiction? Yes Yes Yes Yes Yes Yes 2. If yes, please state: i). To which types of audit client does it apply? Name(s).. ((i). Listed entities, banks and NBFIs (i). Rotation applies to all the following categories of Companies w.e.f.. 1 st April, 2014 ( Company as per Section 2(20) of the Companies Act, 2013 refers to a company incorporated under this Act or under any previous company law.):- (1)Listed company (2) all unlisted public companies having paid up share capital of rupees ten crore or more; (3) all private limited companies having paid up share capital of rupees twenty (i). Every Company (i). Listed entities i). The firm s partners are subject to periodic rotation of assignments on audit clients under applicable laws and regulations and independence rules. These limit the number of years that partners in certain roles may provide audit services to an audit client within the scope of the requirements. The firm s policies are written to comply with specific regulatory requirements, such as the LKAS, SLAuS, and Code of Ethics for Professional Accountants etc. (i). Public limited companies and PSUs Page 1 of 19

2 crore or more; (4) all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more. Firms monitor the rotation of partners who provide services to audit clients. This monitoring system also aids in the development of timely transition plans that help the member firm deliver consistent quality service to its clients. The process of monitoring and tracking service time and partner rotation is subject to compliance testing as part of the firm s quality performance 2 (ii). After every how many years such rotation is required? Please specify by types of audit client (ii) 3 years rotation in each case (ii). An individual as auditor will be rotated after one term of five consecutive years; and an audit firm as auditor will be rotated after two terms of five consecutive years review processes. (ii). 5 years (ii). 5 years (ii). The Guidelines for Appointment of Auditors of Listed Companies issued by the Securities and Exchange Commission in Sri Lanka requires audit firms to have three or more partners and the engagement partner to be a Fellow member of (ii). Every 3 years Page 2 of 19

3 CASL or an Associate member with more than 10 years experience, requires mandatory partner rotation every five years, specifies independence criteria. 2 (iii). Is it required by law or regulation or otherwise? Please state the name(s) of such law, regulation or others (if any), as are applicable for each type of audit client (iii) Bangladesh Securities and Exchange Commission and Bangladesh Bank (Central Bank) regulations (iii). Yes. Companies Act, 2013 (iii). Yes. Companies Act 2013 (iii). All listed companies in the financial sector shall change their external auditors every five years. Financial sector, for this purpose, means banks, non-banking financial companies (NBFC s), modarabas and Insurance/ Takaful companies All listed companies other than those in the (iii). Stated above. Yes. Companies Act, 2006 and Bank and Financial Institutions Act 2006 Page 3 of 19

4 financial sector shall, at a minimum, rotate the engagement partner after every 5 years. The listing Regulations of Stock Exchanges 2 (iv). Can the audit client change the existing auditor prior to the time when the rotation is due? Yes/No Comments.. iv). Yes. As per Section 210 (3) of the companies Act, 1994, At any annual general meeting a retiring auditor, by whatsoever authority appointed, shall be reappointed, unless (a) he is not qualified for reappointment ; or (b) he has given the company notice in writings of his unwillingness to be re-appointed ; or (iv). Third proviso to Section 139(2) of the Companies Act, 2013 provides that nothing contained in this sub-section shall prejudice the right of the company to remove an auditor or the right of the auditor to resign from such office of the company. (iv). Yes Special resolution and previous approval of central govt. is required (iv).yes Banks and DFIs As per Section 35(2) of the Banking Companies Ordinance, 1962, an auditor shall hold office for a period of 3 years and shall not be removed from office before the expiry of that period except with the prior approval of the State Bank. Further Section 35(3) also requires as follows: If the State Bank is not satisfied (iv). No. According to Section 160 of the Companies Act No 7 of 2007 a company shall not appoint a new auditor in place of an auditor who is qualified for reappointment, unless- (a). At least 20 working days written notice of a proposal to do so has been given to the auditor; and (b). the auditor has been given a reasonable opportunity to make representations to the shareholders on the appointment of (iv). No. Except in case of exceptional circumstances Page 4 of 19

