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ACCA P7 (PL) > Ch 8. Professional respons and liabs > Flashcards

Ch 8. Professional respons and liabs Flashcards

1
Q

Director’s responsibilities (2)

A
  • Ensure entity complies with relevant laws and regs

- Establish controls for non-compliance prevention and detection.

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2
Q

Director’s responsibilities (2)

A
  • Ensure entity complies with relevant laws and regs

- Establish controls for non-compliance prevention and detection.

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3
Q

Auditor’s responsibilities (4)

A

-

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4
Q

Auditor’s responsibilities (4)

A
  • Gain assurance that F/S are free from material misstatement
  • ## Ensure compliance with laws and regs that directly and materially affect F/S
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5
Q

Auditor’s responsibilities (4)

A
  • Gain assurance that F/S are free from material misstatement
  • Ensure compliance with laws and regs that directly and materially affect F/S
  • Perform audit procedures to identify instances of non-compliance with procedures that could have a material impact on the F/S
  • Respond appropriately if non-compliance is identified or suspected
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6
Q

Auditor’s responsibilities (4)

A
  • Gain assurance that F/S are free from material misstatement
  • Ensure compliance with laws and regs that directly and materially affect F/S
  • Perform audit procedures to identify instances of non-compliance with procedures that could have a material impact on the F/S
  • Respond appropriately if non-compliance is identified or suspected
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7
Q

Procedures required by ISA 250 (5)

A
  • Understand legal and regulatory framework and how entity is compliant
  • Inspecting correspondence with relevant licencing/reg authorities
  • Inquiring with MGMT whether entity is complying with laws and regs
  • Consider results of audit procedures
  • Obtain written confirmation from Directors that they have disclosed all events of non-compliance.
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8
Q

Procedures required by ISA 250 (5)

A
  • Understand legal and regulatory framework and how entity is compliant
  • Inspecting correspondence with relevant licencing/reg authorities
  • Inquiring with MGMT whether entity is complying with laws and regs
  • Consider results of audit procedures
  • Obtain written confirmation from Directors that they have disclosed all events of non-compliance.
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9
Q

Procedures required by ISA 250 (5)

A
  • Understand legal and regulatory framework and how entity is compliant
  • Inspecting correspondence with relevant licencing/reg authorities
  • Inquiring with MGMT whether entity is complying with laws and regs
  • Consider results of audit procedures
  • Obtain written confirmation from Directors that they have disclosed all events of non-compliance.
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10
Q

Reporting non-compliance (3)

A
  • Management: without delay
  • Shareholders: Consider implication on audit opinion
  • Third parties: bear in mind confidentiality but also duty to public interest.
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11
Q

Reporting non-compliance (3)

A
  • Management: without delay
  • Shareholders: Consider implication on audit opinion
  • Third parties: bear in mind confidentiality but also duty to public interest.
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12
Q

Fraud and error (define (2) and MGMT’s responsibility)

A
  • Fraud: Intentional acts of deception.
  • Errors: Unintentional misapplication
  • MGMT: Responsible for the prevention and detection of fraud and error through internal controls.
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13
Q

Fraud and error (define) (2)

A
  • Fraud: Intentional acts of deception.

- Errors: Unintentional misapplication

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14
Q

Management’s responsibilities with fraud (4)

A
  • Place strong emphasis on fraud prevention and error reduction.
  • ## Reduce opportunity for fraud to take place.
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15
Q

Management’s responsibilities with fraud (4)

A
  • Place strong emphasis on fraud prevention and error reduction.
  • Reduce opportunity for fraud to take place.
  • Implement and operate accounting and internal controls to prevent and detect fraud and error.
  • Consider potential for override of controls or manipulation of FR.
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16
Q

Management’s responsibilities with fraud (4)

A
  • Place strong emphasis on fraud prevention and error reduction.
  • Reduce opportunity for fraud to take place.
  • Implement and operate accounting and internal controls to prevent and detect fraud and error.
  • Consider potential for override of controls or manipulation of FR.
17
Q

Reporting fraud and error (MGMT, report users and authorities)

