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8. Professional Standards Flashcards

1
Q

Are professional standards in the public interest?

A

Yes
As they add to the quality of assurance services

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2
Q

Does audit regulation promote comparability of FS?

A

Yes
All audited to the same standards and therefore improves public confidence

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3
Q

Professional standards: What are all UK assurance engagements governed by?

A
  1. CA
  2. ISAs
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4
Q

Professional standard issuer that is sub of IFAC?

A

IAASB

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5
Q

IAASB acronym?

A

The international auditing and assurance standards board

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6
Q

Professional standards used by IAASB?

A
  1. ISAs
  2. ISAEs
  3. ISREs
  4. ISRSs
  5. ISQMs
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7
Q

ISAE: Acronym

A

International standards on assurance engagements

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8
Q

ISRE: Acronym

A

International standards on review engagements

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9
Q

ISRS: Acronym

A

International standards on related services

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10
Q

ISQM: Acronym

A

International standards on quality management

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11
Q

ISA: Appliies to what?

A

All Audits

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12
Q

ISAE: Application

A

Assurance engagements
Other than those on historic financial information

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13
Q

ISRE: Application

A

Assurance engagements to review historic financial information

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14
Q

ISRS: Application

A

Non-assurance engagements

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15
Q

ISQM: Application

A

All assurance engagements

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16
Q

What is the professional standard setting process?

A
  1. Subcommittee established to work on a particular area
  2. Subcommittee issues an exposure draft for consideration
    Where appropriate, the exposure draft is revised as a result of feedback from interested parties
  3. Once amendments are finalised/approved, the definitive international standard is published
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17
Q

Who supervises accountancy related issues and issues auditing standards in the UK

A

FRC

(It is continuing to rebrand publications previously issued by the Auditing
practices board (APB). Some APB pronouncements are still in force so
you may see reference to this body)

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18
Q

FRC: Structure:

A

Has a board

Which is supported by:
1. Governance committees
(the audit and risk committee and people committee)
2. Business committees
(conduct committee, regulatory standards and codes committee and supervision committee).

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19
Q

What does the FRC issue?

A
  1. ISAs (UK) (Revised ISAs for UK)
  2. Ethical standards for auditors
  3. Practice notes – guidance on applying ISAs to particular circumstances and industries
  4. Bulletins – guidance on new or emerging issues
  5. Standards for reviews of interim financial statements performed by the auditor of the entity
  6. Audit quality – thematic reviews
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20
Q

FRC: Are Practice notes and Bulletins prescriptive?

A

No: Persuasive

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21
Q

Some current issues affecting audit

A
  1. Harmonization
  2. Professional skepticism
  3. Big Data
  4. Future of audit
  5. Joint audits
  6. Climate change and sustainability
  7. Technological advances
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22
Q

Current Issues affecting audit: Harmonization: Definition

A

Aligning global standards so that companies are audited in a comparable way

23
Q

Current Issues affecting audit: Harmonisatoin: Causes

A

Globalisatoin

EU

24
Q

When were International accounting standards were adopted by all EU listed companies? And generally adopt ISAs

