Chapter 2 - Rules and regulations Flashcards
What does national law affects?
- which companies are required to have an audit
- who can and cannot carry out an audit
- auditor appointment, removal and resignation
- The rights and duties of an auditor
What is the reason for an audit?
to protect the shareholders from the directors who may be biased when preparing the financial statements
Which companies are normally exempt from an audit?
small or owner-managed companies, as there is less value in an audit
When would a small or owner-managed company not be exempt from an audit?
if there are a financial service company or company is listed on the stock exchange
To be an eligible auditor, a person must be what?
- a member of a recognised supervisory body (RSB) e.g., AACCA, and allowed by the rules of that body to be an auditor, or
- someone directly authorised by the state
When can a person not be auditor of a company?
- Excluded by law: manage or work for the company and who have business or personal connections
- Excluded by the code of ethics: must comply with the code
Auditors can be appointed in what 3 ways?
- members
- directors
- secretary of state
What is the most common method to appoint an auditor and how is it done?
- shareholders - by ordinary resolution. more than 50% of those voting must agree
Auditors of public companies are appointed for how long?
from one AGM to the next
Auditors of a private company are appointed for how long?
until they are removed
Appointment by directors is mainly used when?
to appoint the company’s first auditors after it has been established.
or to fill a casual vacancy
What is a casual vacancy?
arises when the current auditor leaves suddenly and a new one must be found quickly
How long can a director appointment happen for?
one year
When would the secretary of state appoint a auditor?
when the company cannot find one
Arrangements for removing an auditor have to be structured in what ways?
- the auditor has sufficiently secure tenure of office, to maintain independence of management
- can be removed if there are doubts about their continuing ability to carry out their duties effectively
How is removal of an auditor achieved?
by an ordinary resolution requiring a simple majority vote at a GM. At least 50% of members (shareholders) must vote.
How many days notice must be given so that the members are aware about the removal of the auditor?
28 days
What must be prepared if an auditor resigns?
they must issue a written notice of their resignation and submit a statement of circumstances to the company and to companies house
What is the duty of an auditor?
to audit the financial statements and provide an opinion on whether the financial statements give a true and fair view. must also report on any other matters required by local laws or regulations (e.g., Uk companies must give details of directors’ remuneration)
What are the 3 rights of an auditor during an appointment?
- Access: books and records of company
- Information: info and explanations which they think necessary for purpose. Copies of written resolutions
- Attend meetings: receive notice of and attend any general meeting of members, and to be heard at any GM
When an auditor is removed, or decides to resign, what additional rights are given?
- auditor is allowed to request a GM of the members to be called to explain the circumstances of their resignation
- can require the company to circulate a written response relating to the resignation to the members
What is the responsibility of the international federation of accountants (IFAC)
promotes international regulation of the accountancy profession
What is one of the subsidiary boards of the OFAC and what is their responsibility?
The International Audit and Assurance Standards Board (IAASB) - to develop and promote International standards on auditing
What are ISAs?
international standards of auditing - professional guidance that auditors must follow to ensure each audit is performed consistently and to a required standard of quality
Are ISAs legal?
not a legal requirement. if a country has a law in place which is inconsistent with ISAs, local law should be followed
When an ISAs is revised what happens?
the IAASB writes a proposed ISA, called an exposure draft, which is published on its website for public consultation. comments are requested, which are considered before finalising
How do professional bodies (such as ACCA and ICAEW) promote quality within the profession?
through provision of:
- rigorous qualifications
- support to members
- technical expertise to governments on accounting and business matters
To obtain membership to a professional body, a person must what?
- successfully complete the exams provided by the body
- be able to demonstrate appropriate practical experience (min 3 years)
- Complete an ethical assessment
How does a person maintain a membership?
- demonstrate continuing professional development (CPD) to ensure knowledge and skills are kept up to date
- comply with a code of ethics and conduct and ensure they act in a professional manner at all times
