Practice Monitoring

Practice Monitoring/Peer Review in essence is ‘auditing the auditor’. It is a review to ensure that audit reports and audit procedures are in compliance with International Standards on Auditing (“ISAs”) and other internationally recognized rules, thereby, ensuring the quality of audits. The principal purpose of these visits is to assess the extent to which a firm complies with auditing standards and International Standard on Quality Control Number 1 (“ISQC1”). The visits will include a review of the firm’s quality control policies and procedures and an examination of a number of completed audits.

Under The Bahamas Institute of Chartered Accountant’s Act, 2015 (“the Act”) section 34 subsection (1) (e) ‘a person who holds himself out as a public accountant or engages in public practice without being in possession of a valid licence, commits an offence’. Persons holding themselves out to be ‘public accountants’ should possess a licence granted by the Institute under section 13 of the Act and have complied with the requirements to engage in public practice. Public accountants in public practice who perform attestation and assurance engagements will represent the pool of practitioners that appear on the list that is submitted for Practice Monitoring/Peer Review.

All members and licensees are required to complete a Declaration/Waiver form, annually, advising whether they have signed off on any attestation and/or assurance engagements within the past twelve (12) months. The monitoring visits only encompass reviews of engagements that were finalized within the prior year. The completed forms are required to be submitted to the BICA Secretariat no later than January 31 (see Annual Attestation Confirmation and Form ACI- Annual Return - Attestation Client Information).

BICA is participating in the regional monitoring programme established by the Institute of Chartered Accountants of the Caribbean (“ICAC). Under this regional programme, the Association of Chartered Certified Accountants (“ACCA”) will provide monitoring services to BICA, using specialist and experienced ACCA staff. The decision to work with ACCA was taken on the basis that ACCA has considerable experience and expertise in this area.

ACCA has been licensing and regulating audit firms in the United Kingdom and Ireland under legislation passed by the governments of those countries for decades. During that time ACCA has developed an audit monitoring system that is designated to assess compliance with auditing standards and ISQC1.

Its expertise in monitoring is demonstrated by the fact that it is contracted to undertake monitoring visits for the Botswana Institute of Accountants, the Institute of Certified Public Accountants of Cyprus, the Institute of Certified Public Accountants of Kenya, the Audit Commission in England and the Law Society. Under these arrangements it is only the monitoring visits that are outsourced to ACCA with the outsourcing entities keeping licensing and all other aspects of regulation in-house. This is also the case in the arrangement between BICA and ACCA.

In undertaking the audit monitoring visits, ACCA acts as an agent for BICA and will report the results of the visit, together with recommendations, to the firm with a copy being sent to BICA. The decision to undertake a monitoring visit to a firm is taken solely by BICA which also considers the report subsequently issued by ACCA and decides whether any further action is required. ACCA’s responsibilities are merely to examine and assess a firm’s compliance with rules and standards and report on these matters, together with recommendations.

To undertake monitoring visits in the Caribbean, ACCA will recruit a suitable person to appoint as its Caribbean based practice reviewer. The individual will have an excellent understanding of auditing practice and be able to communicate orally and in writing to a high standard. The practice reviewer will report to ACCA’s Global Assurance Manager in London. The practice reviewer will be accompanied by other practice reviewers based elsewhere when undertaking monitoring visits to larger firms in The Bahamas or to those that audit specialized industries.

When a firm is selected by BICA for a monitoring visit, it will be notified by BICA and receive a pre visit questionnaire which is designed to elicit sufficient information from the firm regarding its organization and its audit client base to facilitate the planning of the monitoring visit. After the pre visit questionnaire has been completed and returned by the firm, the ACCA practice reviewer will telephone the firm to discuss its contents and finalize the planning of the visit.

On the day the visit starts, the practice reviewer will hold a meeting with the audit principals of the firm. The purpose of that initial meeting will be to:

• Ascertain and understand how the firm is organized and operates
• Ascertain and understand the quality controls established by the firm to ensure audit work is performed in accordance with auditing standards

After the initial meeting, the practice reviewer will select a sample of audit files for inspection. The selection will be made to ensure the work of all audit principals is inspected and will concentrate on the larger more complex audits. The practice reviewer will document his/her review and will summarize the audit work performed and identified instances of non-compliance with auditing standards.

Having completed the review of audit files the practice reviewer will conduct the closing meeting which is an extremely important part of the monitoring visit. The purpose of the closing meeting is to:

• Inform the firm of all matters arising from the visit, identifying deficiencies in work and non-compliance with auditing standards
• Give the firm the opportunity to clarify or rebut any of the points raised
• Enable a discussion to take place as to how the firm should deal with deficiencies and areas of non-compliance in the future

After the visit the practice reviewer will prepare a report on the monitoring visit, which will list any deficiencies and instances of non-compliance, noted, together with recommendations. This report will be made available to the firm within a few weeks of the visit. Where deficiencies are found to exist, ACCA or BICA may ask the firm to confirm what corrective action it proposes to take to rectify the situation.

While everyone makes mistakes, the accuracy and reliability of monitoring visit reports are crucial in any system of monitoring. ACCA will ensure this is the case through the following:

• The practice reviewer appointed will have demonstrated through past experience and the recruitment interviews that they have the technical skills to make the appropriate professional judgment
• The practice reviewer will undertake 3 months of training within the Practice Monitoring Department based in London. During that time he or she will undertake, under supervision, monitoring visits to ACCA’s UK firms
• All monitoring visit reports and working papers will be subject to a detailed review by another practice reviewer, before they are issued
• The practice reviewer will be accompanied on monitoring visits by senior personnel from the Practice Monitoring Department from time to time

It is entirely understandable for audit firms to be wary or even fearful of monitoring because of the possibility that BICA may take regulatory action if the outcome of the visit is unsatisfactory. These fears are, however, largely unnecessary as BICA has indicated that it intends to adopt an ‘educational’ and progressive approach similar to that used by ACCA in the UK and Ireland.

This approach involves taking no regulatory action at all if a firm has an unsatisfactory outcome to its first monitoring visit because of its failure to comply with auditing standards. Instead, the approach involves persuading and encouraging the firm to make the necessary improvements and providing guidance to do so at the closing meeting of the monitoring visit. The firm may, however, in the interests of responsible regulation, be asked to confirm how it will amend its procedures to ensure that improvements will be made and it may receive a further monitoring visit well ahead of the normal 6 year routine, monitoring cycle to confirm that the improvements have indeed been made.

Even where a firm fails to make the necessary improvements, the regulatory action that is normally taken by ACCA in the UK and Ireland is not disciplinary in nature. Instead, ACCA requires the firm to take further remedial action, including undergoing audit training and using the services of a consultant to conduct “hot” and “cold” reviews. It is likely that BICA may adopt a similar approach.

BICA appreciates that practicing members and firms will need more information to properly prepare them for the audit monitoring visits. Consequently, BICA will arrange a seminar for partners, directors and sole proprietors of accounting firms at which a representative of ACCA’s Practice Monitoring Department will explain in more detail how monitoring visits will be structured, how audits will be reviewed and how the outcome to visits will be assessed to be satisfactory or unsatisfactory.