agenda item 7-1 iaesb meeting – cape town, south africa, october 25-28, 2011 · 2011-10-20 ·...

Agenda Item 7-1 IAESB Meeting – Cape Town, South Africa, October 25-28, 2011

Prepared by: JF Belorgey, Greg Owens, Task Force members (October 2011) of 31

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Agenda Item

7-1

INTRODUCTION 1. The aim of this paper is to assist the IAESB in further discussion of issues related to

proposed audit competences and the development of an Exposure Draft for IES 8. Specifically, this paper will: (1) provide background information on the revision of IES 8, (2) review Task Force activity since the May 2011 meeting, (3) consider changes proposed by CAG, IAESB and the Task Force, (4) present a draft of the revised IES 8, and (5) identify issues for further discussion, consultation and direction from the IAESB.

2. Agenda Item 7-2 includes the amendments agreed with the Drafting Working Group (‘DWG’) as a result of its review of the revised draft of IES 8 version proposed at the IAESB May meeting. For comparison, Agenda item 7-3 presents the marked up changes to the May 2011 version.

3. The agenda item contains the following materials:

Agenda Item 7-1 Revision of IES 8 - Issues and Proposals of IAESB Task Force

Agenda Item 7-2 Revised IES 8 – Clean copy (October 26,2011)

Agenda Item 7-3 Revised IES 8 – Marked-up copy from May 2011 meeting (October 26, 2011)

BACKGROUND Project Scope 4. The revision of IES 8 is part of the larger project identified in the IAESB’s 2010-

2012 Strategy and Work Plan that aims to redraft and revise all IESs 1-8 by 2013. IAESB’s original, in revising IES 8 was to:

Committee:

International Accounting Education Standards Board

Meeting Location: Cape Town, South Africa

Meeting Date: October 25-28, 2011

SUBJECT: Revision of IES 8 - Issues and Proposals of IAESB Task Force Draft 10/11



I. Revise the Standard’s use and interpretation of the following key definitions: • Significant judgment, Audit professional, Education and development

program, and Advanced level. II. Clarify the Standard’s explanation surrounding: • Precise roles in a transnational audit; • Acceptance of the need for progression through a variety of roles, overtime,

whilst part of a larger team; members (May 2011) Page 2 of 9 • How the shared responsibility between IFAC member bodies, firms and

regulatory authorities should work in practice; • The practical application of an IES that has Requirements written primarily

to individuals who are practicing members of Member Bodies; and III. Revise the Standard’s scope to clarify the coverage of the following key

areas: • Engagement Partner Competences • Specific Industries • Practical Experience

5. In addition to the areas noted above, over several IAESB meetings, there has been

general support for the move towards defining the competences for the engagement partner in the context of an engagement team. The intention is that whilst Requirements will be directed towards engagement partners, the context within which they operate (i.e. within a team or firm environment) is likely to be covered within the Explanatory Materials section.

6. Additional guidance for other levels or roles within the engagement team may be

considered as part of the IES 8 Guidance project being chaired by Eileen Walsh. Previous IAESB Meetings 7. The table below is split between IAESB discussion components and the outcomes

or resolutions agreed at previous IAESB Meetings:

February 2010 Meeting – New York • Public consultation issues

paper considered • Reviewed public consultation

questions • CAG comments were

discussed

• Amendments to wording of public consultation wording were agreed

• Clarifying amendments were made to the public consultation questions

May 2010 Meeting - Copenhagen • Progress report provided by

chair of IES 8 team • Public consultation period

still ongoing • Feedback from consultations

with Forum of Firms and FEE was also presented

• IAESB member indicated that several issues relating to the revision of IES 8 were relevant to other revision projects

• CAG provided input on an information paper (September 2010) asking Task Force to consider role of EQCR and potential widening of scope to other assurance activities

•



November 2010 Meeting - Singapore • Full presentation of results

from consultation • A summary paper on

consultation paper responses • Verbal update from chair with

a series of questions for the IAESB to consider

Areas agreed by IAESB: • To focus the Requirements on member bodies

but to set out implications for other stakeholders in Explanatory Materials

• Focus on engagement partner of historical financial statements

• Greater clarity rather than an increase in scope of IES 8 (i.e. to clarify the ‘who’ question)

• Eliminate term ‘advanced level’ • Focus on ‘good practice’ not ‘best practice’ • Ensure Requirements do not go beyond those

in ISAs/ISQC1 • Content of IES 8 to focus on ‘education’

principles common to all audit engagements • Any knowledge content required is directly

linked to nature of entity being audited • Impact of revised IES8 to be considered as

part of consultation process March 2011 Meeting - Geneva • IAESB provided with written

update by chair of recent progress on development of IES8

• Presented initial diagrammatic representation of IPD/CPD progression from professional accountant to role of engagement partner

