topic 3 - professional issues

Question 1

Generally, what does the Audit firm want to do?

Answer 1

Make a profit

retain clients

have good credit control

Question 2

When can an auditor be seen to be liable?

Answer 2

1. when they owe a duty of care. auditors owe a duty of care to share holder management and third parties
2. have been negligent
3. loss arising

Question 3

What are the following characteristics of good audit quality?

Answer 3

risk management process

governance and leadership

ethics

acceptance/ continuance procedures

resources

information and communication

engagement performance

monitoring and remediation

Question 4

What are the following matters to be considered when tendering or accepting work?

Answer 4

TRIMROT

technical competence

resources

independence

money laundering

references/ risk

outgoing auditors

terms of engagement

Question 5

What are the procedures for contacting outgoing auditors?

Answer 5

1. explain to client that you have a duty to contact the outgoing auditor
2. obtains clients permission
3. if not given, do not accept the audit
4. send letter to the outgoing auditor
5. outgoing auditor replied mentioning anything untoward
6. if no reply then chase
7. no reply? send another letter saying you take their silence as evidence

Question 6

How are auditors appointed for PLC?

Answer 6

at AGM

resolution passed by > 50% of shareholders

if no auditor has been appointed secretary of state will appoint one

Question 7

how are auditor appointed for a private company?

Answer 7

no agm required

auditor is automatically reappointed

unless 5% or more of shareholders register notice to change auditors

then > %50 needed for revolution to pass

Question 8

How are auditors removed?

Answer 8

possible at any given time is shareholders pass an ordinary resolution

notice given to auditor

Question 9

What must an auditor do on removal?

Answer 9

deposit statement of circumstances at companies registered office explaining removal
- if listed must explain
- if not listed could just say ‘no circumstances’

return all books and records

maintain confidentiality

co-operate with incoming auditor

Question 10

What does auditor have a right to do on removal?

Answer 10

write to shareholders ahead of general meetings

attend gm where vote is made