Short form questions Flashcards
During the audit of financial statements an auditor may rely on work carried out by an expert in an area other than accounting or auditing to assist in obtaining sufficient information
State two areas where an auditor might engage the services of an auditor’s expert. State matters an auditor should consider in determining whether to use the services of a particular expert
- Independent valuation
- Legal matters
- Legal opinion on valuation of provisions and contingent liabilities
- Tax law or compliance
- Actuarial liabilities
- Environmental and sustainability regulations or liabilities
Matters to consider
- Qualifications and competence
- Experience of topic in geographical location
- Reputation
- Independence and objectivity
- Whether a member of a regulated profession or subject to technical and ethical standards
Tyn LLP has recently won a tender to be appointed as the auditor if Carvan pls, a UK listed entity, for the year ending 31 December 2024
Prepare the steps that Tyn should take to confirm the appointment and to set up and prepare the engagement for the audit before any audit testing is carried out
- Contact previous auditor to obtain professional clearance
- ask about any info that could influence decision to accept
- Review previous auditors working papers
- If refuse decline engagement
- If previous auditor doesn’t reply contact again or make a decision based on all other available information
- review statement of circumstances
- confirm legal removal of previous auditor
- conduct client identification and money laundering checks
- issue and engagement letter
- appoint team members
- assign work (knowledge and experience)
- undertake team briefing meeting
set out the additions to the auditors responsibilities and reporting if a client becomes a stock listed
Additional responsibilities
* An engagement quality review is required for listed companies.
* There are additional ethical issues to consider:
o The engagement partner must be rotated after 5 years.
o The engagement quality review partner must be rotated after 7.
o The level of fees must be closely monitored, with safeguards implemented at 5% of total fee income.
Additional reporting matters if they become listed
* The auditor must communicate key audit matters that required significant attention during the audit.
* The name of the auditor must be included in the audit report.
* The auditor’s report must be submitted within 6 months of the year end.
* Opinion on the strategic report being consistent with the annual accounts must be included.
Salaries can be affected
- inflation
- promotions
- new joiners/leavers
- redundancies
- bonuses
- expected CY figure
- should match draft figure
benefits key audit matters section
enhances the communicative value of the auditors report by providing greater transparency
communication key audit matters provides additional information to intended users of the financial statements to assist them in:
- understanding those matters that, in auditor’s professional judgement, were of most significant during the audit
- understanding the entity
- identifying areas of significant management judgement
it may also provide a basis to further engage with management and those charged with governance
the need for quality management
Ensure that assurance work is carried out to an acceptable standard and report issued is appropriate
The benefits for client and the firm
- the client should receive an acceptable level of services
- the firm should reduce audit risk to an acceptable level and therefore:
- reduce the risk of negligence claims
- reduce the risk of disciplinary actions
- maintain a strong reputation
During the interim audit of an online retailer, Walker Ltd (Walker), the audit
team have discovered that customer data has not been stored in line with the
requirements set out in the General Data Protection Regulation.
Walker has not yet been able to resolve this issue and since the discovery, a
hacking event has taken place. This has involved customer personal details
and credit card data being stolen.
Identify and explain four different ways this situation may impact the
audit.
Inherent risk will increase.
Unable to rely on controls, which increases control risk.
The volume of audit work will increase.
May be unrecorded liabilities in the financial statements (e.g. provision for
fines or customer litigation).
Disclosures may be needed in the financial statements (for contingent
liabilities).
Issues with management integrity and possible compliance with other
laws/regulations.
Impact on going concern.
Could have audit report implications
what should be included in key audit matters section
why the matter was considers to be one of most significance in the audit and therefore determined to be a key audit matter
a description of the key audit matter:
- the amount
- how the capitalisation criteria were met
- amortisation/useful life
the auditors response to the risk
significant judgements made by the auditor
key observations arising with respect to those risks
reference to the disclosures in the financial statements
emphasis of matter
- drawing users attention to matter disclosed in the financial statements
- as the matter is of such importance that it is fundamental to users understanding of the financial statements
- as a separate section of the auditors report
- including a clear reference to the matter being emphasised
- to where relevant disclosures can be found
- referring to information presented or disclosed in the financial statements
- indication that the auditors opinion is not modified in respect of the matter emphasis
- the auditor may consider it necessary to place the paragraph immediately following basis for opinion
what is a fully substantive audit and situations where a fully substantive audit is required
- uses tests of details and analytical procedures only/ no reliance on internal controls
- no reduction in tests of detail as no reliance on internal controls
situations where a fully substantive audit is appropriate
- controls inadequately designed or insufficient
- controls not working and cannot be relied on
- few transactions
- large proportion of non-routine transactions
- holding company
what is a systems-based audit
- document client system of internal control
- test clients system of internal control
- rely on data produced by clients system if testing is successful
- can reduce substantive testing
- some substantive testing always required