Feedback from the IAESB included: • Any revised IES to re-emphasize professional

judgment and professional skepticism • There was to be no diminution of IPD

elements once the status of professional accountant had been attained

• Avoidance of use of the term ‘entry-level engagement partner’

• Some concern that focus on engagement partner might mean the involvement of others in the engagement might be overlooked

• Encouragement for IES 8 team to work with other Task Forces particularly in respect of any identified framework to ensure consistency

• Encouragement for IES 8 Task Force to continue to identify matters to be included in future IES 8 guidance

• A request to avoid any inherent assumption that ‘large’ clients necessarily equated to ‘complex’

May 2011 Meeting - Toronto • Issues Paper presented by

secretary of IES 8 Task Force • Re-presented revised

progression diagram (see below)

• Continued support for focus on engagement partner

• Recommendation that the Task Force consider a matrix of competences

• Agreed that focus of this IES 8 is on the CPD



• Introduced concept of ‘aspiring engagement partner’

• Asked for feedback on positioning of a competence matrix

required to become engagement partner (‘aspiring’)

• IAESB on balance favored inclusion of a matrix within the Requirements

• Advice from the IAESB to be careful in respect of bright-lines concerning period of practice experience (to avoid any specific length of time within the Requirements being added on to that to become a Professional Accountant)

• Agreed to withdraw reference to holding of undergraduate degree or equivalent

• General support for drafted objective with drafting working group suggestions

Activity of the IES 8 Task Force in period since May 2011 Ongoing Task Force Activity May – October 2011 The Task Force has met via conference call on a number of occasions to discuss updated versions of draft IES 8.

• A smaller core team of writers comprising Steve Glover, Rob Taylor and Greg Owens have also worked up a number of versions of the revised IES to deal with the May IAESB feedback from the Board and input from Task



Force meetings. • Further developed an improved Objective

paragraph. • One of the main changes coming out of the

Task Force meetings has been the further development of the competency matrix, and

• Re-arrangement and improved content and flow of the Explanatory Materials.

Presentation to IAASB – June 2011 Eileen Walsh and Greg Owens presented a short presentation on the current direction of the IES 8 to the IAASB in New York (June 2011).

• Q&A and matters of clarification requested by members of the IAASB indicated that they were supportive of the IAESB’s approach on the revised IES 8 and in particular the focus on the Engagement Partner.

• Additional comments requested that the drafters of the revised IES consider the applicability towards small and medium practices (‘SMPs’) when writing the IES.

CAG Meeting – September 2011 In September, the newly appointed Chair of the Task Force (Jean-Francois Belorgey) met with the CAG to elicit feedback on the current direction of the Task Force. The CAG was presented with the same draft of IES 8 that had been discussed at the May IAESB meeting. .

Feedback from the CAG included: • The need to explicitly state that the IES did not

cover other types of assurance. • A preference for the Requirements to contain

the matrix of competences for engagement partner.

• Request that some consideration be given to insert a requirement that those working on listed, transnational and complex types of engagement had specific examples of likely CPD.

• A reference to the matrix applying not just to aspiring but those about to be appointed to the role of Engagement Partner.

Liaison with IES 2 & IES 3 Task Forces - September & October 2011 The Chair & Secretary of the Task Force also met in September and again in October via conference call with the Chairs & Secretaries of the IES 2 and IES 3 Task Forces.

• A need to align the IES 8 draft of competences to the clusters or categories currently present in latest drafts of IES 2, 3 and 4.

• Some discussion surrounding types of format being used by existing drafts of the IESs.



Revised draft of IES 8 8. Agenda item (reference to be inserted by IFAC staff) provides a clean version of the

revised IES 8draft. Agenda item (to be inserted by IFAC staff) shows a marked up version of the draft presented at the May 2011 meeting.

9. In preparing this latest version of the revised IES 8, the Task Force has taken into

account the direction provided by the Board, CAG and discussions within the Task Force and with IES 2 and 3 Task Forces. The impact on the revised draft of IES 8 is detailed in the table below:

Proposed changes from CAG, IAESB

and Task Force and DWG input Impact on revised draft

(paragraph numbers related to latest version of IES 8)

Footnotes paragraphs to be put into the Explanatory Materials (request from CAG)

• Now rewritten into the draft of IES 8 as Explanatory Material section in paragraph A1.

To provide more reasoning about ‘why’ it is appropriate to focus the IES on the role of Engagement Partner (Task Force)

• Newly created paragraphs 1 and 2 • Inclusion of a new diagram to

consider the nature of the role of an aspiring, newly appointed and serving engagement partner.

