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BUS273 - Audit & Assurance Services > QB Notes - Regulations, Ethics, Current Issues & Managing/Accepting Engagements SFQs > Flashcards

QB Notes - Regulations, Ethics, Current Issues & Managing/Accepting Engagements SFQs Flashcards

1
Q

safeguards for familiarity?

A

reassess the composition of the safeguards

rotate partners

sell shares

remove from engagement

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2
Q

who’s responsible for preventing fraud?

A

management are responsible for detecting fraud amongst their employees

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3
Q

why is fraud hard to detect?

A

deliberate attempt to conceal

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4
Q

auditor’s primary role in an audit?

A

to ensure FSs are free from material misstatement

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5
Q

how do management handle fraud?

A

implement controls to ensure prevention

create a culture that inspires ethical behaviour

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6
Q

who’s responsible for calculating a company’s valuation?

A

management

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7
Q

what are the procedures when money laundering is suspected?

A

contact MLRO (money laundering reporting officer)

MLRO will then contact the NCA (national crime agency)

contact ethics partner

do not tip off the client

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8
Q

fees threshold for listed & non listed companies?

A

listed companies - 5% review safeguards, 10% decline engagement

non-listed companies - 10% review safeguards, 15% decline engagement

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9
Q

what happens to the engagement partner’s tenure when a client goes public?

A

if they’ve been the partner for >4 years, 2 years max before they must rotate

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10
Q

how long until engagement partners must be rotated for listed clients?

A

5 years max, sometimes extended to 7 by the audit committee

reasons must be documented if the engagement partner continues to TCWG

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11
Q

5 codes of ethics for auditors and their meaning?

A

integrity - be truthful and honest

objectivity - stay unbiased

pro behaviour - comply with laws & regs

pro competence & due care - maintain skills & act diligently

confidentiality - protect client information

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12
Q

hot review?

A

review conducted before the audit report is finalised

typically conducted by an experienced audit partner who isn’t involved in the engagement

focuses on the adequacy of audit evidence, compliance w/ standards, accuracy of judgements, ensuring risks were addressed etc

helps ensure that errors or deficiencies are handled before the audit report is finalised and published

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13
Q

cold review?

A

a review conducted after the engagement has finished and the audit report is published

used to assess the quality of the audit work that was conducted to identify areas of improvement

usually carried out by quality control team or independent partner

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14
Q

staff appraisals?
why/when are they needed?

A

meetings with a member of staff

needed when a junior member’s work/performance requires evaluation

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15
Q

responsibilities/rights of an auditor once removed by their client?

A

rights = to make written reps to & request directors to circulate this to members/shareholders, to speak at meetings, to know reasons why

responsibility = to return all books/docs, prepare statement of circumstances, maintain confidentiality

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16
Q

how often must audit partners be rotated for listed/non listed clients?

A

5 years for listed & cooling off period for 2 years before re-engaging

10 years for non listed (not mandatory)

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17
Q

why do management require a background check prior to engagement acceptance?

A

to ascertain management integrity

understand risk of harmful behaviour (e.g., intimidation, limitation of information, overdue fees risk, fraudulent/criminal activity)

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18
Q

when are business relationships allowed?

A
  • ordinary course of business
  • arms length transaction
  • immaterial for both parties
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19
Q

can audit staff be involved in preparation of client’s FSs?

A

no, management threat

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20
Q

safeguards when providing audit & non-audit services to a client?

A

separate engagement teams

non-disclosure agreements or confidentiality agreements

separate team locations/offices if possible

ethics partner to review effectiveness of safeguards

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21
Q

can auditors provide non-audit services to listed/non-listed clients?

A

listed clients - prohibited, cannot provided non-audit services

non-listed clients - not prohibited, can provide non-audit services

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22
Q

brydon’s report suggestions?

A

redefine audit’s purpose

increase use of technology

replace true & fair, with present fairly in all material aspects

fraud awareness training for auditors

resilience & public interest statements

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23
Q

in short, what were the suggestions by brydon, kingman and the CMA?

A

brydon - focus on audit quality
kingman - focus on audit regulation
CMA - focus on audit market

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24
Q

kingman’s review suggestions?

A

regulate big firms

require rapid explanations

larger sanctions for corporate failures

issue public reports detailing audit firms’ performance

25
Q

CMA review suggestions?

A

mandatory joint audits

5 year progress review by the regulator

operational split between audit and non-audit parts of big 4 firms

robust regulatory oversight committee to ensure quality

26
Q

CMA = ?

A

competition and market authority

27
Q

criticisms of audit in recent times?

A

lack of auditor independence

lack of audit quality

lack of separation between big 4’s audit & non-audit businesses

lack of pro scepticism

non-audit services being provided to clients

big 4 dominance/lack of competition

28
Q

who wanted to introduce ARGA?

A

kingman

they want to really clamp down on the regulation of big 4 firms after a host of large-scale corporate failures in recent times (e.g., BHS, carillon etc)

29
Q

what money laundering procedures can audit firms implement?

A

hire an MLRO

hire an MLCP

register w/ supervisory body

monitor compliance w/ laws & regs

train staff to not tip off clients and report money laundering

30
Q

how can audit firms prevent self-interest from ownership of client shares amongst the engagement team?

A

firm writes up an up-to-date list of clients

get written confirmations from employees

regular training

disciplinary action for breaches

remove staff from engagements

ensure disclosure upon hiring

31
Q

who wants to extend auditing beyond the scope of the FSs and into internal controls also?

