Olena Antoniuk
National University of Water and Environmental Engineering, Ukraine
E-mail: olenaproaudit@gmail.com
Liudmyla Chyzhevska
Zhytomyr State Technological University, Ukraine
E-mail: chizhev@ztu.edu.ua
Nataliia Semenyshena
State Agrarian and Engineering University in Podilya, Ukraine
E-mail: natviksem@gmail.com
Submission: 11/11/2018
Revision: 21/11/2018
Accept: 08/02/2019
ABSTRACT
The
authors conducted a study aimed to identify discrepancies between the practice
in providing audit services and the regulatory framework for their
implementation in Ukraine. The purpose of article is to answer questions: are
there any differences between the practice of development of types of audit
services and regulatory documents for their implementation based on the
experience of Ukrainian auditors; what are the differences in the practice of
auditing firms in classifying and using the auditor’s terminology in contrast
to the standards and requirements of the legal documents. By
carrying out analytical procedures, the theoretical approaches to the
classification of audit services were considered. The authors correlate
different classification of audit services in normative documents, including
documents of the professional organization of auditors. The results of the
study of the terminology content, which is used to identify different types of
audit services, have shown that there are differences between scientists' opinions
and different interpretations in auditors practice. Current research is aimed at improving the
theoretical and practical provisions for the implementation of related and
other services of professional audit services, development of concepts
for theoretical
support and practical implementation for harmonization of legal regulations and
practices of auditors (audit firms). The conclusion of this paper helps to
identify vectors in the development of a regulatory framework of audit services
on the national level.
Keywords: audit;
audit services; service classification
1. INTRODUCTION
The issues of the development of audit services on the quantitative and qualitative indicators remain the subject of consideration of scientists in many countries of the world. However, in each country, the development of the market acquires national peculiarities and characteristics. Evidence for this is the publication of scientists from many countries devoted to the identification of trends in the development of audit and other audit services.
Scientific publications testify to the research of the market of audit services in the Anglo-Saxon countries, but to date, only a few studies are focused on the European countries. Attention is paid to the study of the changes in the market of audit services on the international market and in particular countries. The complexity of the content of services provided by audit firms in terms of classification is less explored, and a small number of scientific papers are devoted to these topics.
2. REVIEW OF EMPIRICAL LITERATURE
The research methodology is based on theoretical developments and scientific tools, including statistical and comparative analysis. Among the areas of research of the market of non-audit services, one can distinguish the following:
· influencing factors for paying for audit services (BIGUS; ZIMMERMANN, 2008; RATZINGER-SAKEL; SCHONBERGER, 2015). Other scientists studied the market of audit services for the similarity of the determinants of audit fees in the market of audit services (ALEXEYEVA; SVANSTOM, 2015);
· difference in the pricing policy of Big Four companies when providing non-audit services (ELDER; LOWENSOHN; RECK, 2015; KEITH et al., 2006);
·
performance of non-audit services and adherence to the
principle of independence (WARMING-RASMUSSEN; QUICK, 2015; TEPALAGUL; LIN, 2015; GUL JAGGI; KRISHNAN,
2007).
The market for audit services in Ukraine is represented by domestic audit firms (auditors) and international auditing companies. Only a part of Ukrainian auditing firms specializes exclusively in carrying out the audit, but they also provide additional services, which is due to the complications of the economic life of enterprises and the increase of competition.
In recent years, the market of audit services in Ukraine has been characterized by a reduction in audit subjects, a reduction in the part of the audit of financial reporting in the structure of activities. In Ukraine, according to statistics database (as it will be shown in table 5), the total of non-audit services, such as related services, other services related to professional activities were 53,5 % in 2017 and 57,1% in 2016.
In author’s opinion, the development of auditing activities in Ukraine has its own characteristics, in contrast to the experience of the establishment and development of the audit services system in European countries.
In the literature there are studies of the development of
accounting and auditing processes in a historical context. For consideration of
audit services, the authors choose a different basis for the study of the
subject. Audit studies also focus on analyzing the regulatory framework for
auditing activities in a particular country. Such an approach is clearly
visible in the works (SIMUNIC, 2005; PALMROSE, 2013; ÖHMAN; WALLERSTEDT, 2012).
Bednarek (2009) investigated the historical stages of the development of
internal audit, touching on regulatory issues. The author made a conclusion on
expanding functions of internal audit and proposed to expand the range of
functions of internal audit, which corresponds to the current stage of
development of internal audit.
