Chapter 1 - Principles Flashcards
Define assurance
Asked to enhancing a degree of confidence in a subject matter by the responsible party.
Looking for a negative conclusion.. Nothing came to our attention.
Define Audit
Type of assurance giving an opinion on whether the financial statements give a true and fair view.
Use ISA’s to prepare the statutory audit.
Why have an external audit?
It gives third parties eg. Banks, investors confidence in the accounts.
Directors have no influence in an audit, it is independent.
It can be a deterrent for fraud.
If turnover is over £10.2M
Directors vs Auditors responsibilities
Directors - Prepare FS, Set controls to prevent fraud, Safeguard assets, Keep proper accounting records
Auditors - State whether the FS show a true and fair view.
Fraud
Auditors do not detect fraud but acting with professional scepticism may lead to finding fraud.
Fraud is deliberate theft of asset.
Confidentiality, Conflicts of interest and Money laundering
Confidentiality - Allowed to breach when; given permission, legal right to do so, requested by regulatory body.
Conflict of interest - potential conflict between clients, must be safeguarded and both clients agree. Possible safeguards: different audit teams, different partner review
Money laundering - must report to MRLO, 14 years for involvement, 5 for failing to report.
Expectation gap
Difference between auditors legal and professional responsibilities and the publics perception
Control testing vs Substantive testing
Controls - quicker, cheaper, cover a larger area, if good controls then less substantive testing needed.
substantive - testing balances eg payroll. Must be done for all clients.
Auditing standards
International standards on Auditing (ISAs)
Failure to apply can lead to claims of compensations.
Financial reporting council (FRC)
UK body for auditing standards, ethics, practice notes.
