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Managing Your Audit Function

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Presentation on theme: "Managing Your Audit Function"— Presentation transcript:

1 Managing Your Audit Function
Webinar Series October 6th – 10:00 to 12:00 CST Presented by Del Rush ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

2 Topics Review of FDIC Rules for Auditors and Audit Committees – Part 363 What Impacts the Internal and External Audit Function? Audit Committee Oversight Responsibilities Management Responsibilities Evaluating External Auditors Evaluating the Internal Audit Function ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

3 Topics Indicators of Issues with the Audit Function
Best Practices in Managing the Audit Function Risk Oversight – Who is responsible? Balancing Audit Cost with Benefits and Risk Performance Measurements for Internal Audit NACD – Ten principles of Effective Audit Committee Oversight ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

4 Session Objectives Inform the participants about key responsibilities, roles and evaluation criteria in order to manage the audit function Discuss issues, changes and trends impacting the oversight of the audit function ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

5 Key Challenges Current Economy – Need for profitability
Regulatory and Compliance Changes to Financial Reporting – More complex Impact due to Larger Company Issues Anxiety at the Board Level – Legal ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

6 Part 363 Annual Reports and Other Required Reports
Section 36 of the Federal Deposit Insurance Act (FDI Act) and Part 363 of the FDIC's regulations impose annual audit and reporting requirements on insured depository institutions with $500 million or more in total assets ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

7 The Impact of Asset Size on Compliance Requirements
FDICIA has two main categories that are based on the asset size of the institution at the beginning of the institution’s fiscal year. The two main categories are: >$500 million to $1billion in assets, referred to here as Tier II. >$1 billion in assets, referred to here as Tier I. ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

8 Specifics of Part 363 Annual Reporting Requirements
Independent Public Accountants Filing and Notice Requirements Audit Committees Scope ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

9 Specifics of Part 363 Management assessment Internal Control Framework
Disclosure of Material Weaknesses Independence Standards for Auditors ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

10 Specifics of Part 363 Specifies the duties of the Audit Committee
Required Communications Retention Requirements for Working Papers ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

11 Specifics of Part 363 Documentation and Guidance for AC Independence
Compliance with Part 363 at the Holding Company Level Included Illustrative Reports ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

12 Tier II Institutions Audited comparative annual financial statements with the independent public accountant’s audit report. A management report containing management’s responsibilities.   ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

13 Tier I Institutions – Additional Requirements
Management Assessment of ICFR at Year-end Disclosure of Material Weaknesses not Remediated Public Accountant Attestation on ICFR ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

14 Audit Committee Impacts of 363
Independent Outside Directors – depends on size Annual independence evaluation of AC members Compensation Auditor engagement ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

15 What Impacts the Internal and External Audit Function?
ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

16 Corporate Governance - defined
Governance can be defined as the processes for managing an organization’s affairs or for ensuring accountability. Governance can include various activities such as setting business strategies and objectives, determining risk appetite, establishing culture and values, developing internal policies, and monitoring performance. ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

17 Key Items Impacting Auditors
Tone at the Top and with Executive Management Involvement of Owners Is the AC really Effective and Trained? Involved with Management? Business Changes – Internal and External How Management Addresses Issues - Skills ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

18 Factors Causing Change Today
Indirect impact from PCAOB, SEC, AICPA Regulatory – FHA – Dodd-Frank Act Other – Risk Management and Testing GAAP – Impact of IFRS and Fair Value Economic Environment ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

19 Trends Impacting the Internal Audit Function
Risk-Centric Mindset A Real-Time Dimension Shortage of Audit Talent Technological Advancement ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

20 Oversight Committees - Basics
Know the People Understand the Business Exercise Skepticism Insist on Accountability for Management and the Board ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

21 Audit Committee Oversight Responsibilities
Financial Reporting Overseeing the Annual Audit External Audit Internal Audit Risk Management & Internal Control Maintaining & Measuring Effectiveness Communicating & Reporting Regulatory, Compliance & Ethical Matters ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

22 Management Responsibilities
Primary Corporate Governance Responsibilities Rest with Management Include Internal Control, Ethics, Risk Management, Compliance with Laws and Regulations Every Manager’s Responsibility ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

23 Evaluating External Auditors
Industry Experience Support Network Independence Reasonableness of Audit Plan Ability to Toe the Line ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

24 Evaluating External Auditors
Form and Frequency Lack of Surprises Partner and Manager Time Quality Control Procedures Using the Work of Others ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

25 Evaluating External Auditors
Usefulness of Recommendations Team Chemistry ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

26 Evaluating the Internal Audit Function
Routine oversight by the Audit Committee Appraising the quality of the IA staff Inquiries of the independent auditor Metrics ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

27 Evaluating the Internal Audit Function - Questions
Proper funding/Cost Effective Responsive based on current environment Up-to-date Experts in the field Are expectations between CAE, Sr. Mgmt and the AC reconciled Viewed as objective and competent Complies with IIA standards ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

28 Indicators of Issues with the Audit Function
Unexpected Adjustments Material Weakness or Significant Deficiency Delays in Meeting Financial Statement Deadlines Lack of Communication or Meetings Partner Involvement/Manager Involvement Out of period adjustments – Not just at year-end Everything is Great and There are No Issues or Problems ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

