General Flashcards
When and how is an unmodified opinion given?
Given if the auditor is satisfied that the financial statements are presented fairly.
Provided in a written report along with the basis for that opinion and key audit matters.
What are some limitations of auditing?
Need at least 3 of:
- The need for subjective judgements
- The exclusion of some financial statement items from testing
- The pre-existing limitations of company accounting and control systems
- The timeline (audit being prepared long after the reporting period)
- The standard (and therefore, limiting) format
What are the elements of an assurance engagement?
(Hint: CREST)
- Criteria: to test subject matter against
- Report
- Evidence
- Subject Matter
- Three-party relationship between intended user of audit report, the responsible party, and the auditor
What are the two levels of assurance, their relative severities, and the ways in which their conclusions are stated?
- Reasonable: Highest
Conclusion given in a positive sentence form (what was found) - Limited: Lower
Conclusion given in a negative sentence (what wasn’t found)
What rights does an auditor have?
- Access to company books and records
- Receive info and explanations promptly as requested
- Receive notice of (and speak at) general meetings
- Receive a written copy of any resolution proposed
Duties of an external auditor
- Report on whether FSs presented fairly
- Report opinion on other statutory requirements such as adherence with the law, adequacy of maintained records, and disclosure of director remuneration
OECD Principles of Corporate Governance addresses…
- Ensuring the basis of an effective corporate governance framework
- The rights of shareholders and key functions of ownership
- Equitable treatment of shareholders
- Stakeholder roles in corporate governance
- Disclosure and transparency
- Responsibilities of the board
Division of responsibilities guidelines (UK CG code)
- Board should include an appropriate combination of executive and non-executive directors, with a combination of skills and knowledge
- Clear division of responsibilities between board and executive leadership roles
- Chair of board and CEO two separate people
Audit, risk, and internal control guidelines (UK CG Code)
- Board should establish formal and transparent policies to ensure the independence and effectiveness of audits, including procedures to manage risk and oversee internal control
- Board should present a fair, balanced, and understandable assessment of company position
The Audit Committee
(Definition and responsibilities)
A sub-committee of the board, usually composed of non-executive directors
Responsible for:
- Monitoring FSs
- Receiving the reports of the internal auditor
- Reviewing internal controls and audits (or if no internal audit function exists, to consider the need for one)
- Safeguarding whistleblower privacy
- Recommending the appointment or removal of an external auditor
How often should the board of an entity review the possibility of introducing an internal audit function (where one doesn’t already exist)?
Annually
What should be considered regarding setting up an internal audit function?
- Cost of set-up vs predicted benefit
- Predicted savings in external fees
- Complexity and scale of entity
- Perceived need to assess risk
- External presure from stakeholders
Who do internal auditors report to?
The Audit Committee
Value for Money Audits vs Best Value Audits
Value for Money audits consider economy, efficiency, and effectiveness
Best Value audits consider only economy (spending the least money possible)
Potential limitations of an internal audit include…
- Independence: auditors should not be involved in the activities they audit and should have an independent reporting line
- Objectivity: since they often work for the company they’re reviewing
- Due skill and care: internal auditors not held to the same regulatory standards as external auditors
