Module 8 The requirement for audit

Question 1

Companies are entitled to audit exemption under Companies Act 2006 if they meet 2 out of 3 criteria, what are these?

Answer 1

Balance sheet total (Assets) of not more than £5.1 million
Turnover (revenue) of not more than £10.2 million
Not more than 50 employees

These rules are subject to a two-year rule (need to satisfy criteria for two years)

Question 2

What type of companies cannot be exempt from audits?

Answer 2

A public company unless dormant
A banking company
An e-money issuer
An insurance company
A MiFID investment firm or an UCITS management company
A corporate body whos share has been traded on a regulated market in a EU state
A public sector entity

Question 3

Charities for audit are based on different criteria, what are they?

Answer 3

England and Wales -

Gross income is over £1m
OR Gross Assets are over £3.26m AND gross income over £250,000
OR an audit is required by the charity’s consittue or due to trustee or donor preference

If no audit then an independent examination required unless gross income less than £25,000*

Scotland -
Gross income is £500,000 or more
OR Gross assets are over £3.26m
OR An audit is required by the charitys’ constitution or due to trustee or donor preference

If no audit then an independent examination required

Question 4

What is an independent examination?

Answer 4

A less onerous external review rather than an audit and provides limited rather than reasonable assurnace

Question 5

Can shareholders VETO the audit exemption rule?

Answer 5

Yes, members, individually or in aggregate who hold more than 10% can veto the audit exemption provided it is done so within one month before the end of the financial year in question.

Question 6

What is the primary purpose of an audit?

Answer 6

The primary purpose of an audit is to add credibility to the financial statements.

The audit must express an opinion as to whether or not the financial statements give a true and fair view in accordance with the relevant financial reporting framework and the Companies Act 2006.

Opinon is expressed to company shareholders

Question 7

What does the audit opinion true and fair view mean?

Answer 7

The commonly accepted view is that it means compliance with company law and applicable accounting standards

Question 8

What are the four personal qualities of an auditor?

Answer 8

Competence, Integrity, Ethics and Independence

Question 9

What are the five recognised qualifying bodies RQB?

Answer 9

ACCA - Association of Chartered Certified Accountants
AIA - Association of International Accountants
ICAEW - Institute of Chartered Accountants in England and Wales
CAI - Chartered Accountants Ireland
ICAS - Institute of Chartered Accountants of Scotland

Question 10

What are the four recognised supervisory bodies?

Answer 10

ACCA
ICAEW
CAI
ICAS

Question 11

What are the requirements for a practising certificate?

Answer 11

This need to be renewed every year with an annual fee

Have completed at least two years of post qualifying experience with a registered auditor

Are able to confirm compliance with continuing professional development byelaws

Have professional indemnity insurance

Question 12

What are the requirements to obtain Individual statutory auditor status?

Answer 12

This is applied to the authorisation committee (or equivalent) of RSB

Hold an audit qualification
Are "fit and proper persons"
Hold a practising certificate 
Are a member of a registered audit firm
Have adequate professional indemnity insurance