Responsibilities Flashcards
Responsibilities regarding fraud (management)
Primary responsibility for the prevention and detection of fraud rests w/ TCWG and mgmt
They can fulfil this by:
• demonstrating that mgmt can follow a culture of honesty and ethical behaviour and communicating that they expect all employees to adhere to this cuture
- establishing a sound system of int. cont.
- TCWG must ensure that mgmt implement policies and procedures to ensure, as far as possible, the orderly and efficient conduct of the company
Responsibilities regarding fraud (auditor)
Auditor must obtain reasonable assurance that the FSs are free from MM, caused by fraud/error
Auditors should carry out a discussion of the susceptibility of the entity’s FSs to fraud, including the following:
Where the company’s system is weak and how mgmt could perpetrate fraud
The circumstances that could indicate earnings mgmt which could lead to fraudulent financial reporting
The known int. and ext. factors that could be an incentive to fraud being carried out
Mgmt’s involvement in overseeing employees w/ access to cash or other assets that could be misappropriated
Any unusual or unexplained changes in behaviour/lifestyle of mgmt or employees
The need for professional scepticism
The type of circumstances that could lead to suspicions of fraud
How unpredictability will be incorporated into the way the audit is carried out
What audit procedures might be responsive to fraud
Any allegations of fraud that have been made
The risk of mgmt override of controls
Where fraud is suspected the auditor should…
Consider the implications of this for other aspects of the audit, particularly mgmt representations which may not be trustworthy
This may lead to a limitation in the scope of the audit
Mgmt and Auditor Responsibilities in terms of: Compliance with laws and regulations
Mgmt is responsible for ensuring that the company complies w L+Rs
Auditors are responsible for concluding that the FSs are free from MMs caused by non-compliance w L+Rs
Auditors are required to have a general understanding of the legal and regulatory framework within which the company operates
Compliance with laws and regulations:
What are the areas of law which affect all businesses?
Employment law (eg, the auditor should note if work on the payroll indicates that the company pays employees less than minimum wage)
Social security law (is the company paying the correct amounts to HMRC in respect of PAYE, NI, m/p/aternity pay)
Health and safety law (does the company have clear safety notices on manufacturing premises, clear fire exit procedures and signs?)
If non-compliance is suspected or identified
When the auditors become aware of info regarding NC, first obtain an understanding of the NC, together w info to evaluate its effect on the FSs
If, after this, the auditors suspect NC, then discuss the matter w the appropriate level of mgmt unless prohibited by law, eg Anti-Money Laundering Regulations
If the auditors can’t obtain sufficient appropriate evidence, this might represent a limitation on the scope of the audit, which means the auditors can’t give an unmodified opinion
Laws and regulations that must be considered by entities and auditors
Money Laundering Regulations
Bribery Act 2010
General Data Protection Regulation (GDPR)
Possible features which would lead you to investigate a particular transaction to determine whether it is a related party transaction (5)
unusual terms of trade eg, prices, interest rates, repayment terms
lack a logical business reason for their occurrence
overly complex
involve previously unidentified related parties
processed in an unusual manner
How has the expectations gap been narrowed?
Improving the required auditor’s report
Inserting paragraphs relating to directors’/auditors’ responsibilities in the engagement letter
The role of audit committees, which liaise with auditors
Outline the consequences of not considering the implications of non-compliance and provide examples of such breaches
Failure to comply may result in penalties/fines
Serious breaches may have going concern implications (closure, inability to pay fines)
May be indicative of a poor control environment
Examples: minimum wage and working time directives, health and safety at work regulations, PAYE and NI compliance, pension scheme requirement
What are some general audit procedures you would perform to ensure that all material related party transactions have been identified?
Obtain a list of current known RPs
Ensure that the permanent file is updated for RPs
If it’s the first audit, perform company search
Discuss the list of RPs as disclosed by directors as to its accuracy and completeness
Enquire of directors if there have been any material transactions with the RP
List all transactions disclosed by the directors
Review the accounting records before and after year end for any large or round sum amounts; investigate and analyse with reasons
Analyse all loans receivable or payable, and seek confirmation of identity of lender or borrower
Review board minutes and enquire if the company has provided any guarantees
Analyse the details of guarantees given and review the terms
Include confirmation of all RP transactions or lack of them within the letter of representation
Check the accuracy of the disclosure within the context of IAS 24
