Ethics Flashcards
Limit of firm fees to accept an audit (range) - Listed and other public interest
5-10%
Limit of firm fees to accept an audit (range) - Private
10-15%
Partner rotation periods. Rotated after, and should not return for? - Audit engagement partner
5, 5
Partner rotation periods. Rotated after, and should not return for? - Engagement quality control reviewer
7, 5
Partner rotation periods. Rotated after, and should not return for? - Key partner
7, 2
6 sources of threat from ICAEW code of ethics (plus the one from FRC)
- Self-interest
- Self-review
- Advocacy
- Familiarity
- Intimidation
- Management
Fundamental principles of ethical code
Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour
What are the key contents of the overall audit plan?
- Understanding the entity’s environment
- Understanding the accounting and internal control systems
- Risk and materiality
- Nature, timing and extent of procedures
- Supervision and review
- Other matters
What do we match despatch notes with?
Invoices
Procedures to obtain evidence
- Analytical procedures
Enquiry
Inspection
Observation
RecalcUlation
Assertions about classes of transactions (OCCCA P)
Occurrence
Completeness
Cut-off
Classification
Accuracy
Presentation
Assertions about account balances (CCARE P)
Completeness
Classification
Accuracy, valuation and allocation
Rights and obligations
Existence
Presentation
Tests for if NRV is lower than cost
- Compare the selling prices of goods sold after year end per sales invoices against their purchase invoice
- Review order book for same thing
- Discuss inventory with write downs from last year
- Compare gross profit margin post year end to current year
Gross profit margin ratio formula
Gross profit * 100 /Revenue
Current ratio formula
Current assets : current liabilities
What are required in written representations?
When due? What is it not?
General matters - confirmation that management have:
- Prepared financial statements
- Provided auditor with relevant information and records
- Recorded and reflected all transactions in financial statements
- May also contain ‘specific representations’
Should be dated as near as possible but not after the date of the auditor’s report
Are not a substitute for audit evidence. Auditors should evaluate and if inconsistent with other evidence, gather and reassess.
What needs to be explicitly stated in the auditor’s report?
- State of company’s affairs
- Company’s profit or loss
- Financial reporting framework (IFRSs or UK GAAP)
- Companies Act 2006
- Information in strategic and director’s report is consistent with financial statements
What is implicitly stated (reported by exception) in the auditor’s report
- Returns from branches have been received and are adequate
- Accounts agree to underlying records
- Proper accounting records have been kept
- Information and explanations have been received (full access)
- Director’s transactions have all been correctly disclosed
Can you prepare a company’s FS?
Yes with safeguards if non-listed
No if listed
What type of assurance conclusion is reasonable assurance?
Positive, limited is negative
Who determines the suitable criteria?
The responsible party
Individual directors only have the power to bind the company if they have 1 of 3 things:
- Express actual authority
- Implied actual authority
- Ostensible/apparent authority
6 factors a director must have regard for when exercising duty to promote success of the company
- long-term consequences of any action
- interests of company’s emloyees
- Need to foster business relationships
- Impact of operations on community and environment
- Reputation
- Need to act fairly as between the members of the company
4 transactions that require members’ approval
Service contracts (for min 2 years)
Substantial property transaction (the lower of assets exceeding 100k or 10% of net assets, di minimis value of 5k)
Loans and quasi-loans
Payments for loss of office
