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Assurance > 14: THREAT SCENARIOS AND SAFEGUARDS > Flashcards

14: THREAT SCENARIOS AND SAFEGUARDS Flashcards

1
Q
  1. Financial interest
A

The audit firm
Any partner
Any member of audit team
Or immediate family member

Must not hold a financial interest in company

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2
Q
  1. Business relationship
A

No business relationship

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3
Q
  1. Employment
A

Dual employment is prohibited

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4
Q
  1. Audit partner leaves to SLT in client
A

Firm should resign as auditor

Cannot take on audit again for two years

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5
Q
  1. Employee of audit form applying for job at client
A

Employee informs audit client

Firm to remove employee from engagement and review their recent client work

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6
Q
  1. Close personal relationships
A

Staff with these should not work on the engagements

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7
Q
  1. Gifts and hospitality
A

Do not accept these unless value is trivial

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8
Q
  1. Loans and contingent fees
A

Prohibited

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9
Q
  1. Overdue fees
A

Consider resignation

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10
Q
  1. Fees dependence
A

If fee exceeds 10% (non-listed) and 5% (listed) of overall income:
- disclose to ethics partner
- disclose to those charged with governance at the client
- regular quality management of audit

If fee exceeds 15% (non-listed) and 10% (listed) of overall income:
- cannot act as auditor

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11
Q
  1. Lowballing
A

Firm may charge any audit fe

Needs to be documented that adequate resources have been allocated in order to comply with standards

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12
Q
  1. Fee cap for listed clients
A

Total fees from non-audit services must be no more than 70% of the average audit fee of the last 3 years

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13
Q
  1. Client employee joins audit firm
A

No involvement in audit for two years

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14
Q
  1. Audit staffed ‘loaned’ to client
A

Prohibited

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15
Q
  1. Accounting services offered to client
A

Listed: prohibited

Non-listed: allowed with safeguards
- separate teams
- mechanical/technical work
- quality management review of audit

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16
Q
  1. Valuation services offered
A

Listed: not allowed if material

Non-listed: not allowed if material and subjective

If immaterial, allowed with safeguards

17
Q
  1. Preparing tax calculations
A

Listed: n/a

Non-listed: allowed with safeguards

18
Q
  1. Internal audit
A

All prohibited

19
Q
  1. IT services offered
A

Prohibited

Where they relate to the accounting or financial system, or where they involve taking on role of management

20
Q
  1. Recruitment services provided to audit, and close relationships
A

All prohibited

21
Q
  1. Long association scenarios: non-listed engagement partner
A

Review independence after 10 years.

Either rotate and continue with safeguards:
- document reasons
- disclosure to client
- consider other safeguards

22
Q
  1. Long-association scenarios: listed engagement parter
A

Rotate off after 5 years (can extend to 7 with Audit Committee approval)

No return for 5 years

23
Q
  1. Long association scenarios: listed quality management review partner
A

Rotate off after 7 years

No return for 5 years

24
Q
  1. Long association scenarios: non-listed client become listed: engagement partner
A

If already served for 4 years, can only serve 2 more

No return for 5 years

25
Q
  1. Long association scenarios: listed senior staff
A

Review independence after 7 years

26
Q
  1. Corporate finance services offered
A

Firm is not allowed to promote, deal in or underwrite a client’s shares

Risks must be appraised before accepting

27
Q
  1. Legal services offered
A

Audit firm must not act as a solicitor for client

Risks must be appraised

28
Q
  1. Representing audit client in tax tribunal/dispute
A

Prohibited if issue is material

If immaterial, can be done with safeguards

29
Q
  1. Close family and business relationships
A

Prohibited as before!! (Or not work on audit)

30
Q
  1. Close family and business relationships
A

Prohibited as before!! (Or not work on audit)

31
Q
  1. Actual or threatened litigation
A

Disclosure to those charged with governance at the client

Consider resignation

32
Q
  1. Any additional non-audit service where auditor may take on management role
A

Do not take on management role!

Use engagement letter to limit responsibilities

Establish informed management

Assurance (14 decks)

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