Public audit oversight and quality assurance system in Switzerland

Eidg. Revisionsaufsichtsbehörde RABAutorité fédérale de surveillance en matière de révision ASR

Autorità federale di sorveglianza dei revisori ASR

Sabine D‘Amelio

Deputy Head Legal and International Affairs

Federal Audit Oversight Authority, FAOA

Public audit oversight and quality assurance system in Switzerland

Vienna, December 15-16. 2009



Overview

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Introduction Organization Licensing Oversight International cooperation



Introduction (1)

Main characteristics of the Swiss market Population of 7.7 million GDP per capita (PPP) of approximately USD 40,000 98% of Swiss Market Capitalization is audited by PwC, KPMG and

EY 17 audit firms audit listed companies 29 audit firms under state oversight Switzerland - unlike the other EFTA-Member-State - is not part of

the European Economic Area (EEA) and therefore does not have to implement the 8th EU Directive

Small domestic market -> export oriented economy: Swiss PIE are often listed on foreign stock exchanges

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Introduction (2)

Reasons for creating an independent oversight authority Obvious limits to Self-regulation of the profession Objective to improve audit quality International developments (SOX USA / 8th EU-Directive)

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Introduction (3)

September 2007 Audit Oversight Act (AOA) comes into force FAOA starts its operational activities

January 2008 Revised Company Law comes into force Different levels of audit are introduced (limited vs. ordinary audit)

April 2008 FAOA begins its inspection activities for public interest entities

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Organisation (1)

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BoardChairman Prof. Hans Peter

Walter VC Thomas Rufer+ three members

Executive DirectorFrank Schneider

OversightFrank Schneider

Legal / International Affairs

Reto Sanwald

Admission / Support

Jürg Bloesch



Organisation (2)

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Purpose of Audit Oversight Act Assuring proper performance and quality of audit

services

Responsibilities of the FAOA Licensing of auditors and audit experts Oversight of audit firms auditing listed companies International cooperation



Organisation (3)

Resources

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Resources Background

Management 3

Licensing 10 Administrative

Legal & International 4 Lawyers/Attorneys at law

Oversight 43

Experienced chartered accountantsRetired Partners working on a ad-hoc basis

Administrative 2 Administrative

Total 26 per capita 22.1 on a 100% calculation



Organisation (4)

Million Euro Description

Income 2 Oversight charges

0.66 Inspection fees

0.66 Registration fees

3.3 Total

Expenses 2.8 Expenses FAOA

0.53 Accumulation of reserves

3.3 Total

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Budget 2009



Licensing (1)

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Type of licenses Audit activities Oversight activities FAOA

Auditors Limited audits LicensingAudit experts Ordinary audits LicensingAudit firms under state oversight Ordinary audits of PIE Licensing and oversight

Categories of licenses



Licensing (2)

Licensing process Electronic licensing via internet:

http://www.revisionsaufsichtsbehoerde.ch After decision, automatic inclusion in the Public Register Information in the register has to be updated by the license holder License for individuals are unlimited (possibility to withdraw) License for audit firms are reviewed every 5 years

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http://www.revisionsaufsichtsbehoerde.ch/



Licensing (3)

Provisional licensing system

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01.09.07 30.06.1031.12.07

provisional license final license

conversion prov. license in final license audit services provided with a provisional license

remain valid even if final license cannot be given



Licensing (4)

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Type of registration Auditor Audit Expert Total

Individuals 1’866 4’872 6’738Sole proprietorships 327 419 746Audit firms 705 1’789 2’494Audit firms under state oversight - 29 29Total 2’898 7’109 10’007

Licensing statistics as of november 2009



Oversight (1)

Inspections of audit firms under state oversight Inspections at least every three years

The three largest Audit Firms are inspected every year:- 98% of the market capitalization of the Swiss stock exchanges- international practice

All others every three years

FAOA may stagger the inspections by time and content

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Oversight (2)

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PwC38%

KPMG22%

E & Y22%

Deloitte

6%

BDO5%

Others6%

Number of audited listed entities per audit firms under state oversight

as of August, 2009(all publicly traded companies)1

PwC37%

KPMG22%

E & Y22%

Deloitte

6%

BDO

5%

Others8%

Number of audited listed entities per audit firms under state oversight as of August 2007,

20092

1 Data from the Register of the FAOA (according the self declaration of the audit firms under state oversight). As August 27, 2009 the basic set are 499 publicly traded companies (including 157 substantial role companies and 42 companies with bonds outstanding).