A

brydon

32
Q

what must be done when auditors are removed by client from an engagement?

A

auditors should circulate written reps to TCWG/members

auditors have right to speak at general meetings

auditors must remain confidential

must obtain permission to speak to new auditors

must maintain confidentiality

must return books/docs

must prepare statement of circumstances to companies’ house

33
Q

fraud prevention is who’s duty?

A

management/directors

by promoting fraud prevention, implementing adequate controls and monitoring the system

34
Q

how must suspected bribery be handled?

A

bribery’s a criminal act under bribery act 2010 which is global in scope

must be reporting to NCA

35
Q

how does the acceptance of non-audit work impair audit quality?

A

remuneration can’t be based on selling non-audit services

objectives of engagement team cant be selling non-audit services

impairs objectivity (self-interest threat)

criteria for staff evaluation can’t be selling of non-audit services

36
Q

what is opinion shopping and why is it bad?

A

opinion shopping is when a company goes from auditor to auditor in pursuit of a clean/unqualified opinion

indicates a lack of management integrity

gives rise to self interest threat amongst auditors trying to secure the client

threat to auditors’ professional behaviour

37
Q

what must be stated in an other assurance engagement letter?

specifically engagement for a review of cash flow forecasts

A

to whom the review will be available

period covered & scope of work

disclaimer that forecast may differ to actual outcomes

ensure correct FR framework

state director’s responsibilities

establish limited auditor liability

state intended use of cash

38
Q

how must junior auditors be handled by senior auditors?

A

brief juniors on client and industry

hold meetings to facilitate questions

provide feedback

monitor their work to ensure alignment with audit plan

address contentious matters

introduce audit team to the client

39
Q

auditors must renew engagement covenants when…

A

client shows confusion/misinterpretation

change in ownership, size or senior management

change in laws/regs or professional standards

change in engagement partner

40
Q

engagement quality reviewer must be…

A

independent

experienced with the specific clients in the specific industry

must be qualified and competent with audit experience

must have communicative access to all parties

41
Q

how to gain an understanding of new/prospective clients?

A

internet searches

undertake client identification procedures

inspect prior year audit report

hold discussions w/ directors

search relevant databases e.g., companies house

obtain references from 3rd parties

42
Q

what factors play a role in audit fees?

A

seniority/experience of staff

risk associated w/ the work

inherent risk involved in the client/their industry

complexity of their operations

importance of work to client

travelling expenses involved

resources required

whether auditor’s expert is required

extent to which internal audit team can be relied upon

expenses involved

43
Q

distinctive factors of other assurance engagements?

A

limited assurance

negatively expressed opinion

engagement conducted in accordance with ISAE’s and ISREs

44
Q

lack of management integrity indicates…

A

potential window dressing / aggressive accounting practices

poor control environment

restriction of access to necessary info (intimidation)

unreliable management operations

money laundering / criminal activity possibility

45
Q

is EQR only for listed/high risk clients?

A

yes

AKA hot review

conducted during the engagement / before the audit report is finalised

46
Q

EQR involves…

A

discuss significant matters w/ engagement partner

review proposed auditor’s report

evaluation of proposed auditor’s report

47
Q

cold review purpose?

A

ensures compliance with standards & regs (e.g., ethical standard, ISAs etc)

identify areas requiring improvements

48
Q

which ISA requires engagement letters?

A

ISA (UK) 210

49
Q

purpose of engagement letters?

A

indicate auditor and management responsibilities

to avoid confusion and expectations gap

50
Q

emphasis of matter paragraphs?
other matter paragraphs?

A

EOM = area of the FS that auditors want users to pay attention to & place emphasis on

OM = area that is relevant to users but not directly related to the FS

51
Q

risks associated with clients expanding their operations overseas?

A
  • accurate translation of currency
  • language barrier
  • adequate resources
  • adequate management
  • appropriate controls
52
Q

difference between audits and other assurance engagements?

A
  • level of assurance (reasonable vs limited)
  • type of opinion (positive vs negative)
  • reasonable = high, but not absolute assurance
  • limited = reduce risk to an acceptable level
  • ‘FS provide true & fair view’ vs ‘no reason to disbelieve’ = less bullish
53
Q

risks of taking on a new client?

A
  • inherent risk
  • lacking intimate knowledge of their systems
  • lacking certainty over their opening balances
54
Q

risks when client is in a niche industry?

A
  • threat to pro competence & due care
  • may require auditor’s expert
  • need to know laws & regs of the industry
  • higher risk of non-compliance
  • industry may be heavily regulated
  • increases client risk
  • may deter us from accepting the engagement
55
Q

do external audits include auditing subsequent events?

A

yes

56
Q

threats arising from auditing a client for numerous years?

A

familiarity threat

57
Q

how do auditors reduce risk when providing a review for financial info?

A
  • provide disclosures to reduce liability
58
Q

why is management integrity important?

A

lack of integrity may indicate
- aggressive accounting policies
- fraud
- dishonesty
- windowdressing
- concealing information
- intimidation
- overdue fees

59
Q

how do you gauge management integrity?

A
  • internet searches
  • interview w/ management
  • contact 3rd parties
  • contact previous auditor (upon client permission)
  • search companies’ house

BUS273 - Audit & Assurance Services (12 decks)

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