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BPP PAR > Module 9 > Flashcards

Module 9 Flashcards

1
Q

Audit must ensure they do what to fulfil their responsibilities?

A

Adequately plan
Obtain sufficient appropriate evidence
Report findings and opinion

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2
Q

Auditors rights

A

To receive information

  • access
  • explanations

Resolutions and meetings

  • written resolution
  • AGM
  • heard
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3
Q

Matters to be reported by exception?

A 
Returns received 
Accounts agree
Proper records kept
Information and explanations received 
Directors emoluments and disclosures complete
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4
Q

CA 2006 makes it an offence to

A

Knowingly or recklessly give a misleading false or deceptive statement

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5
Q

Auditor appointment

A 
Passing of ordinary resolutions (50% + shareholder via vote) 
Directors allowed:
- before 1st period
- fill causal vacancy 
- previous exemption
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6
Q

Public vs private companies appointment?

A

Public - at each AGM

Private- automatically unless 5% shareholders object

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7
Q

Auditor remuneration fixed by

A

Whoever makes the appointment

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8
Q

Auditor removal during terms of office

A

Can be at any time, rights:
Copy of motion
Written statement
Attend AGM in year

Failure to reappoint- right to written representation

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9
Q

Auditor resignation

A

Letter of resignation

If PIE statement of circumstances, may request a general meeting

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10
Q

Statement of circumstances must either:

A

Asset no connected circumstances

Or disclose them

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11
Q

Statement must also be sent to

A

Appropriate audit authority
PIE = FRC
RSB otherwise

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12
Q

What is money laundering?

A

Involves possessing, concealing or dealing with the proceeds of any crime

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13
Q

Legal guidance of money laundering is in?

A

POCA 2002 proceeds of crime act
ML regs 2017
SOCPA 2005

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14
Q

Client may conduct money laundering by?

A

Knowingly or actively

Inadvertently

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15
Q

Principal offences of the proceeds of crime act 2002 POCA 2002

A

Concealing or transferring the proceeds
Arrangements to facilitate the acquisition, retention use of control
Acquiring, using or possessing criminal property

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16
Q

Common law cases

A

Kingston- auditor negligence
AWA - duty of care to clients
Caparo - fury of care to 3rd parties and shareholders
RBS- 3rd parties doc

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17
Q

What are the regulated sectors?

A 
Auditors, external accountants and tax advisors 
Credit institutions 
Financial institutions
Independent legal professionals
Trust or company service professionals
Estate agents
High value dealers
Casinos
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18
Q

Potential additional offences for those in the regulated sector under the POCA include?

A

Failure to report

Tipping off

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19
Q

POCA requires disclosures to be made internally to?

A

A nominated officer

Money laundering reporting officer in an audit firm

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20
Q

It is an offence under the POCA for an individual in a regulated sector to fail to report to the NCA, the MLRO or equivalent in a timely fashion where:

A

a) knew or has reasonable grounds to know or suspect that someone is engaged in money laundering
AND
b) either the individual can identify the person or whereabouts of property OR believes the info they provide will identify them
c) the information has come through the normal course of business

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21
Q

By making a disclosure, the individual has discharged their responsibility, the passes to the

A

MLRO who should investigate

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22
Q

An MLRO or equivalent commits and offence where they fail to report back to the NCA where

A

a) knew or has reasonable grounds to know or suspect that someone is engaged in money laundering
AND
b) either the individual can identify the person or whereabouts of property OR believes the info they provide will identify them
c) the information has come from individual reporting to them

23
Q

The POCA contains no de minimis provisions, this means that

A

All suspicions that fall under the requirements must be reported

24
Q

What is tipping off?

A

Offence to tip off someone who has been reported for a known or suspected money laundering

May prejudice any investigation that is conducted

25
Q

Tipping off arises when an individual discloses information which was received in their ordinary course of business including:

A

That a report has already been made

An investigation is being contemplated or is being carried out to determine whether a report has to be made

26
Q

Tipping off and failure to report sentences

A

Imprisonment, fine or both

Failure to report - up to 5 years prison
Tipping off - max 2 years

27
Q

What do the ML Regulations require?

A

Everyone who carries on a relevant financial business in a regulated sector to establish and maintain specific policies and procedures to guard against their services being used for money laundering

28
Q

What are the key areas that the ML regulations cover?

A
  1. Risk assessment and controls
  2. Customer due diligence
  3. Supervision and registration
29
Q

Risk assessment and controls of the ML regs include

A

Risk assessment
Policies, controls and procedures- kept in writing
Internal controls- individual appointed for compliance
Training- to identify instances and understand how policies affect their work

30
Q

What is customer due diligence in ML regs?