It
can be assumed that the pace of development of audit services, expansion of
their spectrum may not coincide with the normative documents that regulate
the execution of services other than audit, review of financial reporting,
assurance tasks and other services. It should be noted that in the field of
domestic research of audit activity, a thorough analysis of non-audit services
was not sufficiently carried out, which highlights the relevance of the study
of this issue for the Ukrainian market of audit services.
Therefore, the purpose of this article is to answer the questions: are there any differences between the practice of development of types of audit services and regulatory documents for their implementation based on the experience of Ukraine? What are the differences in the practice of the auditing firms in classifying and using the categorical apparatus in contrast to the standards and requirements of the documents?
3. DATA AND METHODOLOGY
This theoretical paper is based on the study of literature on audit services,
namely the content of services, the
classification of audit services, legal regulation.
The classification of audit services in accordance with
the Handbook of International Quality Control, Auditing, Review, Other
Assurance and Related Services Pronouncements (2016-2017 Edition) and
regulatory documents in Ukraine was adopted as a basis in order to establish
criteria for the classification of audit services. The article presents results
of the empirical study, which used the official statistical information on the
development of types of audit services during 2011-2017, as well as the data
about legal documents for support of audit services at the international level
and documents of the professional organization of auditors of Ukraine. The
research of websites of 53 audit firms in Ukraine was sufficient to show
differences in terminology and classification of audit services. Thus, sources of
information were obtained for further comparison.
Using the static database that characterizes the market
of audit services in Ukraine, the structure of audit services was established.
Since non-audit services occupy more than 50% of the audit activity of
Ukrainian audit firms and auditors, they were additionally carried out by their
classifications for the main types of services.
The research of websites of audit firms was
quite representative to show differences in the terminology and classification
of audit services. Thus, sources of information were obtained for further
comparison.
4. RESULTS AND DISCUSSIONS
4.1.
The
content of services and classification of services
The theoretical prerequisite for the development of any process or phenomenon is the clear awareness of all participants in this process of the content of categories and concepts. It is extremely important that the terms and concepts of audit activity are agreed upon by academics and practitioners. Understanding of the content of services by clients of audit firms and the same interpretation by the subjects of audit activity affect the demand for these services. The system of classification for forecasting demand of the system, among other tools, if they are correctly implemented and managed, bring significant benefits to the organization, increase productivity and competitiveness in the sale of goods, works (services) (RODRIGUES, 2013).
In the field of audit activity, this requires attention in view of the dependence on the understanding of the nature of the service, expressed by categories (concepts) and the potential desire of the client to order this service. In authors’ opinion this understanding helps to systematize knowledge about the general and most essential properties of the objects under study, processes, phenomena and relationships between them.
Taking into account national practice, the composition of audit activity is determined by the professional organization - the Audit Chamber of Ukraine and shown in the Table 1.
Ukrainian auditors provide services based on the Handbook of International Quality Control, Auditing, Review, Other Assurance and Related Services Pronouncements (2016-2017 Edition).
A significant
part of the market of audit services is occupied by the "Big Four",
which correlates with the global trends in the given market structure. One of
the reasons is the diversification of audit services, offering the most
up-to-date and relevant business services.
Tаble 1: Classification of audit services in Ukraine
An analysis of the services offered by the Big Four in Ukraine indicates new services that have emerged in recent years, among which we note compliance, forensics, services in the transfer pricing and services in the area of sustainable development, and quantitative indicators are shown in Table 2.
Table
2: Analysis of European firms that provide auditing,
accounting and advisory services in 2015 *
Source:
https://amadeus.bvdinfo.com/version-201729/home.serv?product=amadeusneo
The problems are
observed in the classification features of the types of audit activity. Based
on the study of the websites of Ukrainian audit firms, differences in the
classification features were found in the practice of the subjects of audit
activity and summarized in the Table 3.
4.2. Normative and practical parallels in the development
of audit services in Ukraine in a context of their quality
In the context of audit, International Auditing and Assurance Standards Board determines the quality of the audit as a policy and procedures adopted by the audit firms and auditors are intended to provide reasonable assurance that audit engagement and its staff meet professional standards and statutory and regulatory requirements for audit activities.
Provision of high quality audit services should take place at three levels and include requirements from:
· the regulator (professional organization) - the use of a systematic and effective approach to ensure the quality of audit activities, the creation of a credible discipline mechanism that responds adequately to complaints and problems;
· from academics - relevant standards for the audit methodology;
· from auditors - high level of professional education and adherence to the professional ethics.
