Lecture 14 - Audit Regulation

Question 1

Audit Quality is….

Answer 1

“The probability that a given auditor will both discover a breach in a client’s accounting system, and report the breach”

Question 2

Five drivers of Audit quality are:

Answer 2

• The culture within the audit firm
• The skills and personal qualities of partners and staff
• Effectiveness of the audit process
• The reliability and usefulness of audit reporting
• Factors outside the control of the auditors

Question 3

Three types of regulation:

Answer 3

• Legislation – UK law (CA2006) - Government
• Delegated authority to FRC
• Standards - The accounting profession

Question 4

For the majority of companies, audit is a statutory requirement as legislated for by the CA 2006, which requires:

Answer 4

• Requires limited companies to be audited
• Allows small companies exemption
• Outlines the duties, rights and responsibilities of the auditor
• Details eligibility to be an auditor
• and sets out directors responsibilities

Question 5

RSB - Recognised Supervisory Body and RQB -Recognised Qualifying Body
Deals with eligibility to be an auditor:

Answer 5

• Be member of an RSB and satisfy its rules and be qualified with a RQB
• Audit practice certificate
• And includes some older legislation on ineligibility (eg the auditor may not be an “officer or servant” of a company)
• (but note that Ethical Standards say a lot more about this …. threats to independence!)
• Certain professional bodies have additional practical experience requirements

Question 6

IFAC is the global organization for the accountancy profession, to protect….

Answer 6

The public interest by encouraging high quality practices by the world’s accountants.

Question 7

IFAC serves the public interest by:

Answer 7

-Contributing to the development of high-quality standards and guidance;
-Facilitating the adoption and implementation of high-quality standards and guidance;
-Contributing to the development of strong professional accountancy organizations and accounting firms and to high-quality practices by
professional accountants,
-And promoting the value of professional accountants worldwide;
-And speaking out on public interest issues.