Week 2 - Why It Matters Flashcards
Possible causes for audit failure
unintenational human error
Auditor fraud
influence caused by financial interest
Caused by personal auditor-client relationship
Definition of independence - flint 1988
Unprejudiced
Unbiased
Uninfluenced
Independence
Of mind
Of appearance
Independence of mind
I am independent - work ethic, judgement
Independence of appearance
Others can see im independent
Programming independence
Auditors have freedom to develop own programme, within overall bounds of engagement
Investigative independence
Auditors have the freedom to examine info thst auditors themselves deem to be relevant
Reporting independence
Protects the auditors ability to choose to reveal to the public any info they believe should be disclosed
Conflicts of interest between auditor and client
Truthful audit report may not be seen as in the inteeest of management/shareholders/ both
Conflict between auditors profesh duty and self-interest
Auditors have to Comply with management view even if not profesh acceptable to retain audit
Conflict between managers and shareholders
Managers may mislead shareholders even if only in the short term
Conflict between client organisation and third parties
Company may bribe the third parties for their money even if not for their best interests
Published codes of ethics
to ensure the quality and independence of audit
General principles of IFAC codes
Integrity Objectivity Professisional competence and due care Confidentially Professional behaviour
IFAC code conceptual framework - Requires accountants to
THREATS:
Identify,
Evaluate,
Address & either eliminate/ reduce
Adopt a principal-based approach
Potential threats to objectivity
Self interest Self review Familiarity Advocacy Intimidation 
Why ethics and independence may differ in different countries
History and origins Development of financial markets Cultural factors Auditor liability and litigation Audit market Audit regulation
This is sarbanes-Oxley act
Passed by US congregation in June 2002
Creation of PCAOB
Audit committees
Restriction of non-audit services
New financial reporting and auditing procedures
International repercussions 
Created in response to the failure of enron
PCAOB
Public company accounting oversight board
The public company accounting oversight board
Two sets auditing standers
Monitors/inspects audit firms
Can impose disciplinary sanctions
Auditors have to register with ^ 
IFAC
International Federation of accountants
International Federation of accountant
Auditing
Ethics 
A clarified societal role for auditors
Increased audit quality
Enhanced transparency
Better accoutnability
A strong independence regime
Mandatory Rotation of audit firms
Prohibition of certain non-audit services
Cap on the provision of non-audit services
A more dynamic and competitive EU audit market
A single market for statutory audit
More choice
Enhanced supervision of the audit sector
PIEs
Public interest entities
Include all companies listed on an EU regulated market and in addition unlisted banking and insurance companies and groups
Rotation
Mandatory audit firm rotation every 10 years
Small companies
Turnover not to sxceed 10.2 million
Balance sheet total not exceed $5.1 million
Average number of employees not greater than 50
Directors responsibilities
Preparation of accounts Accounting policies Accounting records Safeguarding of assets Prevention of fraud and error
Auditors resps.
Form and reports opinion on companies accounts
Consistency of directors report and corporate governance statement
Compliance with certain aspects of combined codes
Information required by law or listing rules not disclosed
RSBs
Recognised supervisory bodies
- admissions & expulsions
- monitoring
- disciplinary matters
- complaints procedures
RQBs
Recognised qualifying body
- entry
- examination
- training
FRC
+ 2 subcommittees?
Financial reporting council
2 subcommittees
- conduct
- codes and standards
Conduct committee - 3 subcommittees
Corporate reporting review
Audit quality review
Case management
Codes and standards 3 subcommittees
Audit and assurance council
Corporate reporting council
Acturial council - analyses financial risk