Table
3: Comparison of classification features of audit
services
*Source: authors (2018)
The audit service, which is provided in compliance with the legislative and regulatory requirements that regulate the audit activity and satisfies the needs of users, is recognized as high quality services. Therefore, assurance of the quality of related and other professional audit services should be based on the concept that will determine the theoretical assurance of the quality control of the work of auditors (audit firms) in the performance of related and other services of professional audit activity in conjunction with regulations of professional audit services in Ukraine distinct from assurance tasks and related services.
In recent years, in Ukraine, the tendencies of transition of audit entities that belong to so-called small and medium-sized practices from mandatory and proactive audits to the provision of other audit services (related services, agreed procedures and other services) are continuing. Such a change in the structure of audit activity inevitably raises issues related to the definition of the principles of providing such services, organizational and methodological aspects of their implementation in relation to quality. Moreover, the quality of providing other audit services, in our opinion, affects the effectiveness of the audit firm, the competitive ability of offering a wide range of audit services. Foreign scholars also pay tribute to the quality of the audit services, as seen in the writings of scientists’ (SIMONE; EGE; STOMBERG, 2015). Relatively short period of existence of audit in comparison to the world's history is one of the reasons of insufficient theoretical and scientific substantiation of the concept of "quality of audit services".
Such criteria, in accordance with the Regulations on the national practice of quality control of audit services 1 Organization of auditing firms and auditors of the quality control system of audit services, passed by Audit Chamber of Ukraine in 2007 particular include:
·
the nature of the audit service and the degree to
which it attracts the attention of society;
·
identification of unusual circumstances and risks of
audit services;
·
the existence of legislative or regulatory
requirements on the mandatory implementation of quality control of specific
audit services.
The quality control of the task must
be checked for the following tasks:
a)
the tasks of compulsory audit;
b)
other tasks in the audit and review of financial
statements;
c)
the tasks of assurance;
d)
the tasks of the accompanying services.
As we see, the range of services "other audit services", which is quite widely represented in the practical activity of auditors, does not fall under the control of quality, but, on the other hand, the legislative requirement and requirements of the audit standards indicate that auditors should provide services in accordance with the general requirements of quality. If the requirements for the quality of the audit are clearly established, the requirements for providing other types of audit activity are not determined at all or only partly at the level of standards for the regulation of related services and individual assurance tasks. The lack of standards for auditing activities from other services is also projected on the problem of their quality provision.
Over the past years, the audit structure has dominated services other than auditing, review, and other assurance tasks. At the same time, the share of related services in the total volume of audit activity in Ukraine is increasing with the simultaneous increase and expansion of their forms. The analysis of the audit market clearly demonstrates significant fluctuations in the quantity and value of services in different regions, which in most cases depends on the concentration of industrial enterprises, the solvency of the customers themselves and their understanding of the value and quality of audit services. The analysis of the dynamics of the market can be seen in the Tables 4, 5.
Тable
4: The structure of distribution of the volume by
type of audit services for years 2011-2017*
|
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
% |
% |
% |
% |
% |
% |
% |
|
|
100 |
100 |
100 |
100 |
100 |
100 |
100 |
|
|
Assurance engagement |
53,26 |
53,23 |
49,71 |
46,66 |
43,8 |
42,9 |
46,5 |
|
Related Services |
8,99 |
10,1 |
12,59 |
9,94 |
7,1 |
6,4 |
7,4 |
|
Other services related to professional
activities |
37,37 |
36,33 |
37,55 |
43,33 |
48,9 |
50,6 |
45,9 |
|
Organizational and methodological providing of
audit services |
0,38 |
0,35 |
0,15 |
0,07 |
0,2 |
0,1 |
0,2 |
*Source: summarized by the authors using database by
the Audit Chamber of Ukraine (AUDIT CHAMBER OF UKRAINE, 2018)
The analysis of the results of audit activities
and the state of the market of audit services shows that the audit market
changes in quality as a result of a number of factors, in particular, the
crisis phenomena in society, the strengthening of the requirements for the
audit profession by the regulators, and changes in the legislation.
This leads to disproportions in the
development of audit activities, while the practice does not correlate with the
regulatory framework, as proved by us in the Table 6.
The availability of
standards for other audit services is very important. Performing an engagement to estimate
value involves special knowledge and skill.