29 Indicators of Issues with the Audit Function
Turnover – Internal or External Refiled Regulatory Reports Employee Fraud Inability to Meet Annual Audit Plan or Getting Pulled into Other projects ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

30 QAR - Common Problems Found in Internal Audit Departments
Incomplete Risk Assessments Policies and Charters were Outdated Time Management and Productivity Professional Education ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

31 Best Practices for Audit Committees
Assess Management Be Informed Review AC Charter Hold at Least Quarterly Meetings Keep Minutes ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

32 Best Practices for Audit Committees
Review AC Membership Meet with Outside Auditors and Counsel Stay Engaged Ask the Tough Questions Have Open Communication ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

33 Best Practices in Managing the Audit Function
Define the Role of Internal Audit Routine and Regular Communication Identify a process when issues arise that will impact cost or execution Discuss Areas for Improvement at the end of the Audit Set Fees on an Engagement Basis Evaluate Both Internal and External Audit Functions ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

34 Risk Oversight – Who is Responsible?
Greater Board Involvement ERM Process Impact to Management ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

35 Risk Oversight – Who is Responsible?
Drivers of Risks Traditional Approach vs ERM Meant to be value adding ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

36 Risk Oversight – Who is Responsible?
Role of Audit Committees Tone at the Top Explicit Responsibilities Considered by Debt Rating Agencies ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

37 Risk Oversight – Who is Responsible?
Developing Audit Committee Processes Best Practices and Training Evaluation of Risk Information Received ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

38 Balancing Audit Cost with Benefits and Risk
Compare your institution to peers and leading companies Consider the impact of non-compliance Evaluate the value received Don’t try to be an expert in everything Understand situations that cause problems Communicate, plan and then communicate again Understand that everyone has a job to do (Internal, External, Management and BOD) ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

39 Performance Measures for Internal Audit
IIA Practice Advisory – recommends a balanced scorecard approach Three Broad Categories to Track Performance Stakeholder Expectations Audit Process Innovation ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

40 Reasons for Performance Measures
Clarify the mission and vision of the organization Assist in translating its strategy into measurable objectives Allows the organization to measure progress Understand what improves results Improved accountability and decision making Alignment of operational activates and resources with strategic objectives Encouragement of dialogue A shared understanding of activities planned to deliver objectives Clear communication of expectations to all organizational levels ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

41 Identifying Performance Category Strategies & Measurements
Stakeholder Expectations – Internal vs External Risk Assessment/Audit Planning Planning and Performing the Audit Engagement Communication and Reporting Innovation and Capability Training Use of Technology Industry Knowledge ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

42 Measurements - Stakeholder
• At least 70% of the time is spent on direct audit hours • Over a three year cycle, at least 1,000 hours will be spent on: o Compliance audits o Consulting o Information technology audits o Performance measurement o Operational auditing o Risk Management o Value for money audits • Fraud Investigations are concluded within 60 days of employee being suspended • Client survey is conducted for every operational audit and results summarized for the Audit Committee. ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

43 Measurements - Processes
• An in-depth risk assessment will be conducted every three years • Risk Assessment profile will be updated annually • Over a three-year cycle, some aspect of every department will be audited even if no activity is identified in risk assessment ranking • All audit assignments over 50 hours have an audit plan • Audit projects are within 10% of the approved budget or maximum of 50 hours over budget • Operational Audit Reports are issued within six weeks after exit interview • Final reports are issued two weeks after management responses received • Management implements over 75% of the recommendations within two years of audit report issuance • Management accepts over 90% of the recommendations in the audit reports. ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

44 Measurements - Innovation
• All staff at Associate level and higher will have at least one auditing designation [CIA, CFE, CFI, CISA, etc] • At least 10% of the staff time is spent on professional development • All staff proficiently use data analysis tools [ACL, IDEA, etc] • Staff understand the role of Legislation, Regulation, Policy, directives, and program procedures in relation to employees and public. ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

45 NACD – Ten Principles of Effective Audit Committees
Focus Transparency Communications ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

46 NACD – Ten Principles of Effective Audit Committees
Question and Be up-to-date Risk Management Set Expectations ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

47 NACD – Ten Principles of Effective Audit Committees
Resources Tone at the Top ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

48 NACD – Ten Principles of Effective Audit Committees
Change and Risk Management Evaluate AC Effectiveness ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

49 Looking Ahead – External Auditor Oversight
Speech by James Doty, Chairman of the PCAOB April 4, 2011 Even Though the PCAOB Regulates Audit Firms Serving Public Clients – Wider Impact is Likely ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

50 Key Topics in the Speech
The Role of the Auditor and Value of an Audit Cost of a Failed Model Future of Auditor Oversight Analysis of Audits Affected by the Economic Crisis Firm Management and Monitoring Enhancing the Auditor Reporting Model ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

51 Terminology NACD – National Association of Corporate Directors
IFRS – International Financial Reporting Standards ERM – Enterprise Risk Management QAR – Quality Assurance Review (IIA) ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

52 Resources www.nacdonline.org
ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC

53 Contact Del Rush 501.975.0233 drush@frostpllc.com
ABA: Managing Your Audit Function Webinar: October 6, © Frost, PLLC


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