Week 2 - Reintroduction to Audit & Assurance and Accepting Engagements

Question 1

PIEs = ?

Answer 1

public interest entities

Question 2

who are PIEs?

Answer 2

• big PLCs
• large private companies
• banks & credit institutions

Question 3

what constitutes large private companies?

Answer 3

> 750 employees
£750m turnover

Question 4

audit competition?

Answer 4

spearheaded by the CMA (competition & market authority)

97% of the 350 largest companies are audited by big 4

CMA plan to challenge this through a range of initiatives

Question 5

FRCs findings regarding sustainability/climate change?

Answer 5

FRC published findings that businesses weren’t considering climate change in their business operations

users are becoming increasingly interested in businesses’ sustainability disclosures

Question 6

must entities disclose sustainability related risks & opportunities?

Answer 6

yes

under IFRS S1 & IFRS S2

Question 7

what standard requires entities’ disclosure of sustainability related risks & opportunities?

Answer 7

IFRS S1 & IFRS S2

Question 8

lowballing?

Answer 8

gives rise to self interest threat

self interest threat stems from, to gain a profit, entities may have to cut corners

this harms audit quality & an EQR will be required

Question 9

ISA220?

Answer 9

requires the auditors to decide whether or not to accept/continue the engagement

Question 10

what info may outgoing auditors provide?

Answer 10

• client fraud
• client provided lack of info
• client had creative accounting treatments
• poor management

Question 11

other name for shareholders of company?

Answer 11

members

Question 12

audit preconditions?

Answer 12

• correct FR framework
• ensure management understand their responsibilities

Question 13

management responsibilities?

Answer 13

• prepare FS w/ correct FR framework
• adequate internal controls
• provide auditor w/ access to docs

Question 14

contents of an engagement letter?

Answer 14

main contents
- objective/scope of audit
- responsibilities
- auditors’ right to access docs
- form/content of audit report

additional contents
- basis of fees
- practicalities
- need for written reps
- audit timetable

Question 15

duties & rights when an auditor is removed?

Answer 15

duty = prepare statement of circumstances to the company’s shareholders

right = prepare written reps for shareholders & right to speak at general meetings

Question 16

must plc’s require a statement of circumstances from auditors to shareholders when they’re removed?

Answer 16

yes

stricter rules for plc’s

Question 17

how are losses on long term contracts recognised?

Answer 17

immediately recognised in the FS

Question 18

how are revenues on long term contracts recognised?

Answer 18

as they’re earned

e.g., in alignment with % completion

Question 19

ISA240?

Answer 19

requires auditors to report fraud risks

Question 20

must auditors report their strategic report?

Answer 20

under companies act 2006, yes they do