Greater clarification that whilst competence is likely to be one element of the decision to appoint an engagement partner, there are many more factors involved including commercial and career opportunities within a firm (Task Force)

• Newly created paragraph 5

Request to clarify that similar procedures to an audit can also be covered by IES 8 (i.e. agreed upon procedures) (CAG)

• Additional final sentence inserted in paragraph 6

Amendments to clarify how IES 8 builds on IESs1 -7 for professional accountant and does not repeat these Requirements

• Amendments to paragraph 7

Objective paragraph to emphasize: a) ‘why’ meeting the objective is

valuable, and b) Importance of maintaining and

not just developing CPD to become engagement partner. (Task Force)

• Amendments made to existing Objective paragraph 9

Requirements to include not just those for an aspiring engagement partner but those competences required at the point when someone is appointed to the role (CAG)

• Requirements to be targeted to aspiring and those ‘newly appointed to the role’ of engagement partner – amendments to title and paragraph 10

Request to include a matrix of • Previous competence matrix at May



Proposed changes from CAG, IAESB and Task Force and DWG input

Impact on revised draft (paragraph numbers related to latest

version of IES 8) competences within the Requirements of the IES (request by IAESB & CAG)

2011 meeting was included as an Appendix,

• this has now been moved to Requirements paragraph 10

• Paragraph 10 reworded to incorporate new matrix

• Former paragraph A7 removed as not superfluous

To improve the wording and to clarify the Requirements and Explanatory Materials in respect of length of practical experience (IAESB)

• Wording improved in paragraph 11 • Reference to minimum period in

previous paragraph removed • Reference to ‘newly appointed’

engagement partner included • Removal of paragraph concerning

‘recording’ evidence as deemed unnecessary by Task Force

Assessment paragraph to have improved sentence structure (Task Force)

• Amended wording paragraph 12

Need for audit competences paragraph for serving engagement partners to make reference to CPD for complex, transnational engagements (CAG)

• Comply or explain basis inserted for complex, transnational and publicly listed engagements in paragraph 13

• New Explanatory Materials inserted from paragraphs A17 - A23

Improved correlation and flow of Explanatory Materials (Task Force)

• Several paragraphs rearranged in order to match flow of revised Scope & Requirements

Improved clarity with regards to the Scoping section not including assurance engagements (CAG)

• Paragraph A5 inserted to make this clear in the Scoping, Explanatory Materials section

Wording on situations in which competences for engagement partner can be completed concurrent with IPD to be improved (Task Force)

• Revisions and inclusion of new paragraphs A6 and A7

Greater emphasis on professional skepticism and judgment (IAESB/Task Force/CAG)

• New paragraphs A8 and A9 inserted by Task Force

Progressive nature of CPD of aspiring engagement partner likely to be developed over period of time and in the context of a wider team (Task Force)

• New paragraph A10 inserted

Practical experience Explanatory Materials to include:

• new paragraphs or re-written paragraphs inserts in paragraphs A11



Proposed changes from CAG, IAESB and Task Force and DWG input

Impact on revised draft (paragraph numbers related to latest

version of IES 8) • SMPs (Task Force/IAASB input), • input basis for those member bodies

using that method (Task Force) • likely suitable organizations/firms in

which to acquire practical experience (Task Force)

– A14

No existing Explanatory Materials on assessment (Task Force)

• new paragraphs inserted A15 – A16

Removal of reference to the term ‘clients’ and replacement with ‘audits’ (CAG)

• Throughout document

Improvements to wording (throughout the IES draft) and avoidance of hidden requirements (DWG)

• Throughout document • Use of singular – ‘an engagement

partner’ throughout Improved clarity around the progressive nature of development through a variety of roles (DWG/Task Force)

• New paragraph & diagram inserted to clarify progressive nature of development between roles of professional accountant and serving engagement partner.

• Explanatory materials reordered following discussion with DWG

Review of requirement on expected audit competences to clarify that the audit competences are those already prescribed in Table A (and it is not for the IFAC member body to prescribe these) – (DWG)

• Replaced ‘prescribe’ with ‘embed’.

Review of practical experience paragraph had 6 ‘shalls’ and was overly complicated. (DWG)

• Reworded to clarify the ‘shall’ aspects being required of member bodies.

Discussion surrounding use and placement of ‘comply or explain’ terms previously included in requirement for complex audits

• Requirement no longer contains this term, however it has been reworded and included in the explanatory materials.

