Module 8 Flashcards
Small companies are exempt from audit under the CA 2006 if hey meet two out of three of what criteria?
Balance sheet total of not more than £5.1m
Turnover of not more than £10.2m
No more than 50 employees
How to companies qualify as small and what is the two year rule?
Small companies will qualify as small if:
If it is the first accounting period and conditions are met
The company met the above conditions for the current and preceding year
Only cease to be classified as small if conditions are not met for two consecutive years
What types of companies are never exempt from audit?
Public company (unless dormant)
Banking
E-money issuer
Insurance
MiFID investment firm of UCTIS management company
Corporate body and shares traded on a European reg market
Public sector entity
When is an audit required for small charities in England and Wales?
Gross income over £1m OR
Gross assets over £3.26m AND gross income over £250,000 OR
Required by charities constitution or due to trustee or donor preference
Independent examination required where audit not recurved unless gross income below £25,000
What is an independent examination?
Less onerous external review that provides limited rather than reasonable assurance
Where is an audit required for small charities in Scotland?
Gross income £500,000 or more OR
Gross assets over £3.26m OR
Required by constitution or due to trustee or donor preference
Independent examination required where audit not received
A company is dormant if?
It has had not significant accounting transactions during the period
How can shareholders veto an exemption?
More than 10% of company’s shares within one month before the end of the financial year
The directors of a company using an audit exemption must include what in the balance sheet?
Additional narrative section
What must the narrative section in the balance sheet contain for audit exempt companies?
Shareholders haven’t required an audit
Entitled to exemption
Responsibilities to maintain proper accounting records
Accounts have been prepared following the special provisions of the CA 2006 for small companies
What is the primary purpose of an audit?
To add credibility to financial statements
What are the key responsibilities of the auditors as defined by the CA 2006?
- Must express an opinion
- whether give a true and fair view
- consistency of the strategic report and directors report with the f/s and prepared with applicable legal requirements - The opinion is expressed to company’s shareholders
What is reasonable assurance?
A high but not absolute level of assurance
Sufficient evidence free from frauds or errors that would have an impact on the decisions made
Engagement risk acceptably low level
True and fair view provides this
What is limited assurance?
Work undertaken is less rigorous
Less reliance can be placed on the opinion
Given in the negative form
What is truth and fairness?
Accounting concept and auditing principle
Concerned with validity of the message
Means compliant with company law and applicable accounting standards, CA and appropriate judgement
Expressed within audit report
What is the expectations gap?
The difference between the understanding that the public has about the auditors responsibilities and the actual defined responsibilities
How can the expectations gap be reduced?
Including explanation of auditors and directors responsibilities within the audit report
Description of the scope of the audit
States that the report is addressed to shareholders only
Competence
What are the personal qualities of the auditor within credibility concept?
Competence
Independence
Integrity
Ethics
What is competence?
Must be equipped to perform their duties to an expected standard
Maintain professional knowledge and skill at level required
Important in reducing expectations gap
What is integrity?
Should be straightforward and honest
What are ethics?
Set of principles of proper conduct or a system of moral values
What is independence?
Must be completely free from situations that may make their work less objective
Must be seen to be free
Are free and seen to be free
What is the path to becoming a statutory auditor?
Qualified
Supervised
Registered
What are the five recognised qualifying bodies?
ACCA AIA CAI ICAEW ICAS
What are the three areas of requirement that must be achieved to gain appropriately qualified status set by the CA 2006?
Entry requirements
Practical experience
Examinations
What do entry requirements consist of?
University entry level OR
7 years of practical experience in finance law and accountancy
What does practical experience consist of?
Must complete 3 years practical training at an authorised training firm
Substantial peer to be in audit and statutory audit work
What do examinations consist of?
Requires RQB to have a formalised examination structure that tests theoretical and practical knowledge
What are he 4 recognised supervisory bodies?
ACCA
CAI
ICAEW
ICAS
Membership of a RSB is not sufficient to obtain statutory auditor status, alongside this what else must the auditor hold?
A practicing certificate
To be eligible for a practicing certificate members must apply to the relevant RSB and prove that they what?
Have completed at least 2 years post qualifying experience
Confirm compliance with CPD
Have professional indemnity insurance
(Must be renewed each year with an annual fee)
To be entitled to sign audit reports, an individual must have what?
Statutory auditor status and be part of a registered audit firm
To obtain this they must apply to the authorisation committee of their RSB
The authorisation committee should only award statutory auditor status to individuals that can demonstrate what?
Hold an audit qualification Are fit and proper Hold a practicing certificate Member of a registered audit firm Have indemnity insurance
For a firm to be granted registered auditor status:
Each of the principles (partners/directors) must be either a member of an RSB, statutory auditor, audit affiliate of and RSB
Majority must have an appropriate qualification
Firm has an appointed an audit compliance principle
Fit and proper
Indemnity insurance
What is an audit compliance principal?
Individual responsible for monitoring that the audit firm has complied with relevant regs
Identity notified in writing to relevant RSB
First point of contact
How can we protect the public?
Ensure the public is aware of who has statuary audit status
Up to date list
Monitored in regular basis to protect quality
Summary of statutory audit requirements
Qualified
- entry req
- 3 years experience
- exams
- RQB
Supervised
- RSB
Registered
- qualified
- 2 years post experience
- CPD
- Insurance
- member of firm
- apply to authorisation committee of RSB
The CA 2006 requires each RSB to maintain and enforce rules of assess:
Eligibility of persons
Conduct of statutory audit work
These rules include: Registration and disclosure High standards Monitoring of quality Investigation and discipline Accountability
Mandatory audit firm Rotation rules are?
Maximum of 10 years that can be extended to 20 provided that an appropriate tender process takes place every ten years
OF PUBLIC INTEREST ENTITIES
June 2016 included
