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BUS273 > Chapter 2 - Professional Standards > Flashcards

Chapter 2 - Professional Standards Flashcards

1
Q

Why are Professional Standards a matter of Public Interest?

A

They add to quality of assurance services

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2
Q

What does audit regulation promote?

A

Comparability of FSs, which are audited to same standard.

Therefore, this improves the public confidence.

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3
Q

What do assurance engagements consider? (4)

A
  • Ethics
  • Risk Assessment
  • Terms of Engagement
  • ISQMs (International Standards on Quality Management)
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4
Q

What else are UK audits governed by?

A
  • ISAs
  • Companies Act 2006
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5
Q

What does the FRC stand for, supervise, and issue?

A
  • Stands for Financial Reporting Council
  • Supervises accountancy related issues
  • Issues auditing standards in UK
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6
Q

Describe structure of FRC

A
  • There is an FRC board
  • There are 2 Governance Committees - People Committee, and Audit & Risk Committee
  • There are 3 Business Committees - Conduct Committee, Supervision Committee, and Regulatory Standards & Codes Committee.
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7
Q

What is the FRC continuously rebranding?

A

Continuously rebranding APB (Auditing Practices Board) publications, some of which are still in force

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8
Q

How does FRC issue auditing standards?

A

Amending ISAs for any specific factors and issuing them as ISAs (UK)

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9
Q

What else does the FRC issue?

A
  • Ethical standards for auditors
  • Practice notes - how to apply ISAs to particular industries/circumstances
  • Bulletins - guidance on emerging/new issues
  • Standards for revies of interim FS completed by auditor of entity.
  • Audit quality - thematic reviews
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10
Q

What is Harmonisation

A

Process of aligning global standards, so that companies are audited in a comparable way, regardless of location

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11
Q

What are the audit provisions that were introduced in 2014 by the EU Directive & Regulation?

A
  • Improving quality of Audit and Reporting
  • Mandatory re-tendering every 10 years
  • Change of every firm every 20 years
  • Ban on providing non-audit services (including tax advice) to public interest entities.
  • Cap on fees for non-audit services.
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12
Q

What is Big Data?

A

Broad term for large/complex data sets

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13
Q

How are auditors responding to Big Data?

A

By increasing use of technology

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14
Q

What are IAASB’s key objectives with technology

A

Due to its disruptive nature, IAASB set objectives:
- Build processes/structures to support disruptive initiative
- Maintain/improve knowledge of disruption trends and implications for standard setting.
- Sharing initiative information with stakeholders to improve audit/assurance/reporting quality

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15
Q

Advantages of Big Data & technology?

A

Enhance Audit Quality
Help evaluate Management’s estimates

Wont replace auditor skill set

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16
Q

What are the Three main reviews for future of audit?

A

Kingman Review
CMA (Competition and Market Authority) Review
Brydon Report

17
Q

Summarise CMA review

A

Recommendations:
- Robust regulatory oversight of committees to ensure priority of quality
- Mandatory joint audit
- Operational split between big 4 Audit and non-Audit to ensure quality
- 5 Year progress review by regulator

18
Q

Summarise Kingman Review

A

Replace FRC with ARGA (Audit, Reporting & Governance Authority)
ARGA expected to:
- Regulate big firms
- Impose larger sanctions for corporate failure
- Require fast explanations from companies
- Issue report publications regarding conduct and management

19
Q

Summarise Brydon Report

A

Recommendations:
- Redefine Audit purpose
- Create a corporate audit profession governed by principles
- Replace ‘True and Fair’ with ‘Present Fairly, in all material respects’
- Rolling A&A Policy
- Resilience & public interest statements
- Stakeholders to propose matters for audit
- Stakeholders to be covered by ‘public interest’
- Forensic Accounting/fraud awareness training for auditors
- Internal Control effectiveness reported to board
- Improve clarity on capital maintenance
- Improve auditor communication/transparency
- Extend audits to new area
- Extend audit concepts beyond FS
- Increase use of Technology

20
Q

Following the reviews, and stakeholder feedback, what are the proposals made?

A
  • ARGA to replace FRC, + more powers
  • ARGA to continue to drive ongoing improvement of audit quality, via professional standards and improved qualification training by institutes
  • large private companies (>750 employees and £750m turnover) to be classified as PIEs
  • ARGA to develop UK Corporate Governance Code
  • New reporting requirements introduced
  • ARGA given power to force improvements to quality of corporate reporting & to investigate/sanction directors who don’t fulfil their Companies Act responsibilities
  • Proposed to increase choice of available auditors, and ensure market is more resilient to unexpected volatility
  • Review of all legislations 5 years after implementation.
21
Q

What is a joint audit?

A

Multiple audit firms perform audit, produce audit report, and are liable for the audit of an entity.

22
Q

Benefits and drawbacks of joint audit?

A

3 benefits - increased market competition, increased service quality, allows smaller firms to get involved in higher level audit.
1 drawback - more expensive for clients

23
Q

2020 Review of Climate Change

A
  • Little evidence that business models/company strategy has been influenced by climate change
  • Users requesting for additional climate-related disclosures
  • Firms need to ensure climate change is factored in internal quality monitoring processes
  • Climate risks need to be further considered during audit planning and when conducting audit
24
Q

What is ISSB

A

International Sustainability Standards Board

25
Q

2 IFRS Sustainability standards + impacts

A

IFRS S1 - Entity must disclose significant sustainability-related risks and opportunities
IFRS S2 - Entity must disclose climate-related risks and opportunities

Both can affect the entity’s cash flows and/or access to finance

Useful to primary users in making decisions regarding provisions to entity.

26
Q

How did UK Law adjust to climate change and sustainability?

A

UK Companies Act amended and requires certain risks and opportunities to be disclosed

27
Q

What did Task Force on Climate-related Financial Disclosures (TFCD) cover? (4)

A

Governance
Strategy
Risk Management
Metrics/Targets

28
Q

Describe RPA

A

Robotic Process Automation

Software used to capture/interpret existing applications with aim of automating activities across systems.

29
Q

What can RPA perform?

A

Simple tasks - e.g. opening emails, copy/paste files
Complex tasks - e.g. data extraction, performing calculations

30
Q

Factors to consider before using RPA (3)

A

Volume of manual work
Number of systems
How standardised the process is

31
Q

What is AI and give examples

A

AI is a computer program that is able to complete a task which is considered intelligent in humans

  • Cognitive automation (e.g. automate a matching up process for cash)
  • Cognitive engagement (e.g. live chat assistant for FAQ)
  • Cognitive insight (e.g. Allowing full visibility of a system/process, allowing staff to be proactive and responsive.)
32
Q

What behaviours does AI look to copy? (5)

A
  • Learning
  • Understanding
  • Reasoning
  • Perceiving
  • Interacting
33
Q

What is blockchain?

A

A digital set of records/transactions where individual items (blocks) are linked together in a public database (the chain).

Info is stored across multiple computers and is made public.

e.g. KYC

BUS273 (4 decks)

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