5 (c) a resolution has been passed at that meeting appointing somebody else instead of him or providing expressly that he shall not be re-appointed: Provided that for the purpose of passing a resolution under clause (c), a notice thereof shall in accordance with section 211 be issued prior to the meeting, and such resolution cannot be passed except on the ground of death, incapacity or dishonesty or disqualification of the retiring auditor with the performance of the auditor of a banking company or the auditor has not fulfilled any of the requirements laid down in this section the State Bank after giving the auditor an opportunity of being heard may,- (a) revoke the appointment of external auditors of the banking company; (b) downgrade the category of the auditor in the panel of the auditors; and (c) remove the auditor from the panel of the auditors for a maximum period of five years. another person, either in writing or by the auditor or his representative speaking at a shareholders meeting (whichever the auditor may choose). Other than Page 5 of 19

6 Banks/DFIs Under Section 252 of the Companies Ordinance, 1984 an auditor or auditors appointed in a general meeting may be removed before conclusion of the next annual general meeting through a special resolution. 3. Does the SAFA member body or any other regulator in your jurisdiction has a prescribed or recommended basis for audit fees? Yes/No If yes, please provide details. Yes, ICAB has a recommended basis for audit fees. No. No Yes Auditing Technical Release No.14 issued by the Institute of Chartered Accountants of Pakistan No. According to the Code of Ethics issued by the Institute of Chartered Accountants of Sri Lanka, when entering into negotiations regarding services, a accountant in public practice may quote whatever fee deemed to be appropriate. Yes Page 6 of 19

7 4. Are the audit firms in your jurisdiction allowed to make public Advertisements or sponsorships as follows: Advertisement is not permitted under the Chartered Accountants i). Sponsorship of a TV program, displaying the name and logo of the firm; (i). No (i). No (i). No Ordinance, 1961 (i). No II). Sponsorship of a sport event/game, displaying the name and logo of the firm publicly in the place of event, being covered by TV channel(s); iii). Advertisement in a newspaper/magazine, giving the name and logo of the firm, congratulating any personality or organization on his/its success. Comments.. (ii). No (iii). No (ii). No (iii). No Clause(6) of Part-I of the First Schedule to The Chartered Accountants Act, 1949 prohibits solicitation in any form. Further, logo of firms are expressly prohibited (ii). No (iii). No According to the Code of Ethics issued by ICASL When a accountant in public practice solicits new work through advertising * or other forms of marketing, there may be potential threats to compliance with the fundamental principles. For example, a selfinterest threat to compliance with the principle of behavior is created if services, achievements or products are marketed in a way that is inconsistent with that principle. A accountant in public practice should not bring the profession into (ii). No (iii). No Page 7 of 19

8 disrepute when marketing services. The accountant in public practice should be honest and truthful and should not: Make exaggerated claims for services offers, qualifications possessed or experience gained; or Make disparaging references to unsubstantiated comparisons to the work of another. If the accountant in public practice is in doubt whether a proposed form of advertising or marketing is appropriate, the accountant in public practice should consult Page 8 of 19

9 with the Institute of Chartered Accountants of Sri Lanka. 5. If yes to any in item No.4 above, are there any restriction in the case of such direct or indirect advertisement so that it does not violate the ethical requirements of the concerned SAFA member body? Please provide details Does your jurisdiction regulate in broad sense auditor independence as it relates to non-audit services? 7. If yes in item No.6, does the regulation of auditor independence specify (circle all that apply): Not applicable Not applicable Not applicable Not applicable Stated above. Not applicable a. Yes a. Yes a. Yes a. Yes a. Yes a. Yes (i). The principles that govern which non-audit services are permitted. (i). (b). No (i). a. Yes Not responded (i). b. No (i). (b). No (i). a. Yes (ii). The principles that govern which non-audit services are prohibited. (ii). (a). Yes (ii). a. Yes (ii). b. No (ii). b. No (ii). (b). No (ii). a. Yes (iii). A list of non-audit services (iii). (b). No (iii). a. Yes (iii). a. Yes (iii). b. No (iii). (b). No (iii) b. No Page 9 of 19