A 
All firms must seek satisfactory evidence to identify and verify clients, includes:
Directors (passport/driving license)
Company itself (Companies house)
Beneficial owners (25% or more of voting rights, or who can exercise control) (passport/dl)
31
Q

What approach should be taken to due diligence?

A

Risk based approach, more evidence where high degree of risk

32
Q

How long must records of client identification procedures be kept

A

5 years
Include any transaction made by a firm on behalf of client
MUST be deleted 5 years after completion of relationship

33
Q

The auditor must be careful that in gathering evidence they don’t tip off any who are on suspicion. ISA (UK) 250 Section A highlights what circumstance where auditor must be cautious not to tip off a client?

A 
Instances of non-compliance
Communication with those charges with governance 
Resigning unexpectedly 
Issuing modified audit report 
Delaying the audit report
34
Q

Accountants working outside the regulated sector obligations for money laundering?

A

Currently no obligation to make a money laundering report
Unless it relates to terrorism
Doesn’t preclude from criminal law - ethical

35
Q

What is common law?

A

The systems of law based on decisions made by judges in court

Based on concept of judicial precedent - decision made by court is binding on other courts

36
Q

What is the condor rot negligence?

A

Occurs in situations where a party suffers loss or damage as a consequence of another party’s carelessness

37
Q

An auditor will be liable to pay compensation if?

A

Auditor owed a duty of care
Audit was negligently performed
Claimant suffered a quantifiable, reasonably foreseeable loss because of auditors negligence

38
Q

What is the Re Kingston Cotton Mill Co (1896) case?

A

Exaggerated stock quantities and value to overstate profits
- auditor didn’t attend stock count
In 1896 there was no requirement under law to attend stock count so not negligent

ISA 501 now requires attendance if stock is a risky and or material balance

39
Q

What is the definition of duty of care?

A

A legal obligation imposed on auditors requiring them to exercise a reasonable standard of care whilst performing any acts that could foreseeably harm others

40
Q

The courts will only make an award of damages in relation to a negligence claim if

A

It can be proved that the auditor did owe a duty of care

41
Q

There is potential for duty of care to exist in what three groups?

A

Audit clients
Shareholders
Third parties

42
Q

What was the AWA limited v Daniels case (1992)

A

Duty of care to audit clients
AWA managers concealed losses
Sued auditor for failing to draw attention

Had a duty of care through the engagement letter
But the directors had a legal responsibility to safeguard assets

Found to be jointly liable
Auditor payed reduced damages

43
Q

What was the caparo industries v dickman case (1990)?

A

Duty of care to 3rd parties:
Caparo relied on audited accounts of Fidelity in takeover, profit should have been a loss
Alleged auditors negligent
Was foreseeable but no close and direct relationship

Principle of proximity

Duty of care to shareholders:
Owed to body as a whole
No duty of care to shareholders acting as an individual

44
Q

What are the three conditions that must be met to establish duty of care?

A

Loss would have to be reasonably foreseeable
Need to be close and direct relationship
Imposition would have too be fair, reasonable and just

45
Q

What is the principle of proximity?

A

Restrict duty of care to third parties to those individuals with whom the auditor has a close and direct relationship

46
Q

What was the RBS v Bannerman (2002) case?

A

Duty of care to third parties

RBS overdraft to APC
APC went into receivership, sued auditors for negligence

Auditor should have reviewed overdraft facility letter, RBS reliance on audit opinion

Did owe duty of care
Settlement

47
Q

Case that shows duty of care to shareholders?

A

Caparo

48
Q

Cases that show duty of care to third parties?

A

RBS

Caparo

49
Q

Duty of care to audit client case?

A

AWA vs Daniels

50
Q

Auditor negligence case?

A

Kingston cotton mill

51
Q

What are the three measures to prevent negligence?

A

Formalising the basis of the engagement contract
Identifying the risk profile of potential clients
Ensuring a sound audit approach followed
- train and supervise
- documentation standards
- review

52
Q

What is a liability limitation agreement?

A

Limits the amount of liability owed to a company by its auditor

53
Q

The CA 2006 imposes a number of requirements on the use of LLA

A

Only for a particular financial year
Must be authorised by shareholders
Details disclosed in annual accounts

Can be challenged in court
Can face charges over knowingly or reckless if giving an incorrect opinion - penalty unlimited fine

BPP PAR (20 decks)

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