Chapter 2: Responsibilities Flashcards
Define management’s responsibility.
Directors job is to manage the business to achieve objectives. Also assessing risks the business is facing and devising strategies to deal with them.
Define auditor responsibility.
Understand the risks facing the business and how it will impact the approach to the audit.
List the director’s responsibilities under the CA06.
- Safeguard assets (prevent/detect fraud and error, ensure compliance with laws and regs)
- Maintain books and records
- Prepare the FS (on the correct basis, using adequate acc policies
- Making appropriate judgements, complying with acc standard), lay the FS before SH at the AGM and file them at Companies House on time.
List the three main responsibilities of an auditor if undertaking a statutory audit under CA06.
Form an independent opinion on truth and fairness of annual accs, confirm annual accs have been PP in accordance with CA06, state in audit report whether info given in director’s report is consistent with annual accs.
MUST MAINTAIN INDEPENDENCE FROM CLIENT.
List 3 rights that CA06 grants auditors to enable them to fulfil their responsibilities.
Right of access at all times to co’s books/accounts, right to obtain any info necessary for audit from any e’ee of co, right to attend any general meeting of co.
Describe the auditor’s responsibility if engaged by management to provide non assurance services.
Only responsible for providing the services specifically negotiated with management (eg. preparing MI, preparing FS for non listed cos, preparing tax return). Management must retain overall responsibility, firm is merely support to management.
Define fraud.
The intentional act to deceive or obtain an unjust or illegal advantage.
Define error.
An unintentional misstatement in FS, including the omission of an amount or a disclosure.
Identify the two types of misstatement that can arise from fraud (according to ISA 240 (UK)).
Misstatements arising from fraudulent financial reporting, misstatements arising from misappropriation of assets.
Describe managements responsibility regarding fraud under ISA 240.
Primary responsibility for prevention and detection. Create culture of honest and ethical behaviour, sound system of internal control, implement policies and procedures.
Describe auditor’s responsibility regarding fraud under ISA 240.
Obtain reasonable assurance that FS are free from mat mis, whether caused by fraud or error. Asses risk of mat mis. Report any fraud or error discovered.
List the 7 characteristics of journals that heighten the risk of fraud (ISA 240 A43).
- Relate to seldom used accounts/suspense accs
- Processed by indv who do not usually do journals
- Unusual timing
- No description/vague refs
- Outside office hours
- Lack commercial rationale
- Involve related parties
Who should the auditor report to regarding frauds/suspected frauds under ISA 240?
Those charged with governance (ie. audit committee), shareholders (via modified audit report), third parties (if there is a responsibility to report to party outside entity).
Under ISA 250A (UK), what are management’s responsibilities regarding compliance with laws and regulations?
Primary responsibility to ensure compliance - monitor legal req’ts, operate internal control, develop code of conduct and monitor compliance, engage legal advisors.
Under ISA 250A (UK), what are auditor’s responsibilities regarding compliance with laws and regulations?
Inquire with mgt, inspect correspondence with relevant licensing/reg bodies, obtain written reps that mgt has disclosed all known instances of actual/possible non-compliance, report issues of non-compliance.