Assessment requirements in IES 6 written mainly for written examinations rather than assessments of professional development

• Requirement on assessment reworded to avoid direct link to ‘principles of IES 6’



DISCUSSION Progressive nature of competence development 10. One of the recurring discussions amongst the Task Force and the subject of

discussion with CAG and the IAESB has been how best the progressive nature of competence development of an aspiring and serving engagement partner can be articulated in the IES. In order to help resolve this area of discussion, the Task Force has redrafted paragraph 2 of the Scope section and has also included the following diagram within the revised IES:

11. The extant IESs do not include visual representations of content, however in this

case, it was felt by the Task Force, and following consultation with the Drafting Working Group, that including a diagram might aid the reader and provide greater clarity in respect of how and when competences are acquired by an engagement partner.

Action Requested:

1. Does the inclusion of a diagram within the Scoping section provide assistance

to the end-reader in respect of how competences develop during the career of an aspiring and serving engagement partner?

2. Do you have any improving amendments to make in respect of the diagram?



Format of Competence Matrix in IES 8 12. During the discussions between the representatives of the IES 8 and 2 Task Force it

became clear that the IES 8 Task Force had created a slightly different format for the presentation of the audit competences. In order to align these competences as closely as possible to the latest matrix being used within IES 2 and to ensure that IES 8 is perceived to be an extension or further development at a CPD level for engagement partners on top of IES 2, 3 and 4, the Task Force has: • Where possible used the same headings, areas or ‘clusters’ titles from IES 2,

3 and 4. • Inserted a draft ‘competence level’ that an aspiring engagement partner

would be expected to reach in order to become a ‘newly appointed’ engagement partner.

• Attempted to present this information as succinctly as possible in order that the Requirements do not become unnecessarily long or complex.

• Inserted a section titled ‘relevance to audit of financial statements’ to put the competence areas in an audit context and indicating that they build on top of the those required at the completion of IPD for the professional accountant.

13. In order to provide a comparison, Appendix 1 of this document (IFAC staff to insert

appropriate reference here) includes a direct comparison of the latest competence matrix being proposed by the IES 8 Task Force and an alternative version which overlays on the IES 2 format. It should be noted that the second model which uses the latest IES 2 version is a much longer document, and it would also require further work to incorporate the competence Requirements currently drafted in IES 3 and the exposure draft of IES 4. In preparing this comparison document it was also noted that there would need to be additional Areas of Knowledge building on IES 2 in respect of: • Need to consider accounting estimates/accounting policies • Impact of global/international audit procedures • Preparation of communications with those charged with governance • Use of experts • Use of budgets to aid testing in execution phase and also going concern

reviews



Action Requested: 3. Does the competence matrix currently included in the latest draft of IES 8 satisfy the

request from the IAESB (and CAG) to include some indication of the required competences of an audit engagement partner within the IES Requirements?

4. Does the IAESB have any views on whether the alternative model shown in the Appendix (IFAC Staff to insert reference here) represents an improvement on how these competences should be presented.

5. Does the IAESB have any proposed additional categories or competence areas that

should be considered for inclusion in the Competence Matrix currently shown in IES 8?

6. Does the IAESB have any comments on the draft ‘levels’ of competence that have

been presented in the latest version of IES 8? Competence Requirements for Complex, Transnational and Publicly Traded Audits 14. The existing version of IES 8 has a section which covers the audit of transnational

engagements and specific industries. Input from CAG suggested that they would like some competence Requirements to be identified at Engagement Partner level in order to safeguard the public interest in respect of more complex, transnational or publicly traded/listed entity audits. These Requirements were to be included only to the extent that they applied and were targeted at those individuals who needed them due to their engagement partner responsibilities.

15. A ‘comply or explain’ element has been included within the Explanatory Materials alongside illustrative examples provided in Table B within this section of the IES.

Action Requested: 7. Do you agree that the Requirements of IES 8 should include a section in

respect of complex, transnational and/or publicly traded entity audit?

8. Has the explanatory material captured in sufficient detail the sorts of areas of appropriate CPD that could be covered in respect of these types of audits? If not, what additional elements would you like to be included?

9. Do you agree with the comply or explain inference, in respect of complex

audits, that has been captured within paragraph A24?



Use of Other IFAC pronouncement definitions within the Explanatory Materials 15. One of the areas which the Task Force has discussed and which was also the subject

of CAG input was the placement of various definitional footnotes which identified key terms that had previously been defined by the IAASB’s ISAs and ISQC1.

16. Inevitably given the subject matter of IES 8 in terms of audit competences a large

number of definitions are utilized within the revised IES which derive from pronouncements created outside the IAESB’s Glossary and existing publications. In this respect IES 8 is in an unusual position compared to the existing suite of IESs (and those currently under revision). Most of the definitions are taken from IAASB’s ISAs.

17. Following advice from the CAG, the definitions which had previously been

footnoted within the IES draft have now been re-crafted and inserted as an Explanatory Material paragraph in whichever area the original term is used.

