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Greater regulation seen as challenge for audit firms Chitty underscores SMEs role in Kuwait economy

KUWAIT CITY, May 24: “An obvious challenge facing audit firms in Kuwait and the wider GCC region will be the implementation of greater external regulation,” remarked David Chitty, International Accounting and Audit Director of Crowe Horwath International, who visited the region as part of an ongoing engagement with member firms and conducting a periodic quality review. There have been rapid moves towards the introduction of greater regulation in Kuwait and other GCC countries which will be consistent with the leading standards of regulation in other advanced economies.  What audit firms in Kuwait will have to do in the face of greater regulation, Chitty states, is ensure that they have fully implemented global professional standards as well as ensure that their clients have fully implemented IFRS or IFRS SMEs as appropriate reporting standards.

The effective implementation of greater regulation in Kuwait  arising from the establishment of the Capital Market Authority (“CMA”) will compel the audit profession to focus very heavily on the investment in resources needed to meet the expectations of CMA and other authorities and demonstrate its continuing reputation within the business community. As a result, some audit firms may find that they simply cannot make that step to new practising within a regulated environment while other audit firms will make that step and by being regulated, be able to present very clearly and effectively the message about their commitment to the quality of the service they deliver to their clients.

Chitty acknowledged the significant number of small and medium enterprises in Kuwait and underscored their importance to the Kuwaiti economy and its development. He advocated that IFRS for SMEs would provide a real advantage to SMEs in Kuwait as it is relatively short and easy to understand making it an ideal standard to work with rather than full IFRS. “It has only 400 disclosure requirements while full IFRS has something like 4000 disclosure requirements. “It is flexible to apply but on the other hand it does clearly set down what the requirements are and importantly by applying IFRS for SMEs it enables the business to compare its performance over time and that is to be compared with other business. It gives rise to consistent quality reporting,” he explained.

Chitty has been International Accounting & Audit Director of Crowe Horwath International since 2010. He joined Crowe Horwath International’s UK member firm in 2007 as an audit partner, having previously been a partner in the senior manager team of another UK mid market accounting firm. Chitty was a member of the Council of the Institute of Chartered Accountants in England & Wales from 2001 until 2013, and he was a member of the IFAC Small & Medium Practices Committee from 2007 until 2012. Crowe Horwath International is a leading independent network of accounting firms with membership in about 120 countries globally. “We are implementing our strategic plan for the next four years which considers the trend of growth in the market and in order to deliver that plan we need to broaden the range of services that we are offering by working with our existing members and recruiting new services.”

Other key recent developments at Crowe Horwath International is the recruitment of traditional members in a number of important countries. “In the Middle East region, we are present in all the key economies. We have recently formed a Middle East leadership group that is led from within the region and they have monthly calls on which they focus on how to work together, promote the Crowe Horwath International brand within the region.” Commenting on how Crowe Horwath International ensured the quality of the audits carried out by its firms around the world, Chitty informed that periodic reviews were conducted every three years, regulatory experience and regulatory reviews were assessed along with having common audit procedures around the world, training programs and service standards. “Quality is critical, we have a global brand and you have to support that global brand by demonstrating the consistent quality is in place across the world.”

The most significant recent development that will impact the global audit profession is the recent approval of the new European audit directive and regulation that is being implemented in EU countries over the next two years, he affirmed. The regulation, a result of a four year process of consultation and political discussion, will bring a number of reform in audit practice in Europe of which the headlines are the mandatory rotation of the auditor of the audit firms of the largest public companies of Europe as well as restrictions of delivery of non-audit services.  Although the directives have been issued in Europe, Chitty opines that it will have global implications and most likely be followed in other places.
 

Impact
“Other key developments that will impact the delivery of audit services and the presentation of reporting in the immediate future is the new form of audit report and later this year the International Auditing and Assurance Standards Board of the International Federation of Accountants  will issue its new standard of audit reporting.” This new detailed form of the audit reporting will give the user of the financial statements more information about the company that has been audited, he said.   He also shed light on developments in the concept of integrated reporting which is a much wider form of reporting that integrates financial reporting with that of business. “This will be very significant because capital markets around the world are embracing this concept of integrated reporting. So if we focus specifically about countries in this region that are seeking to promote themselves to global investors and have their securities traded more widely, then they will have to embrace integrated reporting to present themselves to the global investors,” he said.

Speaking on the key developments taking place in the IFAC, he shared that the IFAC’s current leadership is focusing very heavily on the development of public sector reporting standards and on raising the quality of the reporting of financial information published by the public sector globally which in many countries falls short of the standards presented for the private sector. “What has been happening and what is going to continue to happen is globalisation of the standards that we work with,” he iterated, pointing out that over a hundred countries now use common auditing standards and a hundred or more are using IFRS atleast for public company reporting. “If you look around the world, regulation standards are harmonising. If you look specifically at the GCC region, the new regulation that is introduced in each of the GCC member states will have an impact on the way the audit profession is presented and performs its services within this region and the users of financial information will see that,” he said.

Standards
With regard to developments on the IFRS front, pointed out that almost all of the G20 countries are either IFRS or are applying standards that are in practice very closely aligned to IFRS. “There has been a lot of comment about whether the US will adopt IFRS. We actually look at it another way, the US has been working very closely with the IAASB for a number of years and in practice the US standards are very closely aligned.” He informed that new important standard on revenue will be published which will modernize the accounting and disclosure of revenue. Two other areas which are getting a lot of attention are the reform of standards on leases which for leases the existing standards are not transparent enough and the board is working on completing its new standard on financial instruments which is very important in the post-global financial crisis as an initiative to deal with was observed as inherent weaknesses for accounting for financial instruments.

He added that the audit profession is evolving in the way it uses and delivers its skills. In many countries around the world, there is no longer a requirement that every business be audited so audit is developing new skills such as reporting on critical issues like sustainability and other non-financial information. The auditing profession is also being transformed by technology which enables auditors toper form remote work and use cloud computing to share information globally.  Crowe Horwath International is a member of the Forum of Firms established by IFAC. Chitty discussed the significance of this membership and stated that it is very important that someone looking at appointing an audit firm looks to see that the audit firm is part of a network that is affiliated to IFAC’s  Forum of firms., “The forum plays an important global leadership role in terms of promoting audit quality.

It is there to interact between the audit networks and IFAC which enables sharing information, it enables the firms to be represented on IFAC’s standard setting committees and to present the views of the firms to IFAC, where the standards and the policy is developed. It helps the firms promote IFAC standards to their members and the forum develops resources and guidance that are used by the member networks. From a strategic point of view it is very important that networks and their individual members that belong to the forum promote the membership because the membership is a sign of our commitment to quality.”

By Cinatra Fernandes
Arab Times Staff


By: Cinatra Fernandes

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