2 Data from the Register of the FAOA (according the self declaration of the audit firms under state oversight). As August 27, 2009 the basic set are 300 publicly traded companies (without substantial role companies and companies with bonds outstanding).



Oversight (3)

Principles of the inspection process Cooperative approach vs. formal investigation Risk based Fact based International recognized inspection standards Same principles for all audit firms under state oversight

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Oversight (4) General process of an inspection

Initial contact with firm Formal letter with document and interview request Communication of engagements selected for review “Surprise list” for file review On-site engagement review and quality control process evaluation Reporting Maximum time limit of 12 months to restore orderly situation Investigation

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Oversight (5)

Scope of FAOA inspections Examination of accuracy of information provided and updated in

the licensing application Firm reviews: Internal Control Review on quality assurance system

and compliance with other provisions File reviews: Inspection of audit work papers

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Oversight (6)

Firm Review

BASIS = QUALITY CONTROL SYSTEM = ISQC1 Tone at the top – Leadership responsibilities for quality within the

Firm Ethical requirements – Monitoring of Independence Standards Acceptance and continuance of client relationship Human resources (recruiting, development, remuneration, etc.) Engagement Performance - Audit methodology Engagement Quality Control Review

(Concurring partner review / Consultation process) Monitoring (internal quality review)

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Oversight (7)

File Reviews Goal: Compliance with internal and external standards Continuous improvement of audit quality Large firms probably have good systems but are they followed? Risk based selection (influence of internal quality assurance –

monitoring) No audit of the audit

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Oversight (8)

Extract of commun findings in the past two years EQCR participation is not sufficient/not documented/too late. ISA 545: fair value considerations ISA 600, 610 and 620: Expert work and prof. competence not

challenged/work of other auditors not challenged ISA 230: documentation not sufficient ISA 240: prof. skepticism = rely on past experience Goodwill Testing: key assumptions not challenged Revenue recognition not adressed as significant risk

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Oversight (9)

Reporting Comment Form for each finding Draft written inspection report including comment forms

made available to the Audit Firm for comment Firm to respond and propose measures for remediation FAOA issues final written report Annual activity report (

http://www.revisionsaufsichtsbehoerde.ch/bausteine.net/file/showfile.aspx?downdaid=7476&sp=D&domid=1063&fd=2)

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http://www.revisionsaufsichtsbehoerde.ch/bausteine.net/file/showfile.aspx?downdaid=7476&sp=D&domid=1063&fd=2

http://www.revisionsaufsichtsbehoerde.ch/bausteine.net/file/showfile.aspx?downdaid=7476&sp=D&domid=1063&fd=2



Oversight (10)

Logistics Templates

- Formal announcement of inspection with all information required

- Comment forms- Inspection reports

IT-software to document the inspections Clear inspection strategy: On-site inspections versus

questionnaires, risk based approach, criteria for risk selection, etc.

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International cooperation (1)

Multilateral level FAOA is a member of the International Forum of Independent

Audit Regulators (IFIAR : http://www.ifiar.org)

German/Austrian/Swiss forum

Bilateral level Rules for the implementation of a system of mutual recognition

for companies operating internationally

Rules for cooperation/transfer of information with foreign oversight authorities

Rules for cross-border oversight activities

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http://www.ifiar.org/




Registration/oversight of third country auditors If third country audit firm is subject to oversight by a

recognized foreign oversight authority Only minimal registration requirements with the FAOA

No direct oversight by the FAOA Full recognition of inspection activities of the foreign oversight authority

Transmission of inspection reports only if deemed necessary

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Registration/oversight arrangements for third country auditors will enter into force once the main partner oversight authorities have been recognized by the FAOA/Swiss Government

No need for a transitional period




Conditions for mutual recognition Equivalence of the foreign oversight authority

Principle based approach

In principle no joint inspections to assess equivalence

Authority complies with requirements for cooperation (Art. 26/27 AOA)

Possibility to rely on the assessment by other authorities

Possibility to require reciprocity

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Swiss FAOA will start mutual recognition assessments in 2010




Transfer of confidential information

Foreign authority uses information received exclusively for the direct oversight of persons and firms that provide audit services

Foreign authority is bound by official or professional secrecy

Information received can only be passed on to authorities and bodies that carry out oversight duties that are in the public interest and are bound by official and professional secrecy, on the basis of authorization in a treaty or with the prior consent of the FAOA

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Thank you for your attention

For further information please contact:

[email protected]

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mailto:[email protected]

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Public audit oversight and quality assurance system in Switzerland