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BUS273 - Audit & Assurance Services > Responsibilities - Chapter 4 > Flashcards

Responsibilities - Chapter 4 Flashcards

1
Q

what sets out the duties of management?

A

companies act 2006

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2
Q

how should directors of a company act?

A

in a way that promotes the success of the company for the benefit of its members

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3
Q

directors’ responsibilities?

A
  • safeguarding the companies’ assets
  • keeping proper accounting records
  • preparing company FS & giving them to companies house
  • promote the success of the company
  • comply with laws & regs
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4
Q

ESG?

A

environmental, social and governance

ESG considers sustainability issues through a corporate lens

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5
Q

management responsibilities regarding ESG?

A

management must consider sustainability issues

it’s important to consider the term ESG in a corporate context

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6
Q

explain the dual nature behind ESG

A

impacts & dependencies

impacts - the impact the company has on ESG

dependencies - the impact ESG has on the company

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7
Q

define ESG

A

environmental = reduce environmental footprint & consider the climate

social = focus on the wellbeing of society

governance = practices implemented from the top down in a company

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8
Q

examples of ESG dependencies?

A

(the impact ESG has on the business)

workplace diversity, risks to organisational reputation, levels of resources

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9
Q

examples of ESG impacts?

A

(the impact of the company on ESG)

human/worker rights, waste, water usage, health & safety policies

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10
Q

what 3 aspects does sustainability impact?

A
  • risk management
  • assurance
  • law & regs
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11
Q

how does climate change create risks for businesses?

A

risks can be physical risks or transitional risks

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12
Q

physical risks?
transition risks?

A

physical = more frequent/severe weather events

transition = related to the shift to a low-carbon economy

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13
Q

ISSB?

A

international sustainability standards board

responsible for developing a set of sustainability disclosure standards

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14
Q

IFRS S1?
IFRS S2?

A

S1 = entities must disclose significant sustainability related risks & opportunities

S2 = entities must disclose climate related risks & opportunities

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15
Q

transition risk regarding the transition to net zero?

A

significant transition risk where FS may contain stranded assets

some businesses rely on fossil fuels to operate

legislation change to limit or prohibit fossil fuels would result in stranded assets

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16
Q

stranded assets?

A

assets which have suffered from an unanticipated/premature write down, devaluation or conversion to liabilities

e.g., due to legislation change, social norms changing, climate change

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17
Q

what determines the responsibilities of the assurance provider?

A
  • terms of engagement
  • ethics
  • ISQMs
  • laws & regs
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18
Q

auditor’s responsibilities?

A
  • form an opinion
  • confirm correct preparation of FSs
  • ensure consistency w/ director’s report
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19
Q

how does the auditor ensure they achieve their objectives?

A

they must
- plan the audit
- obtain sufficient evidence
- draw valid conclusions

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20
Q

two types of fraud?

A
  • misappropriation
  • fraudulent financial reporting
21
Q

must auditors form an opinion on whether FSs are free from material misstatement?

A

yes

22
Q

is fraud material or immaterial?

A

fraud is always material in nature

23
Q

management & auditor responsibilities with respect to fraud?

A

management = prevent / detect fraud

auditor = obtain reasonable assurance that FS are free from fraud

24
Q

what procedures must an auditor do to identify misstatement caused by fraud?

A
  • perform a risk assessment
  • exercise pro scepticism
  • discuss fraud among engagement team
  • respond appropriately to level of fraud risk
  • consider if specialist skills are required
25
Q

auditor’s response to suspected/alleged fraud?

A
  • make inquiries of management (are they aware of suspected or actual fraud)
  • report to management
  • report to shareholders (only if the fraud causes a material misstatement/uncertainty in FSs)
  • report to 3rd parties only if there’s a right/duty to disclose
26
Q

should the auditor always report fraud to management?

A

not always

the auditor should consider if the fraud constitutes money laundering

in that case, avoid tipping off

27
Q

can non-compliance cause a material misstatement?

A

yes

the auditor must obtain an understanding of the legal framework within which the company operates

28
Q

ISA250?

A

covers the auditor’s responsibilities in relation to compliance with laws & regs

29
Q

responsibilities of management and auditor regarding compliance w/ laws & regs?

A

management = responsible for complying with relevant laws & regs

auditor = must obtain sufficient appropriate evidence of compliance w/ laws & regs

30
Q

auditor procedures to identify misstatement caused by non-compliance w/ laws & regs?

A
  • risk assessment
  • obtain evidence about compliance
31
Q

who should auditors discuss non-compliance w/ laws & regs with?

A

management = if suspected management involvement, report to TCWG

shareholders = only if non-compliance causes material uncertainty/misstatement

3rd parties = only if there’s a duty/right to disclose

32
Q

bribery act 2010?

A

penalties exist for individuals/organisations for offering/accepting a bribe or bribing a foreign public official

33
Q

how can organisations prevent bribery?

A
  • top level culture
  • risk assessment
  • due diligence
  • communication & training
  • monitoring & reviewing
34
Q

how does the auditor comply with the 2010 bribery act?

A
  • assess risk of non-compliance w/ the bribery act
  • exercise pro scepticism
  • assess bribery prevention policies of the client
35
Q

who should the auditor report suspicions of bribery to?

A

the NCA under the proceeds of crime act 2002

36
Q

details regarding the sarbanes oxley act 2002?

A

this act was passed after the enron scandal

often refferred to as sarbox or SOX

not UK law, but relevant to some UK auditors due to the US subsidiaries collateralised

37
Q

sarbanes oxley act 2002?

A

management = CEO & CFO must attest to the veracity of the FS

auditor = stricter enforcement of auditor independence rules &
= PCAOB can inspect audit files of US PLCs (including subsidiaries which aren’t US based)

38
Q

define veracity

A

truthfulness

39
Q

related party?

A

a related party is a company or person that might have, or be expected to have undue influence on the company being audited

e.g., directors’ families, key management, other companies in the same group

40
Q

why are related party transactions problematic?

A

they’re not done at arms length

undisclosed related party transactions are deemed material to the FSs

e.g., director buys property at less than market value from their friend

41
Q

accounting rule around related party transactions?

A

should be disclosed in FS

42
Q

management & auditor responsibilities around related party transactions?

A

management = responsible for disclosing related party transactions in FS

auditor = responsible for identifying/assessing & responding the risk of material misstatement arising from failure to correctly disclose related party transactions

43
Q

why are related party transactions seen as high risk?

A
  • complex
  • hard to identify
  • fraud risk
  • transactions may take place for no consideration
44
Q

how do auditors identify misstatements caused by non-disclosure of related party transactions?

A
  • obtain list of related parties from management
  • carry out tests of transactions & balances
  • review investment transactions
  • obtain written reps from management that all related party transactions have been disclosed
45
Q

define money laundering?

A

aims to disguise the origins of funds from criminal conduct so they can be used

using, acquiring, retaining, controlling, concealing, disguising, converting, transferring and removing from the UK the proceeds of criminal conduct

also dealing w/ criminal financial behaviour such as selling illegal drugs, tax evasion, saving costs by failing to comply w/ laws & regs & bribes

46
Q

who should the auditor report money laundering suspicions to?

A

MLRO

the MLRO then reports to the NCA

47
Q

offences by auditors with respect to money laundering?

A
  • failure to report
  • failure to train staff
  • tipping off the money launderer
48
Q

auditor penalties for money laundering?

A

most severe can be imprisonment for up to 14 years

BUS273 - Audit & Assurance Services (20 decks)

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