Module 8: The Requirement for Audit Flashcards
The companies act (CA 2006) requires the financial statements of most limited companies to be audited. What are the statutory exemptions?
- Small companies
- Some charities
- Dormant companies
What criteria do companies need to meet in order to have an audit exemption under CA 2006?
- Balance sheet total of no more than £5.1 m
- Revenue of no more than £10.2m
- They don’t have more than 50 employees
What types of companies will never be exempt from audit?
- A public company (unless dormant)
- Banks
- E-money issuer
- Insurance company
- MiFID investment firm or an UCITS management company
- A corporate body whose shares have been admitted to trading on a regulated market
- A public sector entity
Exemption criteria for charities?
Different in Scotland and England & Wales.
Scotland: An audit is required when gross income is £500000 or more, gross assets are over £3.26m. The audit is required by charity’s constitution or due to trustee or donor preference.
Independent examination required where audit has not been received.
England & Wales: Gross income over £1m or gross assets are over £3.26m and gross income over £250,000.
Independent examination required unless gross income is under £25,000.
What is a dormant company?
A dormant company is one that has had no significant accounting transactions during the period.
What is shareholder veto?
Members, individually or in aggregate, who hold more than 10% of the company’s shares can veto the audit exemption, provided they do so no later than one month before the end of the financial year in question
What are the filing requirements for Audit exemption companies?
- A statement that the shareholders have not required an audit using shareholder veto
- A statement that the company is entitled to the audit exemption
- An acknowledgement of the directors responsibilities to maintain proper accounting records and to prepare accounts which give a true and fair view
- A statement that the accounts have been prepared following the special provisions of the CA 2006 for small companies.
What are the two areas an auditor must express an opinion on?
- As to whether or not the financial statements give a true and fair view in accordance with the relevant financial reporting framework and the CA act 2006.
- Consistency of the strategic report and the directors report with the financial statements and whether they have been prepared in accordance with applicable legal requirements
What is the expectation gap and how can it be managed?
Expectation gap is the difference between the understanding that the public has about the auditor’s responsibilities and the actual defined responsibilities of the auditor.
Can be managed by an explanation of the auditors and directors responsibilities in the audit report.
What is the path to becoming a statutory auditor?
Step 1. Qualified
Step 2. Supervised
Step 4. Registered
- CA 2006 refers to persons eligible for appointment as statutory auditors but they are also referred to as registered auditors.
To become appropriately qualified with one of the recognised qualifying bodies (RQB), what are they?
- ACCA
- AIA
- ICAEW
- CAI
- ICAS
What are the three requirements to achieve an appropriately qualified status?
- Entry requirements
- Practical experience
- Examinations
What are the four RSBs that an appropriately qualified accountant must become a member of if they want to obtain statutory auditor status?
- ACCA
- ICAEW
- CAI
- ICAS
How can someone obtain a practicing certificate?
Certificate gets renewed annually for a fee.
- The member must also have completed 2 years post qualifying experience.
- Are able to confirm compliance with the continuing professional development byelaws to the regulation
- Have professional indemnity insurance.
How to be entitled to sign audit reports?
- Hold audit qualification
- Fit and proper persons
- Hold a practicing certificate
- Are a member of a registered audit firm
- Have adequate professional indemnity insurance