Table
5: Indicators of development of non-audit services
in Ukraine*
*Source: summarized by the authors using database by the Audit
Chamber of Ukraine
Table 6: Normative
and practical parallels in the development
of
audit services in Ukraine
*Source: authors (2018)
Given the increasing number of members of the AICPA who are performing business valuation engagements or some aspect thereof, the AICPA Consulting Services Executive Committee has written this standard to improve the consistency and quality of practice among AICPA members performing business valuations (table 7). AICPA members will be required to follow this standard when they perform engagements to estimate value that culminate in the expression of a conclusion of value or a calculated value.
CPA tax practitioners are subject to many different standards and ethics rules, including AICPA enforceable tax ethics, the Internal Revenue Code, state licensing boards and other regulatory agencies, professional associations, and various other laws and regulations. That’s why professional organization provides guidance on tax ethics and professional standards for tax practitioners, as well as practice aids and resources to help members elevate their practices and maintain the highest ethical standards.
Table
7: Professional
organization non-auditing services
standards in compare with Ukrainian
regulatory practice
|
AICPA * |
Audit Chamber of Ukraine |
|
|
The title of the
standart |
Usage |
|
|
Preparation,
Compilation and Review Standards |
Standards for performing
preparation, compilation, and review engagements of a nonpublic entity |
no documents |
|
Consulting
Services Standards |
Standards
for members who provide their clients with a range of consulting services
surrounding technological and industry expertise and management and financial
skills |
no documents |
|
Peer
Review Standards |
Standards
for performing and reporting on peer reviews and interpretations
for administering, planning, performing, reporting on and the acceptance of
peer reviews of CPA firms (and individuals) enrolled in the AICPA peer review program. |
no documents |
|
Personal
Financial Planning Standards |
Statement
on Standards in personal financial planning services establishes CPA responsibilities for providing financial planning services
services, including estate, retirement, investments, risk management/insurance,
and tax planning and serve as authoritative guidance to assist CPAs in the
delivery of these services. |
no documents |
|
Tax
Standards |
AICPA's
Statements on Standards for Tax Services are enforceable tax practice
standards for members of the AICPA. These standards apply to all members
regardless of the jurisdictions in which they practice and the types of taxes
with respect to which they are providing services. |
no documents |
|
Valuation
Services Standards |
The
valuation services standards, written by the AICPA Consulting Services
Executive Committee to improve the consistency and quality of practice
among AICPA members performing business valuations |
no documents |
*Source: https://www.aicpa.org/research/standards.html
5. CONCLUSIONS AND RECOMMENDATIONS
The study of the state of development of audit activity and non-audit services in Ukraine allowed to obtain the following results: the statistical study of the dynamics of the market for audit services in Ukraine for the period from 2008 to 2017 has established trends in the composition of audit services provided to customers and the dynamics of changes in their quantitative and qualitative indicators. Over the past 10 years, the market of audit services in Ukraine has undergone significant changes, including the shift in emphasis on services other than assurance tasks provided by auditors, and as a consequence, the role of audit services provided to users is increasing. A similar trend is observed in recent years, indicating an increase in demand for non-audit services. An analysis of the audit services indicates the following trends:
·
the share of related audit services for the period
2011-2017 is in the range from 8.9% to 12.5%, with a tendency to fluctuations
over the years; other audit services for the period of 2011-2017 was within the
range of 37.3%-50.6% with a tendency to increase in such services in 2011-2016.
An analysis of the content of non-audit services identified the preference for
advisory services, which, on average, was 55% over the past 10 years, as well
as accounting services. It should be noted that the subjects of audit activity
actively provide services for the restoration of accounting services and
represent the customer's interests in accounting, auditing, taxation in state
bodies, organizations or in court;
·
confidence-building tasks over the last six years tend
to decrease (with the exception of a slight increase in 2017) and average 47.9%
over the analysis period. The results of the study of the content of the
terminology which is used to identify different types of audit services have
shown the differences between scientists' opinions and different
interpretations in auditors practice. The content of the definition «service»
is of direct relevance to the practical application, since it helps to
establish audit objects, criteria of reliability of financial information,
which influences the planning of the methodology of service delivery, the
choice of form and the formulation of the content of the summary documents, working
documentation, cost of service, level of auditor’s responsibility.
Current research is aimed at improving the theoretical and practical provisions for the implementation of related and other services of professional audit activity, development of concepts of their theoretical support and practical implementation for harmonization of legal regulations and practices of auditors (audit firms). The need to study the development of the national audit system, taking into account the impact of the socio-economic environment in which it operates, has become a challenge and an impetus for revision and improvement of the methodology of audit services in Ukraine.
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