Assurance Responsibilities & Ethics Flashcards
Complete the below table for the two categories of assurance type;
Reasonable Assurance
Assurance Level:
Expression of opinion:
Limited Assurance
Assurance Level:
Expression of opinion:
Reasonable Assurance
Assurance Level: Reasonable
Expression of opinion: Positive
Limited Assurance
Assurance Level: Limited
Expression of opinion: Negative
What are three benefits of an assurance engagement?
- Enhances the credibility of the information being reported on
- Reduces risk of fraud in the information being reported on
- Draws the users attention to any deficiencies in the information
- Ensure high quality, reliable information circulates in markets
- Give investors confidence in market
- Improve the reputation of the organisations being reported on
Identify the three party relationship in an audit engagement and state who each party would be
Practitioner: Audit firm
Responsible Party: Board of directors
Users: Shareholders
What is the audit threshold for small companies?
When must an audit still be carried out on a small company?
Small companies are exempt from an audit if they can satisfy two of the three;
a) No more than 50 employees
b) Turnover less than £10.2 million
c) Net assets less than £5.1 million
2.
The articles require one
10% shareholders request
It is public and non dormant
Insurance or banking sector
What are the audit exemption requirements for subsidiaries?
When must an audit still be carried out on a sub?
a) Parent company must guarantee the liabilities of the subsidiary
Audit must still be carried out when;
b) The articles require one
c) 10% shareholders request
d) It is public and non dormant
e) Insurance or banking sector
Why are audits valued by management?
a) Business is scrutinised for weakness by another set of eyes
b) Assurance provided to third parties who rely on FS
c) A growing business will one day require an audit so gets used to process
d) Auditors may recommend improvements to systems
What are some disadvantages to the entity of being audited?
a) Cost
b) Disruption to business
c) Disruption of staff time
d) Confidentiality issues
e) Expectations gap - fraud detection, inherent limitations of an audit
Name some activities that are distinctly management’s responsibility and NOT the auditors’
a) Managing the business so as to achieve the company’s objectives
b) Assessing risks to business objectives
c) Safeguarding the company’s assets
d) Keeping proper accounting records
e) Preparing FS & sending to registrar
f) Ensuring company complies w laws and regs
Where are legal requirements for statutory audits contained
Companies Act 2006
Are auditors required to report on their assessment of entity’s system of internal controls?
Yes - must report on whether system is capable of preventing or detecting errors
Indicate when/whether the auditor should report to the following parties on the suspicion of fraud;
a) Management
b) TCWG
c) Third parties
a) Management
report on suspicion of fraud and when fraud is detected
b) TCWG
Yes, unless auditor suspects their involvement in fraud
c) Third parties
determine whether it is appropriate
Shareholders would be notified if fraud id detected as their would be a modified opinion - of the fraud causes FS to not give true and fair view
What are the following parties’ responsibilities in terms of laws and regulations;
a) Management
b) The Auditors’
a) Management are responsible for ensuring the company complies with laws and regulations
Give written representation to auditors that management has disclosed all instances of non-compliance
b) Auditors are responsible for concluding that the FSs are free from material misstatement caused by non compliance with laws and regulations
To do this, Auditors are required to have a general understanding of the legal and regulatory framework within which the company operates
What are three areas of law which affect all businesses?
Health and safety act
Employment law
Social security law
What steps would an auditor follow after suspecting non compliance with laws and regs
- Obtain an understanding of the non compliance
- Evaluate impact on FS
- Discuss with appropriate levels of management - unless involves ML
- If cannot gather sufficient evidence of the fraud can be gathered -> limitation of scope -> modify opinion (because FS do not give true and fair view)
(This is in ISAs)
Communication of reporting non compliance:
Communicate to TCWG, unless they are expected to be involved, in which case report to audit committee or seek legal advice
Only inform shareholders if material - will be communicated in modified opinion
TP if required
What is the approach to record Related Party Transactions in the FSs?
Disclose amounts and relationships so that the readers can determine for themselves whether they manipulate FSs
Look in ISAs for how auditors should deal with RPs at planning and detailed work stage
What would be some identifiers of Related Party Transactions?
Transactions with:
Unusual terms of trade
No logical business sense
Previously unidentified RPs
Unusual processing
What is the paradox that auditors face when concluding on FSs of which include material amounts from Money Laundering?
It is probable that their inclusion means the FSs do not give a true and fair view, however, if the auditors modify the opinion before the ML investigation has concluded they could be accused of tipping off
