CGI Chapter 9 Flashcards
What is the requirement for financial reporting under CA 2006
Every company must prepare accounts for each financial year
AND keep adequate records to
* show and explain the company’s TRANSACTIONS
* disclose company’s FINANCIAL POSITION with reasonable accuracy
* enable directors to ensure accounts COMPLY with CA requirements and where applicable IAS
What is the requirement for Financial Reporting under Listing Disclosure and Transparency Rule LR 9.8
A statement must be included in the Annual Report on the appropriateness of adopting GOING CONCERN basis of accounting and on the directors assessment of the prospects (VIABILITY) of the company
Who are the stakeholders for the financial reports and why are the Financial Statements important to them
1-PUBLIC- to understand and participate in local economy
2- EMPLOYEES- to understand the security of their employment
3- GOVERNMENT- to assess taxation
4- REGULATORS - to assess company’s compliance with law and regulation
5- INVESTORS- to assist in buy, hold, sell decisions
6- CREDITORS- to interested in the security of its debt
7- CUSTOMERS- to understand the company’s ability to provide goods and services
8-SUPPLIERS- to understand the company’s ability to pay for goods and services
Explain the accounting standards
Standards issued by the IFRS foundation and International Accounting Standards Board
To provide a common, global language for business affairs so company accounts are understandable and comparable across international boundaries
What does UKCG Code say with regard to Financial Reporting
Board should ESTABLISH formal and transparent policies and PROCEDURES to ensure independence and effectiveness of internal and external audit functions
Board should PRESENT fair, balanced and understandable assessment of company’s position
Board should STATE whether it considers it appropriate to adopt GOING CONCERN basis accounting and IDENTIFY MATERIAL UNCERTAINTIES
How can a company misreport their financial numbers to improve its financial position?
1-adopt ACCOUNTING POLICIES which give a more flattering picture of the financial position
2- claiming revenue or profit earlier than it should have
3- taking debts off their balance sheet
4- disguising money from loans as revenue
5- over valuing company assets
What does UKCG Code say about establishing an Audit Committee
-board shall establish an Audit committee comprised of INEDs
- there should be minimum membership of 3 (2 if small co)
- the chair of the board shall not be a member
- at least one member must have relevant financial experience
- the whole audit committee must have competence in the sector
Explain FRC Guidance on the Role of Audit Committee
- ANNUAL REPORT
To monitor the integrity of financial statements
Provide advice on whether annual accounts are fair balanced and understandable
- INTERNAL CONTROL & RISK MANAGEMENT
Review the company’s internal financial controls and internal controls and risk management systems - INTERNAL AUDIT
Monitor and review the effectiveness of internal audit - EXTERNAL AUDIT
Monitor and review the effectiveness of the external audit process
Conduct the tender process
Review external auditors independence and objectivity
- BOARD REPORTING
Report to the board on how it discharges its responsibilities
What 5 issues should Audit committee raise with the board to discharge its responsibilities (FRC Guidance)
Significant issues
Effectiveness of external audit process
Effectiveness of internal audit function
Feedback on audits carried out by internal audit
Any other issues on which the board has asked its opinion
What two things should Audit committee do to ensure shareholders interests are properly protected in relation to financial reporting and control
Consider clarity of reporting
Develop a separate report describing the work of the Audit Committee in discharging its responsibility- report should be signed by Audit committee chair
Outline the type of information that should be included in audit committee report
Summarily its role and work
Composition, names and Qualifications of members
The number of meetings held
How the performance evaluation was conducted
An explanation of how the external auditors effectiveness was assessed
An explanation of how the internal audit function’s effectiveness was assessed
The approach to appoint/ re appoint the external auditor and the length of tenure of the current audit firm
Name of audit partner/ length of coverage
Date of last tender and notice of upcoming tender
How auditors objectivity is safeguarded
Specify whether auditor provides non audit services
Audit fees , non audit fees and ratio of audit to non audit work
Significant issues considered
