Considerations for Auditing in Foreign Jurisdictions

By Lisa Eng-Liu, CPA, CA, CPA (Illinois); Published in CPABC in Focus magazine
Published: June/Summer 2014

Auditing in foreign jurisdictions has been an area of increasing concern over the past few years. Given the relatively large number of BC companies that have operations overseas, particularly in Southeast Asia, this topic is highly relevant to BC auditors.

Is your firm appropriately licensed to perform work in the jurisdiction?

One of the first areas to consider is licensing and regulatory regimes. It is increasingly important that firms develop the necessary processes and set aside adequate resources to ensure that when they operate in a multi-jurisdictional environment, they comply with the regulatory requirements of all the jurisdictions involved.[1]

Action step: Seek appropriate legal and compliance advice to ensure that you and/or your firm are properly licensed to perform activities in your client’s jurisdiction.

Have you given due consideration to the risk of corruption and fraud?

Since 1995, Transparency International, a non-profit, non-governmental organization dedicated to fighting corruption, has been publishing its annual “Corruption Perceptions Index.” The 2013 Index measured the perceived levels of public-sector corruption in 177 countries and territories on a scale from 0 (highly corrupt) to 100 (very clean). No country achieved a perfect score, and two-thirds scored below 50, suggesting that there is a serious, worldwide problem of corruption.[2]

Action step: Assess the risk-level of corruption and fraud in the various countries in which your clients operate.

Has your risk assessment adequately considered local business customs and practices?

Ways of doing business in other parts of the world can play an important role in your client’s operations, and need to be considered in your audit approach and procedures. For example, in some countries, verbal agreements are popular, attitudes towards authority are different, and management override may be considered “normal” practice.

Action step: Ensure that your audit team is familiar with the local customs, laws, and regulations of your client’s jurisdiction.

How have you modified the nature, timing, and extent of your audit procedures?

In 2012, the Canadian Public Accountability Board published a special report, Auditing in Foreign Jurisdictions[3], which outlines the challenges of performing high-quality audits of the financial statements of Canadian reporting issuers with operations in foreign jurisdictions. Some of the findings outlined in the report include:

  • Auditors not properly applying procedures that would be considered fundamental in Canada, such as maintaining control over the confirmation process.
  • Auditors not appropriately identifying and assessing the risks of material misstatement through a sufficient understanding of the entity and its environment.
  • A lack of professional skepticism.

The above and other considerations need to play an important role in the acceptance and performance of audit work in jurisdictions outside Canada.
Action steps: Be sure to adapt your audit procedures to sufficiently address the risk of fraud in the environment in which your client is operating, and maintain a healthy level of professional skepticism throughout the audit process.

Lisa Eng is the director of Practice Review & Licensing at the Chartered Accountants of BC.

Footnotes

  1. Refer to Operating in a Multi-Jurisdictional Environment,” published in the January 2012 issue of Beyond Numbers, for more information on this topic. (https://www.bccpa.ca/CpaBc/media/CPABC/Legacy/Profiles%20and%20Publications/ICABC%20Beyond%20Numbers%20PDFs/bn_jan2012.pdf)
  2. For more on Transparency International’s findings, visit https://www.transparency.org/whatwedo/publication/cpi_2013/ .