SUMMARY 2020

In 2020, ASPAAS carried out inspections of statutory auditors and audit firms performing statutory audit activities, in accordance with Law No 162/2017.

In line with the 2020 inspection plan, ASPAAS carried out inspections of statutory auditors and audit firms that performed statutory audit engagements from March to December.

During 2020, most inspections were carried out at the ASPAAS headquarters, without face-to-face meetings between the inspection teams and the statutory auditors or audit firm representatives. The documentation for the audit engagements inspected at the ASPAAS headquarters was sent electronically by email.

For the 22 inspections carried out in 2020, 20 inspection reports and one findings note were issued and communicated to the statutory auditors and audit firms inspected; one inspection report is currently being finalised and will be communicated to the audit firm shortly.

 

Statutory audit engagements inspected, by type of audited entity:

 

The SIACI inspection teams’ reviews focused on the audit documentation and professional judgements for the significant areas of the financial statements and for areas with a medium or high risk of misstatement.

The reports on the 22 inspections carried out included approximately 668 issues requiring remediation, for which recommendations were made to the audit firms and statutory auditors inspected.

The issues identified in the inspections carried out by SIACI in 2020 are summarised as follows:

Issues frequently identified in the audit files inspected in 2020, particularly in the statutory audit work of small audit firms or individual statutory auditors, are as follows:

a) Review of ISQC 1 and ISA 220

In general, the statutory auditors/audit firms inspected complied with the obligation to have firm-level and engagement-level quality control procedures (ISQC 1 and ISA 220); the inspection teams’ recommendations on this matter related more to their content and actual application in statutory audit work and to the documentation of the tests performed in the audit files.

Certain cases were identified in which quality procedures were drafted in general terms and not tailored to the needs and size of the statutory auditor’s/audit firm’s practice or to the industry/activity of the audited entities.

One of the significant issues found in the inspections of many audit firms/statutory auditors is the absence of an engagement quality control reviewer or inadequate documentation of the reviewer’s work.

b) Documentation:

Documenting audit evidence is important in statutory audit engagements because it is the main means by which the statutory auditor/audit firm can demonstrate its sufficiency and appropriateness. The audit file must contain sufficient appropriate audit evidence to support the conclusions of the statutory auditor/audit firm on which the audit opinion is based. In the inspections carried out, the inspectors found a deficiency in the documentation of audit engagements which, in some cases, does not meet the requirement in paragraph 8 of ISA 230 to enable an experienced auditor, having no previous connection with the audit, to understand the nature, timing and extent of the audit procedures performed, the results of those procedures and the audit evidence obtained, and the significant matters arising during the audit, the conclusions reached thereon and the significant professional judgements made in reaching those conclusions.

c) Lack of professional scepticism

A deficiency was identified in exercising professional scepticism. This can lead to a failure to obtain sufficient appropriate audit evidence. When preparing the audit file, the auditor must ensure that the audit evidence ultimately obtained is appropriate and sufficient to reach appropriate conclusions on the selected assertions for each selected section and to issue an appropriate audit opinion.

d) Lack of consistency in the application of audit evidence

The SIACI inspections found in many cases that audit procedures existed in accordance with ISA 220 but had no direct link with the audit file inspected or with the specific circumstances of the audit firm or statutory auditor inspected. The procedure must be tailored to the audit practice and should therefore be improved whenever necessary, in light of practical issues encountered, experience gained and changes in professional regulations. The inspectors emphasise these aspects and draw attention to the importance of applying tailored procedures.

e) Audit evidence:

There are cases in which the statutory auditor/audit firm did not understand how audit evidence can be considered appropriate and sufficient. The sufficiency and appropriateness of audit evidence are interrelated. Sufficiency is the measure of the quantity of audit evidence. The quantity of audit evidence needed is affected by the auditor’s assessment of the risks of misstatement (the higher the assessed risks, the more audit evidence is likely to be required) and also by the quality of that audit evidence (the higher the quality, the less may be required). However, obtaining more audit evidence may not compensate for its poor quality.

