Chapter 1 Flashcards
Two types of assurance engagement, type of audit evidence, type of opinion, wording in opinion
Reasonable and limited, sufficient and appropriate (intusivity differs for both), positive opinion and negative conclusion, true and fair view, nothing has come to our attention
Benefit of audit to shareholders (2)
Enhances credibility of info, reliable info to hold management to account
Benefit of audit to directors (2)
Reduces risk of management bias, deter fraud
Benefit of audit to suppliers
Confidence to transact
Benefit of audit to lenders (2)
Added confidence, easier to raise finance
Benefit of audit to society
Provides additional assurance to 3rd parties
Small company exemptions from mandatory audit if they have 2 of what 3 points
4 factors which require a mandatory audit
No more than 50 employees, turnover does not exceed £10.2 mil, gross assets does not exceed £5.1 mil.
Articles of association require one, shareholders owning more than 10% require one, public co., co. Involved in financial services
What are the 4 ways to fraudulently report
2 factors that must be present for fraud to occur
Misapply accounting standards, omit transactions, manipulate accounting records, misappropriate assets
A motive and an opportunity
3 ways management can prevent fraud
Creating a culture of honesty, establish sound internal controls, implement policies and procedures to ensure efficient conduct of company business
5 things a fraud risk assessment should consider
Position of management to commit fraud.
Indications of earnings management (profit based bonus).
Known internal and external factors that could be an incentive for fraud
Unusual changes in behavior/lifestyle of employee
Any allegations that have been made
What 3 parties should fraud be reported to and when should they do this?
What must auditors be careful of when reporting fraud?
Those charged with governance (eg audit committee) - immediately
Shareholders- auditors report should be modified if fraud or error causes FS to not give T+F view.
3rd party - auditor to determine.
CONFIDENTIALITY - can be overridden if there is either a legal duty or a professional duty
Who has sole responsibility to ensure compliance with laws and regs
5 ways in which they can do this
Those charged with governance
Monitor legal requirements
Operate internal control
Develop a code of conduct
Monitor compliance with the code
Engage legal advisors
What are the auditors responsibilities in relation to laws and regs (3)
Make inquiries, get written reps, report non compliance - but knowledge can be confined to management
What is a bribe in true Uk Bribery act
What a reasonable person in the Uk would expect of a person performing the relevant function or activity
How can audit firms prevent bribery (6)
Create a culture
Risk assessment
Due diligence procedures
Communication (incl training)
Monitoring and review and making improvements to procedures
Proportionate procedures to mitigate risks and prevent unethical conduct
What must be considered relating to related parties during the planning stage
Consider the risk of undisclosed related party transactions
What ISA is for related parties
5 things to consider during the detailed testing stage relating to related parties
550
Enquire to directors of existence of related parties
Review board minutes
Review records for large or unusual transactions/ balances
Review investments in other companies
Check adequacy of disclosures and compliance with the accounting standards
What must be done in the review stage relating to related parties
Written representations should always be requested
What 2 branches does POCA (money laundering) split into
Income from non compliance with laws and regs
Saving costs from non compliance
4 responsibilities of audit firms relating to money laundering
Appoint a MLNO (evaluates internal report and raises SAR)
Client due diligence
Training
Record keeping (maintain CDD and SARs for 5 yr after engagement)
6 marking points in the exam relating to money laundering
Comply with POCA
Failure to report is an offense
Report to MLNO
MLNO makes report to NCA
ASAP
Avoid tipping off as this is offense
