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aca - audit & assurance > Chapter 4 - Responsibilities > Flashcards

Chapter 4 - Responsibilities Flashcards

1
Q

management responsibilities regarding audit & assurance?

A

sustainability
business risk
companies act 2006

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2
Q

auditor responsibilities regarding audit & assurance?

A

compliance
sustainability
fraud & error
money laundering
related parties

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3
Q

business risk?

A

management is responsible for managing the business so objectives are achieved

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4
Q

what legislation sets out the statutory duties of the directors of a company?

A

companies act 2006

directors are advised to act in a way that promotes success of the company for the benefit of its members

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5
Q

directors’ responsibilities?

A

safeguarding company assets

keeping accounting records

preparing FSs & delivering them to companies’ house

ensuring compliance with laws & regulations

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6
Q

ESG?

A

environmental, social & governance (ESG)

a term that corporations must place emphasis on for sustainability purposes

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7
Q

dual nature of sustainability?

A

impacts = the impact of the organisation on ESG

dependencies = the impact ESG has on an organisation

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8
Q

what does ESG mean?

A

environmental = reduce environmental impact and counter the impact of climate change

social = focus on wellbeing of society/stakeholders

governance = pprovide good services in a sustainable way

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9
Q

what does sustainability impact in audit & assurance?

A
  • risk management
  • assurance
  • law & regulation
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10
Q

how does sustainability impact risk management, assurance & law & regulation?

A

risk management = climate change can create significant business risks

assurance = sustainability and ESG info needs to be credible when disclosed to stakeholders

law & regulation = legislation encourages companies to be open regarding ESG performance

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11
Q

role of the ISSB?

A

responsible for developing a set of sustainability disclosure standards

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12
Q

two types of risks associated with risk management for sustainability purposes?

A

physical risk (poor weather caused by climate change)

transition risk (related to economic shifts to a low carbon economy)

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13
Q

risks associated with a transition to net zero?

A

transition risk

risk that businesses relying on fossil fuels will have FSs containing ‘stranded assets’

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14
Q

stranded assets = ?

A

assets which have suffered from unanticipated/premature write downs/devaluation

can be due to:
- new legislation
- new social norms
- climate change

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15
Q

can stranded assets risk affect the going concern status of a business?

A

yes

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16
Q

responsibilities of an auditor according to companies act 2006?

A

form an independent opinion on the FSs

confirm proper preparation of accounts

confirm that info is consistent with director’s report

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17
Q

can fraud & error cause material misstatement?

A

yes

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18
Q

why is fraud more difficult to detect than error?

A

with fraud, there’s a deliberate attempt to conceal

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19
Q

what is the difference between fraud & error according to ISA 240?

A

intent

stated in ISA 240

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20
Q

two types of intentional misstatement arising from fraud?

A

fraudulent financial reporting

misappropriation of assets

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21
Q

two terms in which a matter is considered material?

A

size (quantitative)

nature (qualitative)

e.g., if fraud is committed, regardless of pervasiveness, it can be considered material

22
Q

responsibility of management/auditor in relation to fraud?

A

management - responsible for preventing & detecting fraud

auditor - responsible for obtaining reasonable assurance that FSs are free from material misstatement, whether caused by fraud or error

23
Q

examples of procedures auditors can carry out to identify misstatement caused by fraud?

A
  • risk assessment
  • exercise professional scepticism
  • discuss fraud among engagement team
  • respond appropriately to assessed level of fraud risk
  • consider implications for other areas of the audit
  • consider if the auditor requires specialist skills for the work
24
Q

should the auditor make inquiries of management regarding knowledge of fraudulent activities?

A

yes

25
Q

who should fraud be reported to?

A

management - if management are suspected of fraud, report to those charged with governance

shareholders - if fraud causes material misstatement or uncertainty in FSs

3rd parties - if there’s a duty/right to disclose (e.g., to a regulator)

26
Q

can non-compliance with laws & regulations cause material misstatement?

A

yes

27
Q

ISA 250?

