The AFRC will conduct inspections from time to time. When deciding whether to inspect a particular auditor in any particular year, and the ambit of the inspection to be carried out, the AFRC will consider, amongst other things:
a. the AFRC's assessment of the risks associated with the auditor's practice based on available information;
b. the size of the auditor, including but not limited to the number of clients and practising partners or directors of the auditor during the period;
c. the complexity of the practice and the engagements of the auditor;
d. the auditor’s regulatory history, including but not limited to the results of any prior inspection;
e. the period of time since the auditor was last inspected by the AFRC;
f. the level of public interest involved in the auditor’s engagements; and/or
g. the AFRC's available resources.
For the AFRC's determination of the frequency of inspection, the AFRC may from time to time require a auditor to provide various information, including but not limited to:
a. the number of PIE engagements that the auditor has undertaken or carried out within a specified period;
b. the full name of the PIEs that have appointed the auditor to undertake PIE engagements; or
c. any other information relating to the auditor.
Before the start of an inspection, an inspector will notify the auditor in writing of the time the AFRC plans to conduct the inspection. Normally, the AFRC will issue a notification letter to the auditor before its scheduled inspection.
An inspector may also request the auditor to provide certain basic information to assist in planning the inspection, including but not limited to information about the engagements conducted by the auditor, the personnel performing the engagements, and the auditor's system of quality management.
The inspection may be conducted in phases if the AFRC considers it necessary in the circumstances, and an inspector will notify the auditor accordingly.
The inspection will normally be conducted by way of an onsite inspection at the auditor's registered office or other registered place of business.
The inspector inspects the auditor's system of quality management, completed engagements and/or anti-money laundering and counter-terrorist financing policies and procedures principally through discussions and reviews of related documentation.
The auditor shall comply with their statutory duties and fully cooperate with the AFRC at all times during the inspection.
At the conclusion of an inspection, the inspector will prepare an inspection report, which will be sent to the (i) auditor and (ii) any other person(s) named in the draft inspection report (see Stage 4).
The inspector must give the auditor and any other person(s) named in a draft inspection report (the "Other Named Persons") a reasonable opportunity to be heard in respect of the matters set out in the draft inspection report. This will be done by allowing the auditor to make representations in respect of the draft inspection report. The auditor and any Other Named Persons will be informed of this right when the draft inspection report is sent to them for this purpose.
Under normal circumstances, the auditor and any Other Named Persons will be given 21 days to make any representations in writing. However, if the auditor or any Other Named Persons considers it necessary to make oral representations, they may request a meeting with the inspector. Such a meeting will only be held if the inspector considers fairness in the circumstances requires it.
The auditor and any Other Named Persons may make such representations to the inspector as they consider appropriate. However, if the auditor or any Other Named Persons does not agree with the contents set out in the draft inspection report, they should identify the matters with which they disagree and explain why they disagree. They should further provide any evidence in their possession which may substantiate their representations.
When all representations have been received or the deadline for making representations has otherwise passed, the inspector will consider any representations from the auditor and any Other Named Persons which have been submitted. The inspector may modify the draft inspection report in the light of such representations.
The inspector shall then finalise and send the inspection report to the auditor and any Other Named Persons.
The auditor will be required to submit a written remediation plan with a specific time frame that describes how the auditor intends to address the deficiencies identified from the inspection findings as set out in the inspection report to the AFRC.
Having regard to the final inspection report, and the auditor's proposed remedial actions (if any), the AFRC will determine whether to take any follow-up actions under sections 21H and/or 20ZZE of the AFRCO, including:
a. requiring the auditor to take a measure or corrective action;
b. conducting a further inspection;
c. initiating an investigation;
d. imposing a sanction; and/or
e. any other follow-up action that the AFRC considers appropriate.