25
Harmoniation: What did EU Directive and Regulation of April 2014 introduce with regard to audit?
1. Improving the quality of audit and reporting 2. Mandatory re-tendering after 10 years 3. Change of auditor at least every 20 years 4. Ban on providing non-audit services (including tax advice) to public interest entities 5. Cap on fees for non-audit services.
26
Professional skepticism definition
An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence
27
FRC professional scepticism problem areas
1. Year-on-year audits adopting the same approach despite changes to the client’s business or circumstances 2. Accepting management explanations rather than forming own view 3. Acceptance of unrealistic deadlines.
28
Big Data definition
Data sets that are large or complex
29
How are auditors responding to big data?
Increasing use of tech In audit approach
30
FRC view on data analytics
Will assist but won'r replace an experienced auditor's skillset
31
Future of audit: **Recent activities**
1. The Kingman review 2. Competition and market authority (CMA) review 3. Brydon report – Independent review into the quality and effectiveness of audit 4. Restoring trust in audit and corporate governance
32
**The Kingman review**
This led to the government announcing the abolition of the FRC, replacing it with a new Audit, Reporting and Governance Authority (ARGA)
33
The new **ARGA** is expected to: (operational by 2025)
1. regulate big firms 2.impose larger sanctions for corporate failure 3. require fast explanations from companies, 4. issue report publications regarding conduct and management
34
Competition and market authority (CMA) review: Recommendations
1. robust regulatory oversight of committees to ensure quality is prioritized 2. mandatory joint audit (see joint audits section later in this chapter) 3. an operational split between the Big four’s audit and non-audit businesses to ensure quality 4. a five year progress review by the regulator.
35
Brydon report – Independent review into the quality and effectiveness of audit : Key reccomendations
Redefine audit’s purpose Create a corporate audit profession governed by principles Replace ‘true and fair’ with ‘present fairly, in all material respects’ opinion Rolling audit and assurance policy Resilience and public interest statements Shareholders to propose matters for the audit Stakeholders to be covered by ‘public interest’ Forensic accounting/fraud awareness training for auditors Internal control effectiveness reporting to the Board Improve clarity on capital maintenance Improved auditor communication/transparency Extension of audit to new areas (including alternative performance measures) Extend audit concepts beyond financial statements Increased use of technology.
36
How will Brydon report be implemented?
Yet to be seen. A further review is recommended in 2025 to consider how the above has been implemented.
37
Restoring trust in audit and corporate governance (2021) proposals: (Feedback still being analysed)
1. Directors – take action against those neglecting their responsibilities 2. Audit, auditors and audit firms – to encourage further development and competition in the audit market 3. Shareholders – publication of an audit and assurance policy on which an advisory shareholder vote would be taken 4. The audit regulator – ARGA to replace the FRC.
38
Joint audits definition
More than one audit firm responsible for the audit opinion The audit will be performed on a joint basis and a joint audit report will be issued. In the event of litigation, firms will be jointly liable.
39
Who has proposed mandatory joint audits to increase audit competition and deliver higher quality services
CMA
40
Joint audits: Benefit
May benefit smaller firms in allowing them to perform or become involved in higher level audit services.
41
Joint audits: Issue
Services may become more expensive for clients
42
FRC findings on audit and company climate change
1. Little evidence of business models/company strategy being influenced by integrating climate considerations 2. Users are requesting additional climate-related disclosures 3. Climate change disclosures/financial statement considerations lag behind narrative reporting 4. Firms need to take action to ensure climate change is factored into its internal quality monitoring processes 5. Climate related risks need to be further considered when planning/conducting audits.
43
Are better climate disclosures being sought?
Yes In order to aid climate risk assessment and encourage better reporting
44
What has been amended to require certain entity sustainability/climate-related risks and opportunities to be disclosed?
CA
45
Sustainability: Task Force on Climate-related Financial Disclosures (TCFD): Areas
1. Governance 2. Strategy 3. Risk management 4. Metrics/targets.
46
3 technological advances in relation to audit?
1. Robotic process automation (RPA) 2. Artificial intelligence (AI) & Cognitive computing 3. Blockchain
47
Robotic process automation (RPA)
Software used to capture/interpret existing applications with the aim of automating activities across systems Simple actions e.g. opening emails, copy/pasting files Complex actions e.g. data extraction, calculations Cannot mimic human judgement
48
Factors to decide whether to use RPA
Volume of manual work Number of systems How standardised the process is
49
AI definition
When a computer program is able to complete a task which we consider to be intelligent in humans The meaning of AI is continually evolving and as this has happened, the term cognitive computing has also been introduced to represent smart technology.
50
Common AI applications
1. cognitive automation (e.g. automate a matching up process for cash) 2. cognitive engagement (e.g. using a live chat assistant to resolve FAQs) 3. cognitive insight (e.g. allowing full visibility of a system/process, allowing staff to be proactive and responsive).
51
What behavior does AI look to copy?
– learning – understanding – interacting – perceiving – reasoning
52
Blockchain definition
A digital set of records/transactions where individual digital items (blocks) are linked together in a public database (the chain). The information is stored across multiple computers and is made public.
53
Blockchain real life example
Businesses using blockchain to complete ‘know your client’ procedures.

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