Rules and regulations

Question 1

In order to achieve hormonisation, audit quality and ethical code

Answer 1

practitioners have to follow regulatory guidance:
 National corporate law (e.g. The Companies Act 2006 in the UK and
The Sarbanes Oxley Act in the US).
 Auditing Standards (the basis of this text is International Standards on
Auditing).
 Code of Ethics. Covered in the chapter ‘Ethics and acceptance’

Question 2

National law includes:
.

Answer 2

 Which companies are required to have an audit
 Who can and cannot carry out an audit
 Auditor appointment, resignation and removal
 The rights and duties of an auditor

Question 3

Reasons for exempting small companies from audit

Answer 3

The owners and managers of the company are often the same
people.
 The advice and value which accountants can add to a small
company is more likely to concern other services, such as
accounting and tax.
 The impact of misstatements in the financial statements of small
companies is unlikely to be material to the wider economy.
 The audit fee and disruption of an audit are seen as too great a
cost for any benefits the audit might bring

Question 4

Who may act as auditor?

Answer 4

 A member of a Recognised Supervisory Body (RSB), e.g. ACCA, and
allowed by the rules of that body to be an auditor or
 Someone directly authorised by the state

Question 5

Who may not act as auditor?

Answer 5

Excluded by law: The law in most countries excludes those who manage or
work for the company, and those who have business or personal connections
with them from auditing that company.

Excluded by the Code of Ethics: Auditors must also comply with a Code of
Ethics. The Code of Ethics requires the auditor to consider any factors that
would prevent them acting as auditor, such as independence, competence or
issues regarding confidentiality. This is considered in more detail in the chapter
‘Ethics and acceptance

Question 6

Resigning as auditor

Answer 6

In practice, if the auditor and management find it difficult to work together, the
auditor will usually resign.
On resignation, the auditor issues written notice of the resignation and a
statement of circumstances to the members and regulatory authority

Question 7

The auditor’s rights

Answer 7

During appointment as auditor
 Access to the company’s books and records at any reasonable time.
 To receive information and explanations necessary for the audit.
 To receive notice of and attend any general meeting of members of the
company.
 To be heard at such meetings on matters of concern to the auditor.
 To receive copies of any written resolutions of the company.

On resignation
 To request a General Meeting of the company to explain the
circumstances of the resignation.
 To require the company to circulate the notice of circumstances relating to
the resignation.

Question 8

The International Federation of Accountants (IFAC)

Answer 8

The International Federation of Accountants (IFAC) is the global organisation
for the accountancy profession.
IFAC promotes international regulation of the accountancy profession. By
ensuring minimum requirements for accountancy qualifications, post
qualification experience and guidance on accounting and assurance for
accountants around the world, there will be greater public confidence in the
profession as a whole

Question 9

International Standards on Auditing (ISAs)

Answer 9

One of the subsidiary boards of IFAC is the International Audit and Assurance
Standards Board (IAASB). It is the IAASB’s responsibility to develop and
promote International Standards on Auditing (ISAs).
There are currently 37 ISAs and two International Standards on Quality
Management, although not all are examinable for this syllabus. A list of
examinable documents is available on the ACCA website. You do not need to
learn the names or numbers of the ISAs but you do need to know and be able
to apply the key principles and requirements of the standards.

Question 10

Main features of ISAs

Answer 10

 ISAs are professional guidance that the auditor must follow to ensure each
audit is performed consistently and to a required standard of quality.
 ISAs are not legal requirements. If a country has a law in place which is
inconsistent with the requirements of the ISAs, local law should be
followed.
 ISAs are written in the context of an audit of the financial statements but
can be applied to the audit of other historical financial information.
 ISAs must be applied in all but exceptional cases. Where the auditor
deems it necessary to depart from an ISA to achieve the overall aim of the
audit, this departure must be justified.
 ISAs contain basic principles and requirements followed by application
and other explanatory material to aid the auditor on how to follow the
requirements

Question 11

The relationship between international and national standards and regulation

Answer 11

IFAC is simply a grouping of accountancy bodies, therefore it has no legal
standing in individual countries. Countries therefore need to have their own
arrangements in place for:
 Regulating the audit profession
 Implementing auditing standards.
National standard setters
 may develop their own auditing standards and ethical standards
 may adopt and implement ISAs, possibly after modifying them to suit
national needs.
In the event of a conflict between the two sets of guidance, local regulations will
apply

Question 12

In the UK, the Financial Reporting Council (FRC) is currently the

Answer 12

national
regulator responsible for overseeing the accountancy profession

Question 13

The Audit and Actuarial Regulation Division within the FRC is responsible for

Answer 13

the development of auditing standards and guidance in the UK, monitoring of
auditors of public interest entities, and oversight and regulation of Recognised
Supervisory Bodies (such as ACCA)

Question 14

The Audit and Assurance team within the Audit Division take the ISAs as issued
by the IAASB and

Answer 14

modify them for UK use.