Documentation The auditor is required to document the process of compliance with the NOCLAR guidance including the response of management and those charged with governance, the courses of action considered, the judgements made and the decisions taken. The need for support The IESBA acknowledges that the accountancy and auditing profession will not resolve the NOCLAR issue in isolation and that it requires the support and co-operation of other professions together with governments, legislators and regulators. In particular it is hoped that governments will introduce and strengthen legislation addressing NOCLAR and will provide protection for whistle blowers and to auditors and other PAs who implement the standard. The ultimate success of the project is also dependent on governmental authorities acting appropriately in response to the NOCLAR reports which they will receive under the requirements of the standard. Conclusion In practice auditors will often have to deal with instances of non-compliance with laws and regulations and the IESBA’s NOCLAR standard provides important additional guidance and clarification of their duties and responsibilities in this key area. In the context of the P7 Advanced Audit and Assurance exam, candidates need to be prepared to discuss the recent developments outlined in this article as well as to consider the new guidance in their answer points to scenario based exam questions. Written by a member of the P7 examining team 7) Corporate governance and its impact on audit practice 24
AAA Technical Articles Basic principles of corporate governance – a reminder Corporate governance is the system by which organisations are directed and controlled. It encompasses the relationship between the board of directors, shareholders and other stakeholders, and the effects on corporate strategy and performance. Corporate governance is important because it looks at how these decision makers act, how they can or should be monitored, and how they can be held to account for their decisions and actions. The published audited financial statements and related information are therefore of key importance. They will usually be the main information set to which shareholders and other stakeholders have access and this is why having credible financial statements supported by the auditor’s opinion is crucial. Many regulatory authorities, including the UK, use a code of best practice, often termed a ‘comply or explain’ approach to corporate governance. Under this approach the regulatory authority issues a set of principles with which company directors of listed companies are expected to comply. In many jurisdictions disclosures are required in the financial statements to demonstrate compliance. Non-compliance is not expected, but in its event, the facts of the non-compliance must be clearly disclosed and explained.
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- Fall '19