Professional Standards - Chapter 2 Flashcards
professional standards are…
a matter of public interest & add to quality of assurance services
audit regulation promotes…
comparability of FSs & ensures all are audited to the same standard
what do all assurance engagements consider?
- ethics
- risk assessment
- terms of engagement
- ISQMs
ISQMs?
international standards on quality management
who governs audits?
companies act 2006 and ISAs
who supervises accountancy related issues & issues auditing standards in the UK?
the FRC
financial reporting council
FRC?
financial reporting council
board made up of several committees, supervising accountancy related issues and issuing auditing standards in the UK
FRC board composition?
made up of several committees
- people committee
- audit & risk committee
- conduct committee
- supervision committee
- regulatory standards & codes committee
what do each committee in the FRC do?
- 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
what does the FRC do with ISAs?
FRC amends ISAs and makes them more UK specific making them ISAs (UK)
the FRC issue…
ethical standard and ISAs (UK)
- bulletins
- practice notes
- audit quality
- standards for reviews of FS
current issues in audit?
- harmonisation
- big data
- future of audit
- joint audits
- technological advances
- climate change & sustainability
harmonisation?
aligning global standards so companies are audited in a comparable way
new EU rules for audits to aid harmonisation?
- 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
big data?
large & complex datasets
how are auditors responding to big data?
increased use of technology in audits (CAATs)
IAASB has recognised the disruptive nature of tech in audit
future of audit refers to…
the various reviews suggesting amendments to audit in the UK including:
- kingman review
- brydon report
- competition and market authority (CMA) review
joint audits?
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
kingman review suggestions?
- 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
ARGA = ?
audit, reporting and governance authority
CMA review suggestions?
- 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
brydon report suggestions?
- 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
are large companies seen as PIEs?
yes
companies with at least 750 employees and 750 million turnover
FRC’s review on on climate change?
- 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
ISSB?
international sustainability standards board
govern entities’ disclosures regarding sustainability standards
technological advances in audit?
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
FRC’s findings regarding review of auditor responses to climate change?
- 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
