Professional Standards - Chapter 2

Question 1

professional standards are…

Answer 1

a matter of public interest & add to quality of assurance services

Question 2

audit regulation promotes…

Answer 2

comparability of FSs & ensures all are audited to the same standard

Question 3

what do all assurance engagements consider?

Answer 3

• ethics
• risk assessment
• terms of engagement
• ISQMs

Question 4

ISQMs?

Answer 4

international standards on quality management

Question 5

who governs audits?

Answer 5

companies act 2006 and ISAs

Question 6

who supervises accountancy related issues & issues auditing standards in the UK?

Answer 6

the FRC

financial reporting council

Question 7

FRC?

Answer 7

financial reporting council

board made up of several committees, supervising accountancy related issues and issuing auditing standards in the UK

Question 8

FRC board composition?

Answer 8

made up of several committees

• people committee
• audit & risk committee
• conduct committee
• supervision committee
• regulatory standards & codes committee

Question 9

what do each committee in the FRC do?

Answer 9

• people committee are like HR
• audit & risk committee oversee financial reporting in the UK
• conduct committee monitor poor conduct
• supervision committee promote standards
• regulatory standards & codes committee set standards

Question 10

what does the FRC do with ISAs?

Answer 10

FRC amends ISAs and makes them more UK specific making them ISAs (UK)

Question 11

the FRC issue…

Answer 11

ethical standard and ISAs (UK)

• bulletins
• practice notes
• audit quality
• standards for reviews of FS

Question 12

current issues in audit?

Answer 12

• harmonisation
• big data
• future of audit
• joint audits
• technological advances
• climate change & sustainability

Question 13

harmonisation?

Answer 13

aligning global standards so companies are audited in a comparable way

Question 14

new EU rules for audits to aid harmonisation?

Answer 14

• re-tendering for audits every 10 years
• mandatory change of audit firm every 20 years
• ban on providing non-audit services
• cap on fees for non-audit services

Question 15

big data?

Answer 15

large & complex datasets

Question 16

how are auditors responding to big data?

Answer 16

increased use of technology in audits (CAATs)

IAASB has recognised the disruptive nature of tech in audit

Question 17

future of audit refers to…

Answer 17

the various reviews suggesting amendments to audit in the UK including:
- kingman review
- brydon report
- competition and market authority (CMA) review

Question 18

joint audits?

Answer 18

two firms coming together to audit a single client

making them jointly liable and probably increasing audit fees for the client

CMA introduced this to improve competition in audit market & benefit smaller firms

Question 19

kingman review suggestions?

Answer 19

• bigger sanctions for firms when there’s corporate failures
• issue report publications regarding conduct of audit firms
• regulate big firms more
• abolish FRC & introduce ARGA

Question 20

ARGA = ?

Answer 20

audit, reporting and governance authority

Question 21

CMA review suggestions?

Answer 21

• mandatory joint audits
• split between big 4’s audit & non-audit operations
• 5-year progress review by regulator
• robust regulatory oversight of committees to ensure quality

Question 22

brydon report suggestions?

Answer 22

• redefine audit’s purpose
• replace true & fair w/ present fairly in all material aspects
• resilience & public interest statements
• increased use of tech
• extend audit concepts beyond FSs
• fraud awareness training for auditors
• create audit report more for public, not just shareholders

Question 23

are large companies seen as PIEs?

Answer 23

yes

companies with at least 750 employees and 750 million turnover

Question 24

FRC’s review on on climate change?

Answer 24

• little evidence of business models integrating climate considerations
• users requesting additional climate-related disclosures
• firms need to take action to ensure climate change is factored into its internal
  quality monitoring processes
• climate related rissk need to be considered when planning/conducting audits

Question 25

ISSB?

Answer 25

international sustainability standards board

govern entities’ disclosures regarding sustainability standards

Question 26

technological advances in audit?

Answer 26

RPA, AI & Blockchain

include robotic process automation (RPA) software used to interpret existing applications with aims to automate activities across systems

includes artificial intelligence (AI) to complete tasks which we consider to be intelligent in humans

includes blockchain, a digital set of records where individual items are linked in a public database stored across multiple computers and made public

Question 27

FRC’s findings regarding review of auditor responses to climate change?

Answer 27

• little evidence of businesses considering climate change in their business models
• users are requesting additional climate-change disclosures
• firms need to ensure climate change is factored into its internal controls
• climate related risks need to be further considered when planning audits