Lesson 2/3 Flashcards
What are the advantages of good Corporate Governance?
Greater transparency/accountability
Better able to respond to risks
Efficiency of operations
Low risk of misstatements
High quality audit
Strong control environment
What is the structure of an audit commmittee?
Minimum of 3 NED’s (non executive directors)
At least one with financial experience
Independent of operational management
What is the objectives of audit committees?
Increase public confidence
Provide financial awareness
What is the function of audit committees?
Monitor financial statements
Review controls
Monitor internal audit
What are the 5 fundamental ethical principles?
Integrity
Objectivity
Professional competence
Confidentiality
Professional behaviour
What are the threats to independence? (E.g advocacy)
Self interest
Familiarity
Advocacy
Self review
When can conflict of interest arise?
Companies trading with each other
Companies trading in the same market
What are the new client acceptance considerations?
Professional competence
Reputation of client
Fees
Professional clearance (ask client for permission to contact old auditor)
What is an engagement letter?
Details of a contract between the client and the audit firm
What is audit risk?
The risk that the auditor expresses an inappropriate audit
What is inherent risk?
Susceptibility of misstatements in the financial statements assuming there are no internal controls
What is control risk?
The risk that a misstatement is not prevented, detected or corrected
What is sampling risk?
The risk that the conclusion from a sample is not consistent with the “full conclusion”
What is non sampling risk?
Drawing the wrong conclusion for other reasons
Why should a risk assessment be performed?
Identify risky areas in the audit
Carry out an efficient audit
Reduce the risk of reputation damage
