The audit reform in the United Kingdom: Challenges and the future

Subject. Intended to counter fraud and unreasonably high bonuses for top executives, the U.K. corporate governance and audit reform implies some changes so as to improve the financial transparency of companies, primarily, large and public interest entities. The reform is called to maintain the lucrativeness and competitiveness of the U.K. financial markets, creating a sustainable and manageable environment, which major long-term investors seek. Objectives. I review and summarize proposals set out in the reform as best-in-class practices, which may work in auditing and assurance in Russia and underlie respective changes. The reform may contribute to the auditing profession, help avoid accounting scandals and corporate failure. Methods. Studying the audit reform, I applied methods of analysis, generalization, and analogy. Results. Having analyzed the reform plan, I found valuable ideas concerning directors’ responsibilities, corporate reporting and auditing. The reform suggests that the Audit, Reporting and Governance Authority should be established. The definition of public interest entities became broader. Audit boards are now to meet additional requirements. The audit market will be overhauled by segregating auditing and consultancy units of the Big Four companies and introducing statutory audit, which should be jointly performed by major and smaller entities, and tightening audit transparency rules. Hence, top executives will be more responsible and liable for financial reporting and increased transparency of internal control and trade account settlement principles. Such proposals should be adapted to the audit regulation practice in Russia and be applied with reference to the recent legislative novels. Conclusions. The quality of audit is critical for the economy and the public, since it ensures the national credibility as a capital market. Any sustainable economy needs a comprehensive approach, which combines the audit reform and corporate governance and accounting standards reform.

Bank Audit Regulations and Reporting Quality

This study examines whether bank audit regulations impact bank reporting quality. Using a multi-country panel of publicly traded banks, we find that regulations targeting auditor qualifications and independence improve bank reporting quality. In contrast, regulations that impose greater supervisory oversight of external auditors have little or even an adverse effect on bank reporting quality. Cross-sectional analysis further shows that the effects of bank audit regulations are concentrated among banks where supervisory regime is less independent. Our results hold after controlling for bank regulations pertinent to financial reporting and disclosure, the adoption of international financial reporting standards and time-varying country-level institutional characteristics. Overall, our findings suggest that audit regulations matter and their impact on bank reporting quality is sensitive to the type of audit regulation.

INTERNAL AUDIT IN UKRAINE: EVOLUTION, PROBLEM ASPECTS AND DEVELOPMENT PROSPECTS

The purpose of the article is to summarize the views on the current state of internal audit in Ukraine and identify general promising areas for its development. The evolution, current state and prospects of internal audit development in Ukraine are revealed. The history of internal audit is covered, the stages of development of internal audit in the world and in Ukraine are considered. It is determined that the development of internal audit in Ukraine takes place with the adoption of relevant legislation governing its implementation in a particular area. The current state of internal audit in Ukraine is characterized, the current legal framework for internal audit is analyzed. The level of legislative regulation of internal audit of enterprises of various spheres of activity is revealed. It was found that the establishment of an internal audit function at the legislative level is not mandatory for the private sector, while such companies have all the necessary legal framework that can be used in the process of implementing and conducting internal audit. Views on modern problematic aspects of internal audit development in Ukraine are generalized. It is determined that the most acute issues hindering the implementation of internal audit in enterprises are the lack of methodological and organizational support for internal audit, the low level of development of corporate governance culture, as well as the lack of qualified internal auditors. The actual directions of further improvement of the process of introduction of internal audit in the practice of domestic enterprises are formulated. The necessity of further improvement of normative-legal provision of internal audit regulation, development of methodical recommendations on organizational-technological schemes and procedures of internal audit and improvement of the system of professional training of specialists in internal audit is substantiated. It is concluded that the development of internal audit in Ukraine at the present stage is due to the need to understand internal audit as a potential tool to improve the efficiency of the enterprise, as well as the existing regulatory requirements. Prospects for the development of internal audit in Ukraine must have all the prerequisites to meet modern global trends.

Exploring Changing Requirements of Financial Statement Audit Reports via a Morphogenetic Approach

There has been an ongoing concern with the quality of financial audit reports issued by registered public accounting firms in relation to financial accountability and transparency of the financial statements. In July 2009 the Public Accounting Oversight Board (PCAOB) released a concept paper outlining changes to the requirements of financial audit activities such as the inclusion of the engagement partner’s signature on the financial audit reports. The aim of these new requirements was to improve the accountability of engagement partners as well as enhance the perception of transparency of the audit reports. However, the contribution and effectiveness of these requirements to improve accountability and transparency of audit reports for various stakeholders relying on the audited financial information is questionable. This study explores the impact and effectiveness of changes to auditing regulation and processes through the application of Archer’s (1995) morphogenetic approach which is based on social conditioning, social interaction, and social elaboration where the structural influences provides the environment for agents to differentiate themselves. In addition, this study demonstrates how proposed regulation changes mould the qualities of audit regulation, the profession and the auditor whose perspectives deserved to be noticed from the dominant constituencies structured by the propositions of a morphogenetic analysis.

Institutional audit regulation in Russia in conditions of sustainable development

This article considers the need to rethink the content and scope of the state’s coordinating functions in the field of audit; The article pays attention to the lack of development of the institutional aspects of audit; the need to expand the theoretical and methodological tools of audit, which allows to determine the impact of economic and legal support factors on the management decisions of users of reporting. The purpose of the article is to formulate the institutional problems of audit and on their basis to substantiate the theoretical and methodological foundations for improving the institute of auditing, including the Russian one. The scientific novelty of the research lies in the interdisciplinary consideration of issues involving the works of philosophers and jurists. The study substantiates the truth of the audit, which consists in determining the reliability of financial statements, defines the boundaries covered by the audit relationship, imperative and dispositive legal norms in the field of auditing.