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Audit > Potentials > Flashcards

Potentials Flashcards

1
Q

CMA Statutory Audit Review exists to …

A
  1. Lack of competition
  2. Risk of audit failures (eg Carillion)
  3. Conflicts of interest
  4. Market concentration
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2
Q

CMA statutory audit review

A
  1. Mandatory joint audits
  2. Operational Separation
  3. Shareholder oversight
  4. Regulatory oversight
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3
Q

Use of experts

A

Auditor expert: possessing expertise in a field other than accounting or auditing, whose work in the field is used by the auditor to assist the auditor in obtaining sufficient appropriate evidence
Management expert: an individual or organization possessing expertise in a field other than accounting, whose work in that field is used by the entity to assist the entity
(WHO FROM BOARD)

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4
Q

Asserting competence of experts

A
  • Personal experience
  • Discussions
  • Discuss with others
  • Professional qualifications
  • Publications
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5
Q

Determining suitability of expert

A
  • Technical knowledge and specializations
  • Geographic locations
  • Experience
  • Reputation
  • Past reliability
  • Resources
  • Independence
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6
Q

Key areas of corporate governance

A
  • Leadership
  • Effectiveness
  • Accountability
  • Remuneration
  • Relation with shareholders
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7
Q

Issues with corporate governance

A
  • dominant individuals (Sebastian and Robert)
  • companies run in the interest of executive directors - high remuneration and share options
  • ineffective internal controls
  • inadequate risk management
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8
Q

Characteristics of non-executive directors

A
  • understand underlying business
  • relevant financial experience
  • Articulate and take robust stand
  • independent
  • non-executive directors should be independent of the company
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9
Q

Briefly explain audit committees

A
  • at least 3 independent non-executive directors
  • one member has recent and relevant financial experience
  • competencies relevant to sector
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10
Q

what are the role and responsibilities of audit committees

A
  • Integrity of financial statements
  • Internal financial controls and risk management reforms
  • Internal audit
  • Appointment, reappointment and removal of external auditors
  • non - audit services
  • whistleblowing arrangements
  • report to the board
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11
Q

Limitation of scope audit reports

A

Except for (qualified)
- True an fair view apart from insufficient information in an area
- examples include individual books or records being destroyed
- insufficient evidence in a particular area of audit

Disclaimer
- where the auditor is unable to form an opinion on the whole accounts because there is a lack of information

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12
Q

Emphasis of matter paragraph

A
  • not strictly a qualification
  • matters to be brought to the readers attention by auditors
  • other matters
  • to help clarify audit/ auditor resposinsibilities
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13
Q

Auditor requirements

A
  • perform audit procedures to gain appropriate sufficient evidence
  • identify adjustments needed/ appropriate reflection in FS
  • new audit report if issues are amended by managers
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14
Q

Why commit fraud?

A
  • opportunity
  • pressure
  • rationalization
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15
Q

Auditor’s responsibility fot fraud risk management

A

Auditors are responsible for assessing the risk of fraud
- maintain an attitude of professional scepticism
- obtain an understanding of the business
- assess the integrity of directors
- hold discussions with the audit clients
—- Directors
—- Others with relevant responsibilities
—- staff at lower levels
- perform analytical review at planning and completion stages of audit

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16
Q

If an auditor suspects or detects fraud…

A
  • obtain further evidence
  • inform management (unless it involves management)
    -consider impact on financial statements and audit
  • seek legal advice
  • determine impact on audit report
  • disclosure to 3rd parties
17
Q

Expectations Gap

A
  • auditor obtains reasonable not absolute assurance
  • issues opinion not fact
  • reasonableness gap: what can auditors reasonably accomplish
  • deficient standards gap (failure of framework)
  • deficient performance gap (standards of performance met but duties not understood
18
Q

Auditor Liability

A
  • knowingly or recklessly include misleading, false or deceptive matters in an audit report
  • engage in other offences eg money laundering, insider dealing etc
  • Auditors may be liable under case law where they owe a duty of care
    — negligence must be proved
    — pecuniary loss must be suffered
    — casual link between negligence and loss
    — knew or ought to have known reliance was being placed in the statement
19
Q

Auditor negligence

A
  • not apply up to date accounting
  • doesn’t adhere to standards of ethical behavior
  • not aware of terms and conditions of appointment
  • employ incompetent staff
  • lack professional scepticism
20
Q

KPMG quality control framework

A

Tone at the top (flowchart):
- timely review
- the right clients
- code of conducts and ethical standards
- performance of quality complicit in audits

21
Q

Audit timings (audit strategy)

A

adopt a hard close control based audit

interim audit (8-9 months through)
- internal risk assessment (internal controls)

A hard close audit (10-11 months through)
- substantive audit work necessary to obtain reasonable assurance of transactions

Final Audit (1 month after)
- substantive test of work since hard close audit

Statutory accounts (1-2 months after)
- review the final financial statements
- including disclosures required
- Issue audit opinion

22
Q

Audit Technology

A

Audit (2 decks)

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