10 which are permitted. (iv). A list of prohibited nonaudit services. (iv). (a). Yes (iv). a. Yes (iv). a. Yes (iv). a.. Yes (iv). (b). No (iv) b. No (v). A list of conditionally permitted non-audit services. (v). (b). No (v). b. No (v). b. No (v). b. No (v). (a). Yes (v) b. No (vi)) A materiality threshold below which the general prohibition does not apply. (vi). No (vi). a. Yes (vi). b. No (vi). b. No (vi). (b). No (vi) b. No (vii). Other, please specify :. (vii). Chapter IX of ICAI Council General Guidelines, 2008 specifies that a member of the Institute in practice shall not accept the appointment as statutory auditor of Public Sector Undertaking(s)/ Government Company(ies)/ Listed Company(ies) Page 10 of 19

11 and other Public Company(ies) having turnover of Rs. 50 crores or more in a year where he accepts any other work(s) or assignment(s) or service(s) in regard to the same Undertaking(s)/ Company(ies) on a remuneration which in total exceeds the fee payable for carrying out the statutory audit of the same Undertaking/com pany. The term other work(s) or service(s) or assignment(s) shall include Management Consultancy and all other services Page 11 of 19

12 8. What are the organisations responsible for the regulation of auditor independence as it relates to non-audit services? (Circle all that apply) permitted by the Council pursuant to Section 2(2)(iv) of the domestic Chartered Accountants Act, 1949 (i). Legislature (i). a. No (i). a. Yes (i). b. Yes (i). b. No (i). b. No (ii). Securities Regulator (ii). a. Yes (ii). b. No (ii). b. No (ii). a. Yes (ii). a. Yes (ii). a. Yes (iii). Auditor Oversight Board (iii) b. No (iii) b. No (iii). b. No (iii). b. No (iii). b. No (iv). Professional licensing authorities or other bodies (iv). No (iv). a. Yes (iv). a. Yes (iv). b. No (iv). a. Yes (CA Sri Lanka) (iv). a. Yes (v). Audit committees. (v). a. Yes (v). b. No (v). b. No (v). b. No (v). a. Yes (v). a. Yes (vi). Companies regulator/other regulator Please state the name(s) of (vi). B. No (vi). Yes Institute of Chartered (vi). b. No (vi). b. No (vi). a. Yes Institute Chartered of Page 12 of 19

13 such Accountants of Accountants of organization(s). India (ICAI) is the Nepal (ICAN) is licensing authority the licensing as mentioned in (iv) above, as well as regulator of the profession of authority as well as regulator of the profession of chartered chartered accountants in accountants in India as mentioned in (vi) above Nepal. 9. What form does the regulation take? (Circle all that apply). i) Legislation. ii) Instruments issued by the Securities Regulator. (i). No (ii). Yes (i). Yes (ii) Not responded (i).not responded (ii)not responded (i)not responded (ii) Not responded Guidelines issued by the Securities Regulator on Appointment of Auditors of Listed Companies. (i) Yes - iii) Stock Exchange rules. iv) Rules of the local Professional bodies. (iii) No (iv). Yes (iii)not responded (iv). Yes (iii).not responded (iv). Yes (iii) Not responded (iv). Yes - (iv). Yes v) Individual contract between the auditor and client, if permitted under the law (v). Yes (v). Not responded (v). Not responded (v). Not responded - vi) Best practice guidelines (issued by whom?). 10. Is there a requirement to disclose the level or value of non-audit services? (circle all that apply) c. Don't know 41. b. No 41. b. No 41. a. Yes 41. a. Yes 41. a. Yes 41. b. No Page 13 of 19

14 i). By the auditor as part of the audit report. c. Don't know (i). b. No (i). b. No (i). b. No (i). b. No i). b. No (i). b. No. ii) By the auditor in some other document.. c. Don't know If yes, please provide details:... (ii). b. No (ii). b. No (ii). No (ii). b. No ii). a. Yes As required by the Securities and Exchange Commission of Sri Lanka (ii). No iii). By the audit client in it its financial statements. c. Don't know (iii) b. No (iii). a. Yes (iii) a. Yes (iii). a. Yes iii). b. No (iii). b. No iv) By the audit client in any other publicly available documents c. Don't know (iv). b. No (iv). b. No (iv). b. No (iv). b. No iv). b. No (iv). b. No If yes, please provide details... v). By the auditor or audit client in any other way? c. Don't know If yes, please provide details... (v). b. No (v). No (v). b. No (v). b. No v). b. No (v). c.don t know 11. Do you have any financial reporting/ accounting/auditing oversight body in your country? Yes/No No Yes Yes No Yes. No (i). If yes, please state the (i).financial (i). National (i). The Sri Lanka Page 14 of 19