A

covers the auditors responsibilities in relation to compliance with laws & regulations

28
Q

responsibilities of management/auditor regarding compliance with law & regs?

A

management - responsible for compliance with law & regs

auditor - responsible for obtaining sufficient evidence of compliance

29
Q

procedures the auditor should carry out to identify misstatement caused by non-compliance?

A
  • perform a risk assessment
  • obtain evidence about compliance
30
Q

should the auditor discuss suspected non-compliance with management?

A

yes

discuss with management & those charged with governance

and make the appropriate reports

31
Q

bribery act 2010?

A

penalties exist for individuals/organisations for the offences of offering a bribe/accepting a bribe/bribing a foreign public official

32
Q

can organisations be penalised for bribery on the behalf of employees/agents?

A

yes

therefore they should implement bribery prevention policies (this also applies to audit firms)

33
Q

bribery prevention policies examples?

A
  • top level culture
  • risk assessment
  • due diligence
  • communication & training w/ staff
  • monitoring & reviewing
34
Q

who should auditors report suspicions of bribery to?

A

to the national crime agency (NCA) under the proceeds of crime act 2002

35
Q

related party = ?

A

a company/person that might have an undue influence on the company being audited

e.g., directors and their families, other companies in the same group etc

36
Q

accounting rule & audit risk regarding related party transactions

A

accounting rule - related party transactions should be disclosed in FSs

audit risk - non-disclosure would represent a material misstatement

37
Q

why do audit risks arise from related party transactions?

A

related party transactions may or may not be at arms length

e.g., a director may buy a property from the company at less than market value

38
Q

management/auditor responsibilities regarding related parties?

A

management - responsible for disclosing related party transactions in FSs

auditor - responsible for performing audit procedures to identify & assess risk of material misstatements arising from failure to disclose related party transactions

39
Q

why are related party transactions considered a high-risk area?

A
  • related party relationships may be complex e.g., identifying who is ‘family’ of the director
  • information systems may not be effective in identifying related party transactions, making it hard for the auditor to identify them
  • fraud may be more easily committed via a related party
  • transactions may take place for no consideration/money
40
Q

procedures for an auditor to identify misstatement caused by related party transactions?

A
  • obtain list of all related parties from the engagement
  • review investment transactions
  • carry out detailed test of transactions
  • confirm that correct disclosures have been made in FSs
41
Q

money laundering includes:

A

tax evasion

saving costs by failing to comply with laws & regs

offences committed in another jurisdiction that are criminal offences in the UK e.g., bribes

42
Q

auditor responsibilities regarding money laundering?

A

report actual knowledge/suspicion of money laundering to the audit firm’s money laundering nominated officer

the nominated money laundering officer will consider whether they need to report to the NCA

43
Q

NCA?

A

national crime agency

44
Q

potential offences by an auditor regarding money laundering?

A
  • failure to report
  • failure to provide suitable training for staff
  • tipping-off the money launderer

penalties can be imprisonment for up to 14 years

audit team need to be alert when discussing suspicions with others

45
Q

which areas of professional guidance conflict with money laundering regulations?

A

accountants have a duty of confidentiality which conflict with the requirement to report suspected money laundering

money laundering legislation protects auditors from breach of confidentiality claims, even if suspicions are wrong

also, conflicts arise with the ISA240/250 requirement to report fraud instances to management - as you’re reporting it potentially to the NCA

46
Q

what risk arises when controls are deemed unreliable?

A

control risk

47
Q

UK GDPR?

A

UK general data protection regulation

UK legislation to replace the EU version of GDPR

concentrates on data protection and the privacy of data/information

48
Q

‘the consideration of climate-related risks in an audit of FSs’ ?

A

the IAASB published this practice alert which focuses on the implications of climate-related risks for audits of FSs

the auditor must perform audit procedures to identify where non-compliance may have a material impact on FSs

49
Q

auditor responsibilities (categories) ?

A

sustainability

fraud & error

compliance

related parties

money laundering

50
Q

management responsibilities (categories) ?

A

business risk

sustainability

companies act 2006

aca - audit & assurance (7 decks)

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