1: Assurance responsibilities Flashcards
3 parties in assurance
Responsible party
Users
Practitioner
5 elements of assurance
Criteria
Report
Evidence
Subject matter
Three party relationship
Benefits of assurance
Enhances credibility of information
Reduces risk of management bias
Draws attention to deficiencies in information
To the wider market:
Ensures reliable information
Gives faith
Improves reputation of organizations
Audit defined
The objective of an audit of FS is to enable the auditor to express an opinion as to whether FS are prepared, in all material respects, in accordance with an applicable financial reporting framework. The form the audit conclusion takes is that auditors state whether the FS give a true and fair view. This is an expression of reasonable assurance
3 criteria to not have to have an audit
Exempt from audit if 2 out of 3 apply:
No moreo than 50 employees
- Revenue does not exceed £10.2m
- Gross assets do not exceed £5.1m
Companies must disclose if exempt in their FS
Exceptions to audit exemption criteria
Involved in banking and insurance
Where shareholders of at least 1-% of the shares request one
Where the company’s articles of association require an audit
NBon-dormant pucli ccompanies
Any company which is a member of a group including one of the above
4 benefits of being audited
Value of being scrutinized
Additional assurance to third parties
A growing business may one day require an audit
The audit may have subsidiary benefits, such as MLPs
5 Directors responsibilities
- Safeguarding assets
- Audites FS must be laid before the members and delivered to companies house withing the specified time
- Preparation and delivery of FS
- Company books and records
- Failure to observe these can lead to criminal penalties.
Mainly arising from the Sarbanes-Oxley act in the US, including having CEOs and CFOs attest to FS veracity and greater disclosure of amendments to the FS from the audit..
3 responsibilities of external audit according to CA2006
Form an independent opinion on the truth and fairness of the accounts
Confirm that the accounts have been properly prepared in accordance with CA2006
State in their auditors report whether in their opinion the information given in the directors’ report and strategic report is consistent with the financial statements
3 responsibilities for fraud for managers
Culture of honesty
Sound system of internal controls
TCWG need to ensure management implement policies and procedures
2 responsibilities for auditors regarding fraud
Accept representations as truthful unless evidence to the contrary but also
Bring professional scepticism
Outcome of the Kingman review
Replacing FRC with ARGA
Outcomes of the Brydon review
redefining audit’s purpose
auditors should adopt the idea of suspicion and audit beyond financial statements
Greater engagement between auditors and their stakeholders
Changes to the language used in opinions and greater use of technology on audits
More formal reporting outputs that support corporate continuity