Action Requested: 10. Should these audit specific definitions be:

a) Defined within the Explanatory Materials? b) Included as footnotes (previously this has been tried but proved to

result in very length footnotes)? c) Included in the IAESB’s Glossary of Terms?

11. Do you have any further advice to the Task Force or any additional terms

that you consider may need defining within the IES, Explanatory Materials or Glossary?

Areas of Professional Judgment and Professional Skepticism 18. The IAESB has previously noted (at the Geneva 2011 meeting) that given the

current economic environment and reputational threats to the auditing profession it is important that any revised IES 8 ensures a sensible level of focus on the areas of Professional Judgment and Professional Skepticism. This view has also been strongly supported by the CAG.

19. In seeking to re-emphasize the importance of these two competences, the Task

Force has: a) Included both elements within the Competence Matrix (Requirements

section) b) Drafted two explanatory materials paragraphs in order to explain why and

how these two competences can be further developed.



Action Requested: 12. Do you agree with the approach that has been adopted by the Task

Force? If not, why not?

13. Do you agree with the placement of skepticism and judgment within the Professional Skills area of the Competence Matrix?

14. Do you agree with the content of the paragraphs on professional judgment and skepticism?

Potential Conforming Amendments 20. During the course of the revision of IES 8 at a number of new terms have emerged.

The Task Force is proposing that the following terms be included within the Glossary and would welcome comment from the IAESB:

Aspiring Engagement Partner A professional accountant who is

developing their competences, whilst working for an engagement partner, over a period of time.

Serving Engagement Partner A professional accountant who has demonstrated the required competences, satisfied any licensing requirements and been appointed by their firm to act in the capacity of engagement partner.

Potential Questions for Public Consultation 21. The task force is suggesting the following as potential questions to be included in

the memorandum covering the proposed exposure draft • This revised IES 8 prescribes professional development for those aspiring to

be or serving as engagement partners. Extant IES 8 prescribes professional development for audit professionals, defined as those who have responsibility or have been delegated responsibility for significant judgments in an audit. Does this change improve the clarity and effectiveness of the standard? Does it facilitate implementation?

• Is the Objective of this IES clear and unambiguous? If not, what changes would you propose?

• Extant IES 8 contains requirements directed to "professional accountants" and "individuals". The requirements of redrafted IES 8 are directed to IFAC member bodies. Does this change improve the clarity and effectiveness of the standard? Does it facilitate implementation?



• Within your jurisdiction, do you foresee any problems of directing the Objectives and Requirements at IFAC Member Bodies? If so, what are those difficulties and how would you propose the IAESB overcome these?

• The term "advanced level' used in extant IES 8 to describe knowledge content for audit professionals has been replaced in the redrafted IES 8 with a matrix of competences building on the requirements of IESs 2, 3 and 4. Does this matrix provide greater clarity with respect to the appropriate levels of competence and proficiency you would expect to see for an aspiring engagement partner?

• Are there any additional areas of competence that you think should be included or removed within the matrix shown in paragraph 10?

• What would be the impact on your organization if the Requirements outlined in the revised IES 8 were to be implemented?

• Are the Explanatory Materials sufficiently clear and comprehensive such that they help to explain clearly and with illustrations the Scoping, Objectives and Requirements paragraphs?

• Does the inclusion of Explanatory Materials providing analysis of defined terms from within ISA/ISQC1 pronouncement assist the user?

• Extant IES 8 contains knowledge content requirements for all audit professionals involved in transnational audits. Redrafted IES 8 requires relevant CPD for engagement partners serving on audits involving complex industries, complex transactions or reporting requirements, or transnational audits (or an explanation if such CPD is not completed). Does this change improve the clarity and effectiveness of the standard? Does it facilitate implementation?

• Proposed definitions in respect of aspiring and serving engagement partners have been included in the Explanatory Memorandum. Do you agree with these definitions? Are there any additional terms, contained within this version of IES8, which you would like to see considered for inclusion within the Glossary of Terms for the IAESB?

• If your country is likely to need this IES translated, do you consider that the language and wording will be clear enough in your language? If not, what changes would you suggest?

PROPSED WAY FORWARD 22. Subject to the Board’s views on the October 28th draft of the revised IES 8, the

Board will be invited to approve the revised text as an Exposure Draft for public consultation over a 90-day period. In preparing the exposure draft for release the revised IES 8 will undergo a plain language edit and formatting. Any significant editorial changes will require the approval of the Task force chair.

23. The Task force will produce a memorandum to accompany the exposure draft, to

provide direction for respondents to comment. After the consultation period, the Task force will analyze the comments and make recommendations about addressing these, for consideration by the Board at its June 2012 meeting.



