AUDIT Flashcards
Role of the external auditor is to
perform audits on operations and make an audit report with reccommendations
UK audit tender
audit put out to tender every 10 years, but they don’t have to change auditors
non audit work
where they offer other services, they must keep audit personnel and consultancy personnel separate so they dont influence eachother
conflicts of interest (3)
performing audit and non audit work
length of time
receiving benefits and gifts
conflicts of interest prevention methods (2)
Firms can make it mandatory to record gifts from client and report any conflicts of interest
Also rotate partners after a certain period to prevent close relationships
US rotation states
must rotate audit partner every 5 years and all non audit work is prohibited.
US law regarding partners
senior partner in an audit firm is prohibited from becoming a board member of an organisations its audited
US avoidance of conflict of interest
SOX 2002 lays out the rules stopping auditors from doing non audit work (in response to Enron and AA)
UK law regarding non audit work
must be transparent about non audit work but there are no other restrictions
issues with auditing reports
if a firm gives a clean report auditor can state they no longer need their service and employ new auditors
issues with retaining partners
close relationship can be established which means irregularities might be overlooked
belief that audit is a loss leader
audit was merely a way for a firm to gain access to an organisation so it could then provide other services such as consultancy, tax and legal advice
approaches if a junior auditor sees an issue
Raise issue with line manager.
If ignored, whistleblow
Risks with whistleblowing
Theyre not popular, hard to find another job, seen as antisocial and tell tales.
dealing with issues in reality
First, go to line manager.
Try to solve internally.
If not, go to higher position people.
Try to seek advice from companies ethical hotline