f) Audit assertions

Another important aspect of statutory audit engagements is how the auditor documents audit evidence: in order to consider the different types of potential misstatements that may occur, the auditor must take into account the 3 categories of assertions described in paragraph A124 of ISA 315. We also emphasise that the auditor must ensure that they hold sufficient appropriate audit evidence on which their professional judgement is based.

j) Identifying and assessing the risks of material misstatement:

In the inspections, the issues found in risk identification and assessment relate to deficiencies in the judgements on the size of misstatements considered material, or a lack of evidence of how the nature, timing and extent of risk assessment procedures were determined, and of how the nature, timing and extent of further audit procedures following the risk identification stage were determined. Procedures for understanding the audited entity are of great importance in determining significant risks. The auditor must document the conclusions on these risks, why they are considered significant and how the tests needed to examine them are planned, including the determination of key audit matters (KAM) as set out in ISA 701 (where KAMs are identified, the auditor must explain in the audit report how they were addressed and why they were considered key matters, and these matters must be properly documented in the audit file).

k) Analytical procedures

Where the inspectors found a deficiency in audit evidence at the completion stage, they encourage audit firms and statutory auditors to use analytical procedures to test financial information at the completion stage of the audit, as required by paragraph 6 of ISA 520.

l) PIE compliance with the requirements of Article 65 of Law No 162/2017 – inspection findings.

(the inspections concern audits of financial statements as at 31.12.2018)

 

As a general trend, the SIACI inspections found that statutory auditors/audit firms do not use controls over internal audit tests in their procedures, even though internal audit reports and the entity’s internal audit procedures are an important source for identifying the entity’s risks and can, in many cases, lead to the identification of material misstatements that might otherwise remain undetected by other audit procedures (for example, tests of details).

SIACI set as an objective ensuring that audited entities comply with the provisions of Law No 162/2017 on the obligation to organise internal audit and, where applicable, to establish an audit committee, and encouraging statutory auditors and audit firms to use the work of internal auditors, internal audit being a key means and tool of an entity’s management, with the role of monitoring the efficiency and effectiveness of its activity. Internal audit is becoming a key governance tool in its strategic role of monitoring the entity’s activity. The audit committee and the board of directors must ensure, including through a periodic independent external assessment, that the internal audit function is appropriately positioned within the organisation and has the human resources and processes needed to meet the entity’s strategic objectives and initiatives.

Conclusions drawn from SIACI’s quality inspection experience in 2020:

Regulation (EU) No 537/2014 established the Committee of European Auditing Oversight Bodies (CEAOB), whose main aim is to improve the quality of statutory audit at public-interest entities in Europe and, in turn, to increase stakeholder confidence in statutory audit and in the auditor’s report.

To this end, the CEAOB established a common European approach for all its members, from which ASPAAS also benefited, in that its inspection procedure was harmonised with the European inspection procedure. A transition period was needed for statutory auditors and audit firms in Romania to adapt to the new requirements for statutory audit work, and the inspection teams understood the need for time to adapt.

We therefore expect that, as statutory auditors and audit firms in Romania become subject to quality inspections initiated by ASPAAS, the inspection teams will find that they have adapted their work to the new requirements for statutory audit, resulting in an ever smaller number of issues identified.

For this reason, these first inspections carried out in 2018–2020 were mainly aimed at informing, raising awareness and correcting (where necessary) control procedures and the audit approach in general, with a view to aligning statutory audit procedures with the European level and thus increasing the quality of statutory audit in Romania.

SIACI monitors, over set periods, the remediation by audit firms and statutory auditors of the deficiencies found during the inspections.

Monitoring of the implementation of the recommendations issued will be carried out in the coming period, in accordance with the regulations in force.

Sanctions imposed by ASPAAS on statutory auditors and audit firms

a) Disciplinary sanctions – In 2020, an 18-month suspension was imposed on one statutory auditor. The sanction is not yet final.

In 2019, a warning was issued to one statutory auditor.

b) Contravention sanctions – In 2020, ASPAAS did not issue any contravention notices.