P7. External audit Flashcards
Which companies can qualify as exempt from audit? (3)
Micro/small companies
Subsidiary companies
Dormant companies
What is the primary function and objective of the auditor?
Obtain reasonable assurance that the FS are free from material misstatement (whether fraud or error), issuing a report to the company’s members including the auditors opinion in this regard
Other than accounts, what do auditors report on for quoted companies? (2)
Auditable parts of remuneration report
Corporate governance statement (consistency with accounts)
Does an audit contain any assessment of the future viability of a company or any judgement on efficiency or effectiveness of management?
No
Which documents is an auditor entitled to access?
Books, accounts and records (and of subsidiaries)
Auditors and general meetings…
Entitled to receive all notices and comms, and attend and speak at
The auditor cannot be…
An officer, partner or employee of the company, or any associated undertaking - a partner or employee of such a person - or a partnership of which such a person is a partner
Argument against allowing audit firms to provide non-audit services
Auditor independence will inevitably be compromised by self-interest, self-review, being in an advocacy position, over-familiarity or intimidation
Regarding which companies are audit firms prohibited from providing certain non-audit services
PIEs (public interest entities)
What is the restriction on fees payable by a PIE to their audit firm for non-audit services?
70% of average audit fees of previous 3 consecutive financial years
5 services which auditors cannot provide to PIEs
Tax services
Payroll services
Valuation services
Bookkeeping and preparing FS
Playing a role in decision-making
What is the period for appointing auditors in first audited financial year?
Before the end of the period allowed for sending accounts to members, or before the date the accounts were sent to members (if this was earlier)
What is the period for appointing auditors after first audited financial year?
Within 28 days commencing on the deadline for sending accounts to members, or within 28 days of the date the accounts were sent to members (if earlier)
(PRIVATE CO) Who typically makes initial auditor appointment?
Directors
(PRIVATE CO) Who, and how often, confirm the appointment of auditors?
Members, annually
What if auditors have not been appointed?
Company gives notice to Secretary of State (within 7 days of expiry of period allowed), and SoS will appoint to fill vacancy
(PRIVATE CO) If not auditor has been appointed by end of next period allowed , who is deemed to have bene reappointed?
Previous auditors
(PRIVATE CO) When is it not possible for previous auditors to be deemed to have been reappointed? (5)
Appointment was by directors
Articles require actual reappointment
Deemed reappointment is prevented by members
Resolution to reappoint auditors is lost
Directors have resolved that no auditor should be appointed
(PRIVATE CO) When can members prevent deemed reappointment?
If members with more than 5% voting rights give notice to the company to that effect
(PUBLIC CO) Before which meeting, and by who, are the auditors appointed in first financial year?
Meeting at which accounts are laid, usually by directors
(PUBLIC CO) When must auditors be appointed for subsequent years?
At the conclusion of the meeting at which the accounts for previous year are laid before members
Does the appointment of an auditor of a public co automatically renew? (deemed reappointment)
No
Criteria for being a PIE (1 of 3)
Issuer with any transferable securities admitted to trading on regulated market
Credit institution
Insurance undertaking
Restrictions on continuous audit of a PIE
Max 20 year term
Tender for provision must be done at least once every 10 years
How many audit firms (with a reasonable chance of being appointed) must tender for PIE be extended to?
At least 2
What is the cooling off period after auditing PIE for 20 years? (before then being able to audit same co)
4 years
How long can a single audit partner be responsible for audit of a PIE?
7 years
What is the cooling off period for single audit partner after auditing PIE for 7 years? (before then being able to audit same co)
3 years
When a partnership is appointed as an auditor, is the partnership deemed to have been appointed, or the individual partner?
The partnership
If a partnership which has been appointed ceases, the appointment is treated as having been extended to…
Any person who previously carried it on at that partnership
or
Any eligible partnership that has succeeded that partnership
When is a partnership considered to have ceased in England, Wales or NI? Why do the same rules not apply in Scotland?
On dissolution, or when there is a change in partners
In Scotland, partnerships constitute legal persons
Generally, can companies provide some form of liability limitation to their auditors?
No
What is the UK’s ‘competent authority’ re. auditors? (regulatory body)
The FRC
What is the APB?
Audit Practices Board
After how many years, does the APB recommend that association with the same client is given more careful consideration?
10 years
What is the APBs recommendation on the length of time an audit partner should be responsible for carrying out the audit of one PIE?
5 years maximum, then 5 years off
How might an auditors appointment be terminated? (4)
Resignation
Removal by members
Removal on application to court
By not being re-appointed
How does an auditor resign?
By giving notice to the company, confirming the date of effect
What must accompany a notice of resignation from an auditor regarding a PIE?
A statement setting out reasons, and any matters that they wish to be brought to attention of members or creditors
Rights of auditors being removed or not reappointed (2)
Can make representations in writing to the company, asking for these to be circulated to the shareholders
Can attend and speak at the GM at which the resolution for the removal or non-reappointment is being considered
If an auditor send a statement explaining reasons for resignation, the company must…
Send a copy to every person entitled within 14 days of receipt, or apply to court for an order that it need not do so
To who else (other than co) must an auditor send the statement explaining reasons for resignation to?
The appropriate audit authority
Who are the ‘appropriate audit authorities’?
Either
Auditor’s recognised supervisory body
or
FRC (if company is a PIE)
In what cases is an auditor of a private co not required to send statement setting out reasons upon resignation?
If at end of period for appointing auditors
If all reasons are exempt/do not need to be brought to attention of members/creditors
Additional duties of auditors (3)
Form an opinion as to whether…
Adequate accounting records have been maintained
Accounts are consistent with accounting records
(Quoted co’s) Auditable part of directors’ remuneration report is consistent with accounting records
What if the auditor cannot fulfil their additional duties?
They must state in their report what they cannot confirm and/or which info was missing
Auditor’s report must state whether the accounts (3)
Have been prepared in accordance with relevant framework
Have been prepared in accrodance with requirements of Act and IAS Regulations (if relevant)
Have given a true and fair view of the balance sheet, p/l account, any group accounts
What must auditor’s report say on CG statement? (if there is one) (3)
Whether the information given is consistent with accounts and prepared in accordance with legal requirements
Whether any material misstatements have bene identified, and the nature of each
Whether, DTR has been complies with
What is DTR?
The FCA’s Disclosure Guidance and Transparency Rules
Article 11 of the Audit Regulation introduced which new requirement for auditors of a PIE?
Provide a detailed audit committee report
