Chapters 1-2 Flashcards
what does the management do in the agency theory
manage the company and prepares FS
what do the shareholders do in the agency theory
own the company, measure performance and appoint independant auditors
what do the auditors do
adds credibility to the FS
What are the two different wordings for an audit opinion
“presented fairly” OR “give a true and fair view”
definition of materiality
Materiality is an expression of the relative significance or importance of a particular matter in the FS. A matter is material if its omission or misstatement would reasonably be expected to influence the decisions of users of the FS.
What is reasonable assurance
Reasonable assurance is not absolute assurance because there are inherant limitations of an audit which result in the auditor forming an opinion on evidence that is persuasive rather than conclusive.
3 limitations of auditing
Auditing is not objective, judgements have to be made.
Audit evidence sometimes indicates what is possible and not certain.
Not all items in the FS are tested.
5 elements of an audit engagement
practitioner intended user responsible party subject matter criteria
what kind of audit leads to the highest level of assurance
statutory audit
what kind of audit leads to limited assurance
all other audits other than statutory
what kind of audit report is that of a reasonable assurance audit (statutory audit)
positive
what kind of audit report is that of limited assurance
negative
why is a limited assurance audit report negative?
the evidence gathered is limited
what are auditors rights (5)
access to companys books and records to receive info and explanations receive notice of general meetings speak at general meetings on matters that concern them receive a copy of any written resolution
who can appoint a companys auditors
directors
shareholder
secretary of state
how are auditors usually appointed
annually by shareholder, but directors may appoint first auditor or to fill a ‘casual vacancy’
4 ways to remove auditors
notice of removal
representations
statement of circumstances
auditors rights
4 ways auditors may resign
notice of resignation
statements of circumstances
convene general meeting
statement prior to general meeting
what is corporate governance
the internal systems or means by which companies are directed and controlled
what are the 6 prinicipes of corporate governance
ensuring the basis of an effective CG framework
the rights of shareholders and key ownership functions
equitable treatment of shareholders
role of stakeholders in CG
disclosure and transparency
responsibility of the board
5 roles of the audit committee
monitor FS
recommend appointment/removal or external auditors
to consider annually if there is a need for internal auditi
to approve remuneration for external auditors
to monitor and review internal audit department
advantages of audit committees
increased confidence in FS
Allows ED’s to devote attention to management
increases independance on internal auditors
disadvantages of audit committees
costs may be increased
difficult to select NED’s with necessary competence
can dissuade auditors of raising matters of judgement
Who is a steward of of the shareholders investements
directors
who is the agents of the shareholders
directors
whats the objective of a review engagement
to enable an auditor to state whether anything has come to their attention to cause them believe that the FS are NOT prepared in accordance with the appropriate framework
4 places auditing is subject to regulation from
national legislation
national regulation and standard setting
international standard setting
professional bodies
5 auditors rights
access a companys books and records receieve information and explanations receieve notice of or attend GMs speak at GMs recieve a copy of any written resolution
when can the directors appoint auditors
before the first period of appointing auditors
following a period where the company didnt have an auditor
to fill a casual vacancy
when can shareholders appoint auditors
during a period for appointing auditors
if a company failed to appoint an auditor
if directors fail to do so
when can secretary of state appoint auditors
if no auditors are appointed as per directors/ shareholders
who are the IAASB
International auditing and assurance standards board
what is the objective of the IAASB
to serve the public interest by setting high quality auditing and assurance standards
