Module 2 - Introduction to Statutory Audit Flashcards
What is agency risk?
Different goals between agents (directors) and owners (shareholders)
How can agency risk be mitigated?
- Directors’ remuneration (share component?)
- Monitoring Performance
- External audit
What are agency costs?
Costs bourne by the shareholders to monitor the performance of directors
e.g. audit fees
What is corporate governance and why is it important?
How can corporate governance reduce agency risk?
What is the role of a good system of internal control in corporate governance?
What is coporate governance reporting requirements?
Compy or explain for listed companies
1. Narrative - written statement on how companies applied principles
2. Compliance - State which provisions it has not applied and why
- composition and operation of board
- internal control and risk manegement section
- if no internal audit, why?
- Details of significant shareholders
What is a statutory audit and why is it important?
What are the key terms/concepts in audit?
Which companies are exempt from a statutory audit?
Small companies (T > £10.2m, BS > £5.1m, 50 employees)
English charities - GI >£1m OR GA>£3.26m AND GI> £250,000
Scottish Charities - GI>£500,000 OR GA>£3.26m
GI = gross income, GA = gross assets, BS = balance sheet, T = turnover
Which companies must always have a statutory audit?
- plc
- bank
- e-money issuer
- inusrance company
- if they have shares in regulated market
- public sector company
Shareholders can veto an audit exemption (10% rule)
Who can be appointed as auditor and why is auditor appointment controlled?
What are recognised qualifying bodies and supervisory bodies? What are their roles?
What are the key rights and responsibilities of the auditor?
What are the requirements that govern appointment and removal of auditors?