Appendix 1 In this appendix we have outlined two contrasting styles of competence matrix in respect of audit engagement partner competences. Option 1 In this version of the matrix, audit relevant competences have:

• Been clustered by ‘competence areas’, • Been provided with short statement indicating the ‘relevance’ of this particular audit

competence, and • Awarded a ‘level’ of competence has been delineated based on the 6 areas of the IAESB

taxonomy outlined in the current draft of IES 2.

Table A – Competence Areas and Levels of Competence

Competence Area Relevance to Audit of Financial Statements Level of

Competence for a newly appointed Engagement Partner

Professional values, Ethics and Attitudes1

Professional skepticism and judgment

Professional judgments in respect of risk identification & assessment, the design of audit procedures and conclusions or opinions formed in respect of audit evidence. Adopting a skeptical mindset in light of the context of the client and the evidence produced

5. Synthesis

Professional behavior

Conducts audit engagement in accordance with Codes of Ethics (produced by both the IESBA and relevant local regulators) and in compliance with technical standards using prior experience to help shape personal responses to given issues. Maintains respect for others.

4. Analysis

Objectivity and independence

Principles of objectivity and independence require consideration as part of client acceptance and continuance processes bearing in mind ethical threats in these areas.

5. Synthesis

1 Headings in this table will correlate with the final titles used for IESs 2, 3 and 4.



Competence Area Relevance to Audit of Financial Statements Level of Competence for a newly appointed Engagement Partner

Commitment to the public interest

Commitment to the public interest is maintained by evaluating the impact on the profession and wider society of a specific course of action.

6.Evaluation

Avoids conflicts of interest

Maintains integrity and objectivity by avoiding conflicts of interest that can occur in respect of undue reliance on a particular client.

4.Analysis

Honesty and integrity

Maintains honesty and integrity in dealings with client and those charged with corporate governance.

6.Evaluation

Confidentiality of information

Considers where client confidentiality can be breached, how it can be maintained and safeguarded.

4.Analysis

Professional Skills and general education Intellectual Inquiry, abstract logical thought, and

critical analysis in order to provide appropriate challenge to client management, consideration of alternatives and analysis of outcomes during the course of an audit.

5.Synthesis

Organizational Engagement management (including planning), leadership of audit teams, managing projects, initiating and managing change, making key professional judgments including engagement acceptance assessment of independence

3.Application

Interpersonal and Presenting, discussing, defending views as well as resolving conflicts through formal,

4.Analysis




communication informal, written, and spoken communication in order to safeguard the public interest and preserve the integrity of audit process.

Personal Able to manage own activities to ensure the achievement of a task, demonstrate commitment to lifelong learning, ability to take initiative and to adapt to change

3.Application

Areas of Knowledge Business, strategy and organizational environment

Knowledge of economic, client sector or organization, environment and globalization facts and trends in order determine auditor expectations, appropriate risk identification & mitigation as well as appropriate conclusions on evidence obtained.

4.Analysis

Governance and risk management

Analysis of various corporate governance organizations and tools, as well as corporate methodologies and organization to identify and mitigate risks affecting the entity

4.Analysis

Financial accounting and reporting

An entity’s financial and non‐financial information provided to external and internal users to meet reporting needs and in the context of current and pending generally accepted accounting principles.

6.Evaluation

Internal controls Understanding of design and implementation of controls and ability to identify and communicate deficiencies in internal control

5.Synthesis

Information technology

Elements of IT systems as they relate to internal controls and areas of potential risks related to, or having an impact on, the financial statements.

2.Comprehension

Planning, performing and completing the

Identification and evaluation of an entity’s risk profile and mitigation of identified risks in order to design appropriate audit responses.

5.Synthesis




audit

Nature of third party assurance

Enhancing the reliability of information, including the provision of assurance services due to statutory and regulatory requirements using the international auditing standards

5.Synthesis

Principles of collecting audit evidence

Setting of expectations, testing, corroboration and validation of test results and development of audit conclusions in respect of risks using the International Auditing Standards

6.Evaluation

Finance management

Consideration of financial management of assets and liabilities, treasury and assessment of an entity’s value or fair values.

2.Comprehension

Tax and business law

Taxation issues and compliance with laws with an impact on the performance and conclusions made during the audit.

4.Analysis

Stock exchange regulations

Security and stock exchange regulations as they apply to the risks and presentation requirements of audit engagements

4.Analysis



Option 2 In this version the competence matrix has been prepared using the current draft matrix as presented in IES 2. As a result, the audit competences have been shown to overlay those at IES 2 level. Please note this example only includes those competences for IES 2 as an illustration of what this format would look like.