18
Q

Reporting fraud and error (MGMT, report users and authorities)

A
  • MGMT: auditor should report to MGMT, care must be taken if suspected MGMT is involved,
19
Q

Reporting fraud and error (MGMT, report users and authorities)

A
  • MGMT: auditor should report to MGMT, care must be taken if suspected MGMT is involved, auditor should take legal advice.
  • Users: report to extent that “true and fair view” is affected, may consider resigning if extreme, may seek legal advice
  • Auth: seek legal advice to protect public interest,
20
Q

Reporting fraud and error (MGMT, report users and authorities)

A
  • MGMT: auditor should report to MGMT, care must be taken if suspected MGMT is involved, auditor should take legal advice.
  • Users: report to extent that “true and fair view” is affected, may consider resigning if extreme, may seek legal advice
  • Auth: seek legal advice to protect public interest, likelihood of repetition and
21
Q

Reporting fraud and error (MGMT, report users and authorities)

A
  • MGMT: auditor should report to MGMT, care must be taken if suspected MGMT is involved, auditor should take legal advice.
  • Users: report to extent that “true and fair view” is affected, may consider resigning if extreme, may seek legal advice
  • Auth: seek legal advice to protect public interest, likelihood of repetition and extent to which the public are affected.
22
Q

Reporting fraud and error (MGMT, report users and authorities)

A
  • MGMT: auditor should report to MGMT, care must be taken if suspected MGMT is involved, auditor should take legal advice.
  • Users: report to extent that “true and fair view” is affected, may consider resigning if extreme, may seek legal advice
  • Auth: seek legal advice to protect public interest, likelihood of repetition and extent to which the public are affected.
23
Q

For the auditor to be found liable (3)

A
  1. A duty of care must exist
    - The auditor must have known that injured party was likely to rely on F/S
    - Injured party must have sufficient proximity
    - Injured party must have relied on F/S
    - Injured party
24
Q

For the auditor to be found liable (3)

A
  1. A duty of care must exist
    - The auditor must have known that injured party was likely to rely on F/S
    - Injured party must have sufficient proximity
    - Injured party must have relied on F/S
    - Injured party must show that they would have acted differently if the F/Ss were different.
  2. Duty of care must have been breached.
  3. Loss must have been suffered as a result of the breach.
25
Q

For the auditor to be found liable (3)

A
  1. A duty of care must exist
    - The auditor must have known that injured party was likely to rely on F/S
    - Injured party must have sufficient proximity
    - Injured party must have relied on F/S
    - Injured party must show that they would have acted differently if the F/Ss were different.
  2. Duty of care must have been breached.
  3. Loss must have been suffered as a result of the breach.
26
Q

Solution to the negligence problem (6)

27
Q

Solution to the negligence problem (6)

A
  • Improved quality control
  • Financial cap on liability in engagement letter
  • Agree liab limits with clients
  • Professional indemnity insurance
  • LLPs
  • Use of disclaimer in audit report
28
Q

Solution to the negligence problem (6)

A
  • Improved quality control
  • Financial cap on liability in engagement letter
  • Agree liab limits with clients
  • Professional indemnity insurance
  • LLPs
  • Use of disclaimer in audit report
29
Q

Closing the expectation gap (3)

A
  • Better communication between auditors and users
  • Clarification of the liab for fraud
  • Improved control and education of the auditing profession
30
Q

Closing the expectation gap (3)

A
  • Better communication between auditors and users
  • Clarification of the liab for fraud
  • Improved control and education of the auditing profession
31
Q

Mandatory PII (2 ads, 2 dis-ads)

A

Ads

  • Large claims may be made against firms which may not have the resources to settle.
  • Firms are at risk of bankruptcy which causes the profession to lose credibility
32
Q

Mandatory PII (2 ads, 2 dis-ads)

A

Ads

  • Large claims may be made against firms which may not have the resources to settle.
  • Firms are at risk of bankruptcy which causes the profession to lose credibility

Dis-ads

  • Incentivises ill founded claims
  • Less incentive to fight these ill founded claims

ACCA P7 (PL) (10 decks)

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