Introduction of IFAC, Management’s Responsibility and Auditor’s Responsibility

International Federation of Accountants

International Federation of Accountants (IFAC)

It is the global organization for the accountancy profession. It is dedicated in serving the public interests by strengthening the profession. IFAC has 167 members and associates in 127 countries around the world representing approximately 2.5 million accountants in public practice, education, government service, industry and commerce.

ICAP is a member of IFAC.

IFAC includes four boards.

1.    The International Auditing and Assurance Standards Board (IAASB)
2.    The International Accounting Education Standards Board (IAESB)
3.    The International Ethics Standards Board for Accountants (IESBA)
4.    The International Public Sector Accounting Standards Board (IPSASB)

International Auditing and Assurance Standards Board (IAASB)

1.    It develops international standards. e.g.

          ·         International Standards on Auditing (ISAs)
          ·         International Standards in Assurance Engagements (ISAEs)
          ·         International Standards on Review Engagements (ISREs)
          ·         International Standards on Related Services (ISRSs)
          ·         International Standards on Quality Control (ISQC)

2.    It issues Practice Statements to guide auditors in implementing international standards            and promoting good audit practices in general.

Process of Producing a New ISA

The process of producing an ISA is as follows:

1.    A subject is selected for detailed study, with a view to eventually issuing an ISA.
2.    After a period of study and research, if there is agreement to proceed, an exposure draft        is produced. The exposure draft is approved by the IAASB and then distributed widely            amongst the profession and others for comment.
3.    Comments and proposed amendments are considered by the IAASB. The draft standard        is then modified and approved by the IAASB.
4.    The new ISA is then published.

Responsibility of Management and Those Charged With Governance

With respect to the audit it is management and TCWG who are responsible:

1.    For prevention and detection of fraud
2.    For the preparation of the financial statements;
3.    For designing and implementing internal controls; and
4.    To provide the auditor with:
            a.    Unrestricted access to persons within the entity to obtain evidence;
            b.    Access to all information relevant to the preparation of the financial statements of                    which management is aware; and
            c.    Additional information that the auditor may request from management for the                          purpose of the audit.
5.    To provide written representation to the auditor at the end of the audit.
 

Responsibility Of Auditor

Auditor’s responsibility is to:

1.    Obtain reasonable assurance whether financial statements are free from material                    misstatements; and
2.    Express an opinion on whether financial statements are prepared, in material respects, in      accordance with applicable financial reporting framework.

Expectation Gap

Expectation gap refers to the fact that the public perception of the role and responsibilities of the external auditor is different from his statutory role and responsibilities. For example

Public Perception	Reality
Financial statements are prepared by the auditor.	Financial statements are prepared by the management.
Auditor has a duty to prevent and detect fraud.	Management is responsible to prevent and detect fraud.
Auditor tests 100% items.	Auditor tests only a sample of items.

The expectation of the public are often set at a level higher than that at which the external auditor actually operates.

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