Table A – Competence Areas and Levels of Competence

Cluster name

Area of knowledge

Professional Accountant Competences

Audit Engagement Partner Competences

1. Audit and assurance

• Audit • Explain the need for, and nature of, third party assurance in relation to audit

• Define the role and responsibilities of an external auditor

• Identify and explain the audit objectives

• Explain the principles of collecting and assessing evidence

• Apply the process of planning, performing and completing the audit of historical financial statements

• Apply International Auditing Standards or other relevant Standards or legislation and guidance to an audit engagement

• Prepare an appropriate audit report in accordance

• Recommend appropriate types of assurance or audit engagement to clients or potential clients

• Design and develop audit objectives for a given engagement

• Evaluate the nature of audit evidence obtained during the course of an engagement

• Evaluate the process of planning, performing and completing the audit of historical financial statements

• Analyse international auditing standards or other relevant standards or legislation and guidance in respect of an audit engagement

• Consider an



Cluster name

Area of knowledge



with professional standards

appropriate audit report in accordance with professional standards, firm policies and procedures (including consultation where applicable)

• Assurance • Explain the need for, and nature of, third party assurance

• Identify and explain the objectives of an assurance engagement

• Apply the process of planning, performing and completing significant elements of assurance service engagements

• Not within scope of IES 8

2. Financial accounting and reporting

• Financial Accounting

• Explain the components of primary financial statements • Prepare books of

prime entry and period-end accounts using double-entry bookkeeping

• Apply generally accepted accounting principles to a range of business transactions

• Analyze the components, disclosures and presentation of financial statements as part of the audit process

• Evaluate generally accepted accounting principles to ensure that accounting policies have been appropriately adopted and presented

• Financial • Classify financial • Apply appropriate



Cluster name

Area of knowledge



reporting information for consistent disclosure in published financial statements

• Interpret financial statements

• Construct primary financial statements in accordance with regulations and law across a range of businesses and complex transactions

• Analyze financial reporting needs and establish the necessary systems

• Evaluate accounting treatments used in published financial statements

procedures over the disclosure of published financial statements

• Compare financial statements

• Recommend primary financial statements in accordance with regulations and law across a range of business and transactions

• Evaluate accounting treatments including accounting estimates

3. Management accounting

• Management accounting

• Prepare an organization’s budget

• Analyze factors influencing the financial performance of an entity organization

• Analyze financial and other data to provide information for managerial decision making

• Design reports, including budgets, that meet management decision needs

• Design organizational performance measurement systems that align with organizational

• Evaluate budget outputs as part of going concern review



Cluster name

Area of knowledge



strategy and goals • Evaluate the

components of cost • Evaluate

performance of products and business segments

• Identify IT infrastructure and systems needed to generate the necessary information for managerial reporting

• Business control

• Explain the principles of effective business control systems

• Select business controls to address a variety of risks and scenarios

• Identify the various areas of a business that need effective control systems

• Compare how various controls operate as well as their limitations

• Analyze control environment and assess design and implementation of controls to identify potential risks of material misstatement.

4. Financial management

• Finance • Describe the financial environment in which an organization functions

• Describe different sources of finance available to a business

• Explain capital market models

• Calculate ratios used in financial analysis

• Apply appropriate knowledge of securities and listing requirements in respect of audit engagement



Cluster name

Area of knowledge



• Calculate the organization`s cost of capital

• Evaluate the financial objectives of an organization

• Evaluate investment proposal and business plans

• Advise on the valuation of an organization

• Recommend on the purchase, expansion or sale of an organization

• Financial Management

• Explain how financial instruments can be used to manage financial risk

• Explain the principles of cash and working capital management

• Calculate investment returns from competing projects

• Construct cash flow forecasts for the operations of a business an organization

• Recommend various financing options for a business an organization

• Recommend the optimal financial structure for the long term of a business an organization.

• Classify financial instruments based on management’s assertions and underlying calculations;



Cluster name

Area of knowledge



• Quantitative methods

• Identify the need for specialist assistance in quantitative analysis

• Interpret the results of the work of specialists

• Interpret the outputs of quantitative analysis

• Apply appropriate computational techniques to solve decision problems

• Apply the concepts of statistics and probability theory to problems in areas such as accounting, finance and auditing

• Analyze business and economic data using descriptive statistic techniques

• Evaluate the work of specialists used as part of the audit engagement in areas of Valuations, Taxation, Pensions etc

5. Strategy and governance

• Strategy • Explain the external (competitive environment, economic environment, specific industry requirements) and internal (key components of organizational behaviour and controls) influences on an organization’s strategy formulation

• Explain the key elements of strategy formulation

• Analyze an organization’s opportunities and risks

• No audit competences



Cluster name

Area of knowledge



• Analyze an organization’s alternative strategies

• Corporate governance

• Explain the importance of strong effective governance structures

• Explain the principles of good corporate governance

• Evaluate an organization’s governance structure and identify areas for improvement

• Evaluate the role of the audit committee and internal audit in governance

• Prepare communications to those charged with governance of an entity

• Risk management

• Identify the components of business risk

• Identify an organization’s risk management framework

• Identify alternative courses of action to help manage risk

• Analyze the organization’s risk management plan

• Classify risks within a business risk framework

• Calculate audit risk profile of engagement in respect of components of audit risk

• Calculate risk impact of client continuance or acceptance on the firm and apply appropriate policies in respect of independence and ethics during acceptance process.