15 name of such body Reporting Review Financial Accounting and Board (FRRB) Reporting Auditing Standards (To be replaced by Authority Monitoring Board or NFRA) (As per the current Companies Act, recently enacted. Yet to be implemented) (ii).please state the name(s) of legislation, regulation or the like under which such bodies are created. (ii). It is a committee of ICAI (ii). Companies Act 2013 (ii). The Sri Lanka Accounting and Auditing Standards Act, No. 15 of 1995 (iii) Please describe the composition of Governing Board/Council of such body/ies. (iii). Not responded (iii). Attached (Annex-I) (iii). Chairman Nominee of the Governor of the Central Bank of Sri Lanka Ex-officio members Nominees The Institute of Chartered Accountants of Sri Lanka, Chartered Institute of Management Accountants of UK (Sri Lanka Division), Bar Association of Sri Lanka, Ceylon Chamber of Commerce, Federation of Chambers of Page 15 of 19

16 Commerce and Industry of Sri Lanka, Sri Lanka Banks Association, University Grants Commission Secretary to the Board (iv). Please describe briefly the functions of such body/ies (iv). Review the general purpose financial statements of certain enterprises and auditor s report thereon with a view to determine, to the extent possible: Compliance with the generally accepted accounting principles in the preparation and presentation of financial statements; Compliance with the disclosure requirements prescribed by (iv) Attached (Annex-1) (iv). The above Act has identified certain enterprises as specified business enterprises. These include all quoted companies, companies carrying on business which are important for the purpose of monitoring (such as banking, finance, insurance, and leasing), other large companies (Public and Private), and Public Corporations. All specified business enterprises are required to send their Annual Audited Financial Statements to Page 16 of 19

17 regulatory bodies, statutes and rules and regulations relevant to the enterprise; and Compliance with the reporting obligations of the auditor. SLAASMB. The SLAASMB is empowered to call for documents, information and explanations from Directors, Managers and Auditors for the purpose of carrying out its functions. Where Financial Statements have not been prepared in accordance with Sri Lanka Accounting Standards, the SLAASMB could require an enterprise to make suitable corrections. The Board has the power to compound an offence for a sum of money not exceeding 1/3rd the maximum fine. In cases where noncompliance was done deliberately to mislead the public the courts may impose penalties extending up to 5 Page 17 of 19

18 years imprisonment. 12. Do you have Limited Liability Partnership (LLP) firms in accountancy practice in your jurisdiction? If Yes, how many as on 30 June 2014? No Yes, the mode of Limited Liability Partnerships in accountancy practice is existing in India/ICAI. As per the data available, there are 61 firms operating as LLPs as on 11 th June, Does your Institute have any restriction on providing audit services by a practicing accountancy firm to a single client or a group of clients (organizations belonging to the same group) representing more than a certain percentage of the firm s total income? Yes/No. If Yes, give details No, except for provisions mentioned in Section 240 of the IESBA Code of Ethics 2013 Edition. Yes, there are self regulatory measures of ICAI which say that to ensure that the independence of a member does not appear to be jeopardized, he should, as far as possible, take care to see that the fees for audit and other services received by the firm in which he is a partner, by him and his partners individually and by firm or firms in Page 18 of 19

19 which he or his partner are partners from one or more clients or Companies under the same management does not exceed 40% of the gross annual fees of the firm, firms and partners referred to above. 14. Does your jurisdiction have any facility for practicing accountancy firms to take any indemnity insurance locally? Yes/No If Yes, does the local policy provide cover for all services performed by practicing firms? If No, please advise which services are included/excluded by the policy? Yes, on a tailormade basis. But very rare and expensive. Coverage is taken on specific requirement basis on the basis of discussion between the insurer and insuree.. Yes, such provision of profession indemnity insurance is applicable in India [optional only]. The policy covers indemnity against civil liability incurred to members whilst rendering services. ** Note: No responses were received from ICMAB, ICMAP and CMASL. Page 19 of 19