Chapter 2 : Responsibilities

Question 1

Managements responsibilities

Answer 1

• Managing business to achieve company objectives
• Assessing business risks to the OBJs being achieved
• Safeguarding company assets-(Safekeeping of docs, setting authority limits, implementing procedures to prevent fraud)
• Keeping proper and accurate accounting records (cash payments and receipts, what they relate to, assets and liabilities)
• Preparing company financial statements & delivering them to the registrar (select appropriate accounting policies and apply them consistently, make reasonable and prudent judgements and estimates, comply with applicable accounting standards, prepare FS on going concern unless inappropriate)
• Ensuring company complies with laws and regulations (Money laundering, H+S, Public and employers liability, PAYE and Payroll matters)

not the responsibility for the auditor to do any of the above

Question 2

Assurance providers responsibilities

Answer 2

• carry out assurance service in accordance with ethical and professional standards
• carrying out the assurance service in accordance with the terms of engagement

Therefore influenced by:
legislation under which eng is conducted
- terms of engagement
- ethical + pro standards
- Quality control standards

Question 3

external auditors responsibilities in a statutory audit?

Answer 3

legal requirements contained in Companies act 2006:

• form independent opinion on truth and fairness of Financial accounts
• confirm Annual accounts prepared in line with CA 2006
• state in their auditors report whether the info given in the directors reports is consistent with annual accounts.

Question 4

to achieve these objectives the external auditor must ensure? what rights are auditors given under CA 2006?

Answer 4

• The audit is planned properly
• Sufficient and appropriate audit evidence is gathered
• The evidence is properly reviewed and valid conclusions are drawn

rights:
- right of access at all times to the company’s books and accounts

• the right to obtain any information necessary for the audit from any officer or or employee of the country
• the right to attend any general meeting

Question 5

responsibilities for the provision of non assurance services

Answer 5

a firm engaged to provide additional non statutory and non assurance services is only responsible for providing services negotiated with management.

services may include:

• assisting with maintenance of accounts
• assisting with the preparation of management information
• preparing FS of the company
• Preparing corporation tax return for the company

Question 6

Error: definition and responsibilities (auditors+mgmt)

Answer 6

Error- an UNINTENTIONAL misstatement in FS, including the omission of an amount or a disclosure.

responsibilities:

• Auditors responsible for detecting material errors in FS, may do so by test of controls or details
• MGMT responsible for internal controls capable of preventing fraud or error
• Auditors responsible for assessing whether system is capable of preventing or detecting error
• If material weaknesses are found, auditors responsible for:
  reporting them to mgmt
  carrying out additional tests of detail to uncovee potential errors as a result of the weakness

Question 7

systems of internal control : auditors assessment (requirements of auditors) + reporting on deficiencies

Answer 7

ISA (UK) 315 (identifying and assessing the risks of material misstatement), requires auditors to :

• obtain understanding of controls related to audit
• evaluate the design of those controls
• determine whether they have been implemented

auditors to test controls if: (ISA 330)

• auditor plans to test effectiveness of controls
• substantive procedures alone cannot provide sufficient appropriate evidence

Reporting:
ISA 265- Any identified significant deficiencies in internal control should be reported in writing on a timely basis.

a significant deficiency in internal control is one that, in the auditors opinion is important enough to bring to the attention of those in governance.

Question 8

Fraud: two types of risk misstatement from fraud, and auditors + mgmt responsibilities regarding fraud , how can they achieve the prevention of fraud?

Answer 8

ISA 240- two types of misstatement fraud can arise from:

• misstatements arising from fraudulent financial reporting
• misstatements arising from misappropriation of assets

Responsibilities:
ISA 240- those charged with governance, primarily responsible for prevention and detection of fraud

to achieve this:
- demonstrate MGMT follow culture of honesty and ethical behaviour, and communicating they expect employees to adhere

• establishing sound system of control
• for those in governance: ensure mgmt implement policies and procedures to ensure orderly and efficient conduct of the company’s business.