• Sustainability • Explain the factors that contribute to sustainability (financial, environmental and

• No audit competences



Cluster name

Area of knowledge



social) • Prepare appropriate

reporting of an organization’s sustainability performance

• Compare different approaches to the management, reporting and assurance of environmental issues and matters affecting sustainability

6. Tax and business law

• Taxation • Describe the national taxation framework including government’s objectives and general principles

• Identify standard taxation compliance and filing requirements

• Identify and describe the taxpayer’s tax profile

• Identify international taxation issues affecting individuals and business entities organizations

• Summarize taxation issues relevant to the taxpayer’s tax profile

• Prepare tax calculations for direct and indirect taxes for individuals

• Apply audit of taxation procedures on tax balances and remittances.

• Analyze, and review outcomes, from use of a tax expert in the audit of taxation amounts.



Cluster name

Area of knowledge



and organizations • Prepare submissions

for consideration in routine taxation disputes with the taxation authority

• Advise on matters of taxation control and compliance in accordance with legal requirements

• Analyze taxation planning opportunities for various business transactions

• Business law • Explain legislation and regulations that are applicable to the role being performed by the professional accountant

• Distinguish when to refer legal matters for specialist help

• Explain different organizational structures and relevant regulation

• Calculate audit impact of laws and regulations on audit engagement and potential for breach of laws and regulations to have an audit impact.

7. Business and organizational environment

• Economics

• Describe the fundamental principles of micro- and macro-economics

• Interpret the affect of movements in key indicators of micro- and macro-economic activity.

• Explain the competitive environment facing firms organizations under different

• Apply knowledge of economic environment as part of risk assessment & identification process and to help formulate expectations.



Cluster name

Area of knowledge



types of market competition (competitive markets, monopoly, monopolistic competition and oligopoly)

• Business environment

• Describe the organizational structures and the environments in which they operate, including the major economic, legal, political, social, technical, international and cultural forces and their influences and values

• Illustrate the effect of changes in the business environment on the activities of an organization.

• Compare business environments of clients within similar sectors or national borders in order to help develop expectations in respect of planned procedures or audit evidence.

• Organizational behavior

• Identify the major factors within and external to the organization that influence the behavior of individuals within organizations

• Explain how various theories of organizational behavior may be used enhance the performance of the individual, the team and organization

• Summarize the strengths and weaknesses of

• No additional audit competences



Cluster name

Area of knowledge



major theories of leadership

• Management • Describe the fundamental principles of management theories

• Explain the various ways that organizations may be designed and structured

• Explain the purpose and importance of functional areas such as human resource management, project management, procurement, technology management and marketing

• Identify factors in the internal and external business environment that impact on managerial work and organizational performance

• Identify those charged with governance of an audit engagement

• Prepare appropriate correspondence or reporting mechanisms in respect of identified risks, audit planning processes or outcomes from the audit that require communication to those charged with governance or management.

• Globalization • Identify the key features in the global environment which affect international trade and finance

• Explain the impact of legal, political, cultural and technological contexts on the processes of internationalization

• Apply knowledge or group, parent or components operating across international borders in order to identify and assess risks of material misstatement or to assist with service delivery of group audits.



Cluster name

Area of knowledge



of an organization • Describe the role of

entry mode choice and other strategic issues needed to succeed in international business

• Summarize the features of globalization, including the role of multinationals, ecommerce and emerging markets

8. Information technology

• General Computer Controls

• Describe the IT components related to financial reporting

• Classify the complexity of an IT environment and relevant general computer controls

• Analyze the IT environment needed for financial reporting

• Analyse the IT environment to enable risk assessment of control deficiencies in respect of the financial statements or control environment

• IT Controls in Application Systems

• Describe relevant IT controls needed for application systems

• Analyze IT controls in relevant application systems

• Summarize impact of IT control weaknesses having an impact on the financial statements for information of those charged with governance

• Business Continuity Planning

• Explain the components of a business continuity plan

• Analyze the components of a business continuity plan

• Analyze the

• No additional audit competences



Cluster name

Area of knowledge



robustness of a business continuity plan

agenda item 7-1 iaesb meeting – cape town, south africa, october 25-28, 2011 · 2011-10-20 ·...

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