PricewaterhouseCoopers - Mexico
Audit Services to Small and Medium-Size Clients, Barriers Faced and OvercomeCarlos Méndez
Página 2PricewaterhouseCoopers
Index
ContentsBackground
I. PwC Clients Segmentation – Audit Approach
II. PwC Focus Strategy
III. PwC Clients Segmentation - Approach Tools
IV. IAASB IAPS 1005 - Particular Considerations in the Audit of Small Businesses
Página 3PricewaterhouseCoopers
I. BackgroundMarket:Size of the market (National Institute of Statistics, Geography and Informatics – “INEGI”):
Página 4PricewaterhouseCoopers
I. Background - Continued
Characteristics and Barriers:
a) Internally-• Companies managed and supervised by its owners. • Limited personnel with no segregations of duties.• No formal procedures.• There are controls without a high grade of development.• Poor technology information systems development.• Unqualified and untrained employees. • Few sources of income.
Página 5PricewaterhouseCoopers
I. Background - Continued
b) Externally-• Lack of financial resources.• Lack of tax incentives.• Informal economy, disloyal competition.• Lack of reinvestment by the owners.• Companies focus in market without awareness of back office
support. • Complexity in tax compliance requirements.
Página 6PricewaterhouseCoopers
I. Background - Continued
PwC challenge is to maintain our independence for our clients while we advise them in the early stages of their growth. SMEs management relies heavily in our external advice.
We advice the clients not only in audit matters but also in the following areas,:
• Companies´ incorporation • Tax compliance• Bookkeeping• Corporate governance• Payroll
Página 7PricewaterhouseCoopers
I. B
ackg
roun
d -
Con
tinue
d The financial information is used in most cases only for the need to comply with tax requirements and it is not in the priority of company's management.
Página 8PricewaterhouseCoopers
II. PwC Clients Segmentation - Audit Approach
PIE PE
Public Interest Entities:- Subject to regulations for protecting groups of people- Generally listed in Stock Exchanges- High visibility
Private Entities:- Non PIE- Generally private proprietary- Local visibility
Página 9PricewaterhouseCoopers
SECPIE PE
II. PwC Clients Segmentation - Audit Approach - Continued
Other Stock
Exchanges
Non Significant
Entities qualified as immaterial for consolidation
reporting purposes
Página 10PricewaterhouseCoopers
SECPIE PE
Non significant
HNR
II. PwC Clients Segmentation - Audit Approach - Continued
Other Stock
Exchanges
High Network Risk:
Entities with high financial and reputation risk to the firm.
Página 11PricewaterhouseCoopers
SEC
PIE PEHNR
Integrated audits
SOX - 404
Complex systems (ERP´s): Reliance in controls, focus in systems review
and analytical procedures
Middle MarketNon complex systems:
Some reliance in controls, focus in balance validations
Non significant
II. PwC Clients Segmentation - Audit Approach - Continued
Other Stock
ExchangesMiddle Market
Página 12PricewaterhouseCoopers
SEC
PIE
PE
HNR
Integrated audits
SOX - 404
Complex systems (ERP´s): Reliance in
controls, focus in systems review and
analytical procedures
Middle MarketNon complex systems:
Some reliance in controls, focus in balances validations
Non significant
II. PwC Clients Segmentation - Audit Approach - Continued
VSE
MiddleMarket
Very Small EntitiesNon complex systems
or lack of them: Focus in balance
validations
Other Stock
Exchanges
Página 13PricewaterhouseCoopers
III. PwC Focus Strategy
Factors to consider a Middle Market Company:
• Non High Network Risk Entities
• Non Public Interest Entities• Non Complex• Non Financial Sector• Small audit teams
Página 14PricewaterhouseCoopers
III. PwC Focus Strategy - Continued
Strategies:• Acceptance risk analysis• Specialized group of professionals dedicated to attend this
market, with advisory vision• Same methodology worldwide adapted to the characteristics
of these clients• Access to different industries knowledge applied to this
segment• Establishment of strict training programs• Development of specific audit tools for middle market and very
small entities
Página 15PricewaterhouseCoopers
SEC
PIE PEHNR
Master Database
404
General Master
Database
Middle Market Database
IV. PwC Clients Segmentation Approach Tools
Other Stock
exchanges
Very Small entities
Database
Middle Market
VSE
Non significant
Página 16PricewaterhouseCoopers
V. IAASB IAPS 1005 - Particular Considerations in the Audit of Small Businesses
International Auditing Practice Statements (IAPS 1005):
“The special considerations in the audits of small entities”• The purpose of IAPS 1005 is to describe the characteristics
commonly found in small entities and indicate how they may affect the application of International Standards of Audit (ISA).
• Is a guidance on the application of ISAs to the audit of small entities.
• Does not establish any new requirement for the audit of small entities; nor does it establish any new exemptions.
• All audits of small entities are to be conducted in accordance with ISAs.
Página 17PricewaterhouseCoopers
V. IAASB IAPS 1005 - Particular Considerations in the Audit of Small Businesses - Continued
In Mexico the Commission for Supporting the Independent Professional Practice of the Mexican Institute of Public Accountants issued on December 2005 the Audit Guidance for Small and Medium-Size Businesses, with similar purposes.
PricewaterhouseCoopers Methodology follows the ISAs.