Lecture 2 Flashcards
5 ethical standards now…
1 standard
ES1
Integrity, objectivity and independence > free from bias, must have ethics partner
ES2
Financial, business, employment and personal relationships
ES3
Long association with audit engagement
ES4
Fees, remuneration and evaluation policies, litigation, gifts and hospitality
ES5
NAS provided to audited entities
Purpose of ethical standards
To provide professional auditors with a set of rules to ensure they remain independent
All breach of ethical standards must be (3)
- Reported
- Addressed
- Safeguarded against
Threats to objectivity and independence
Management threat > eg auditor preparing console
Advocacy threat > advocate on behalf of firm
Self-interest threat > personal gain
Self-review threat > KPMG audit and tax > must review
Intimidation threat > bullying/ pressure
Familiarity > too cosy with client
Safeguards for independence (5)
- Training
- External/ hot & cold reviews
- Evaluating/ reevaluating clients
- Segregation of duties
- Rotation of audit partners
International Standards on quality control (ISQC) (3)
- Set by FRC audit and assurance committee
- Aim to provide guidance for firm’s system of quality control for audits
- Policies and procedures addressing:
~ Leadership responsibilities
~ Ethical requirements
~ Client acceptance and continuance
~ HR
International standards on auditing (ISAs)
Based on auditing standards issued by IAASB. Amended by FRC where necessary.
Purpose of ISAs
To set out principles and essential procedures auditors should follow when forming opinion on set FSs to ensure high standards, meeting needs users and public confidence in auditing process.
ISA 200
Objective and General Principle of Governing and Audit of Financial Statements
ISA 200 detail (3)
- Audit should be performed in accordance ethical standards, ISAs and with profession skepticism
- Audit is designed to give reasonable assurance
- Audit should be performed to reduce audit risk to acceptably low level that is consistent with objective on audit
ISA 210
Terms of audit engagements
ISA 210 detail
Auditor and client should agree terms of engagement in writing in form of engagement letter. Should be sent before audit work commences.
Contents of engagement letter PRINCIPLE (5)
- Objective of audit and scope
- Management’s responsibility for FSs
- Form of audit report
- Unavoidable RoMM
- Need for unrestricted access to records
Contents of engagement letter ADDITIONAL (5)
- Written management confirmations
- Use of other auditors/ experts
- Involvement of internal auditors
- Liability caps on NAS
- Fee and billing arrangements
ISA 230
Audit documentation
ISA 230 detail (3)
- Should be prepared on timely basis (no later than 60 days after audit opinion issued)
- Must include details of NET of procedures: results/ conclusion
- Cannot be discarded/ deleted until end of retention period (5 years)
ISA 300
Planning an audit of financial statements
ISA 300 detail (3)
- Should reduce audit risk to acceptably low level
- NET, supervision, review and communication with previous auditor (if necessary)
ISA 315
Understanding entity, environment and assessing RoMM
ISA 315 detail (3)
- Internal controls, information systems, business objectives and how entity measures financial performance to assess RoMM and design appropriate procedures
- Gain understanding external factors affecting company
- Auditor should communicate material weaknesses in internal controls to TCWG
ISA 320
Audit Materiality
ISA 320 detail (2)
- Auditor should consider materiality and relationship with audit risk when determining NET of procedures and evaluating effect misstatements
- Auditor should assess whether uncorrected misstatements have material impact on accounts
ISA 500
Audit Evidence
ISA 500 detail
Auditors should obtain sufficient appropriate evidence to draw reasonable conclusions on which to base audit opinion. Including evidence of C & A of information.
ISA 520
Analytical Procedures
ISA 520 detail
Analytical procedures should be used to obtain understanding of the entity and when forming conclusions
ISA 570
Going Concern
ISA 570 detail (2)
- Auditors must consider if management’s use of GC principle is appropriate
- Evaluate management’s assessment of GC and consider business risks
ISA 620
Using work of external experts
ISA 620 detail
If intend to rely on work from external expert, need to ensure work is adequate for purposes of audit and whether expert is competent
ISA 701
Communicating Key Audit Matters in Independent Auditor’s Report
ISA 701 detail
Objectives of auditor to determine key audit matters, and, once formed opinion on FSs, communicate these matters in auditor’s report
