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BUS273 - Audit & Assurance Services > Week 3 - Responsibilities & Ethics > Flashcards

Week 3 - Responsibilities & Ethics Flashcards

1
Q

how do auditors handle bribery?

A

report to the NCA

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2
Q

NCA?

A

national crime agency

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3
Q

sarbanes-oxley act 2002?

A
  • act passed in the US following Enron scandal
  • US law but relevant to UK subsidiaries
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4
Q

client’s responsibilities under sarbanes oxley act 2002?

A
  • CFO & CEO attest to the veracity of the FSs
  • greater disclosure of the FS amendments during the audit
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5
Q

auditor’s responsibilities under sarbanes oxley act 2002?

A
  • be subject to stricter independence rules
  • PCAOB can inspect audit files
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6
Q

related party?

A

a company/person that can have undue influence over the client

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7
Q

why are related party transactions risky?

A

transactions may not be done at arms length

e.g., done for no consideration

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8
Q

must related party transactions be disclosed?

what happens if not disclosed?

A

yes, must be disclosed

undisclosed related party transactions are material by nature to the FS

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9
Q

management/auditor responsibilities for related party transactions?

A

management = duty to disclose related party transactions

auditor = responsible for responding to the risk of material misstatement caused by non-disclosure

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10
Q

audit procedures for identifying non-disclosure of related party transactions?

A
  • get list of all related parties
  • inspect investment transactions
  • review board minutes
  • detailed tests of transactions
  • get confirmations that disclosure has been made
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11
Q

money laundering?

A

aims to disguise the origins of funds from criminal activities

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12
Q

money laundering includes…

A

tax evasion and saving costs to comply with laws & regs

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13
Q

how does the auditor respond to suspicions of money laundering?

A
  • report to MLRO
  • MLRO reports to NCA
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14
Q

auditor offences associated with money laundering include…

A
  • failure to report
  • failure to provide staff training
  • tipping off the money launderer
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15
Q

sanctions for money laundering?

A

can result in imprisonment for up to 14 years

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16
Q

how must auditors operate when discussing suspicions of money laundering?

A

be very cautious

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17
Q

what code of ethics does the role around money laundering breach?

A

confidentiality

confidentiality must be breached and discuss with relevant authorities

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18
Q

if auditors identify problems during an audit, who should they report to?

A

the engagement partner first and foremost

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19
Q

does money laundering constitute bribery?

A

yes

should be treated the same

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20
Q

GDPR?

A

general data protection regulation

personal data and info must be securely protected

individuals can access their personal data & details around how it’s processed

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21
Q

must auditors ensure compliance with sustainability regulations?

A

yes

this is because non-compliance can lead to material fines, contingent liabilities or penalties

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22
Q

sources of ethical guidance?

A
  • IFAC/IESBA
  • FRC ethical standard
  • ICAEW code
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23
Q

IESBA code of ethics?

A
  • confidentiality
  • integrity
  • objectivity
  • pro competence & due care
  • pro behaviour
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24
Q

threats to objectivity?

A
  • self interest
  • self review
  • familiarity
  • management
  • advocacy
  • intimidation
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25
Q

greenwashing?

A

creating the illusion of being sustainable and climate friendly

ethically wrong and shows a lack of management integrity

26
Q

can auditors accept gifts from their clients?

A

non trivial gifts, yes

trivial gifts, no - as it can build a familiarity/self interest threat

27
Q

covered persons?

A
  • includes staff & partners
  • someone placed at the auditors’ disposal (e.g., an expert)
  • anyone supervising the engagement (e.g., ethics partner)
  • anyone able to influence the audit’s outcome
28
Q

public interest entity (PIE)?

A

includes PLCs, large private companies, credit institutions

29
Q

are audits and other assurance engagements subject to the ethical standard?

A

yes

30
Q

auditor’s general responsibilities for compliance with the ethical standard?

A
  • must have policies & procedures to ensure covered persons act in an ethical way
  • leadership must establish a control environment to ensure compliance with policies & procedures
  • audit firm must appoint an ethics partner
  • breaches of ethics must be reviewed by EP and EP
  • firm mustn’t be involved in management of client
  • threats to objectivity must be considered at each stage
31
Q

when a threat to ethics is identified…

A
  • consider the effectiveness of the safeguards in place
  • decline/discontinue the engagement if safeguards are ineffective
32
Q

TWCG?

A

board members, trustees, executive management

33
Q

must threats to safeguards be documented?

A

yes, must be documented in the engagement working paper

34
Q

how must threats to ethics/problems be considered?

A

in consideration of past, present and future engagements

35
Q

can an auditor own shares in the client?

A

no

self interest threat

36
Q

can the audit firm make/accept loans to/from the client?

A
  • can’t make loans to the client
  • can’t accept loans
37
Q

can an auditor be in business relationships with a client?

A

no

38
Q

is dual employment between client and auditor allowed?

A

no

loan staff only allowable if less than 3 months and no management involvement

39
Q

what happens if there’s potential employment between an auditor and the client?

A

remove from engagement and review their work

40
Q

when a partner leaves the firm and works with the client, what happens?

A

must discontinue the engagement and can’t re-engage for at least 2 years

41
Q

when an auditor leaves the firm to work for the client, what happens?

A

reconsider the composition of the audit team

42
Q

if a member of the audit team has close relations with the client…

A

remove from the engagement

43
Q

safeguards to long association?

A
  • EQR
  • partner rotation
  • independent partner review
44
Q

non-listed and listed client partner rotation rules

A

non-listed = after 10 years, consider rotation

listed = after 5 years, rotate partner (audit committee can extend to 7 years)

45
Q

client becomes listed, and audit partner has served for 4+ years…

A

partner can serve for 2 more years max before mandatory rotation

46
Q

how often must EQR reviewer be rotated?

A

every 7 years, can’t return for another 5 years

47
Q

how often must other senior staff at an audit firm be rotated?

A

after 7 years, review safeguards

48
Q

audit fees?
contigent fees?
overdue non-trivial fees?
non-audit fees?

A

audit fees = can’t be influenced by non-audit fees

contingent fees = not allowed

overdue non-trivial fees = cannot act as auditor

non-audit fees = 70% of last 3 years average audit fees max

49
Q

listed client audit fees threshold?

A

5%, review safeguards

10%, cannot act

50
Q

non-listed client audit fees threshold?

A

10%, review safeguards (consider safeguards & disclose)

15%, cannot audit

51
Q

can auditors be judged on their ability to sell non-audit services?

A

no

52
Q

what must auditors do if being sued by the client?

A

resign, intimidation threat

53
Q

what must be done before accepting non-audit work from an audit client?

A

get a 3rd party to assess if it’ll impair objectivity

54
Q

can an auditor ever provide management services?

A

no

55
Q

safeguards when offering non-audit services?

A
  • separate offices
  • separate teams
  • EQR
  • confidentiality agreements
  • information barriers
56
Q

examples of prohibited services to PIEs?

A
  • payroll
  • bookkeeping
  • valuation
  • legal
  • management decision making
  • design/implementing controls
  • underwriting
    -financing
  • internal audit services

for non-PIE’s, services can be provided, but safeguards must be in place

57
Q

examples of services prohibited to any client?

A
  • internal audit services
  • design/implementation of IT
  • management decision making
  • valuation service (if material to FS)
  • corporate finance services
  • recruitment/remuneration
  • restructuring
58
Q

how are small entities treated regarding?

A
  • no EQR requirement
  • when audit partner joins them, firm can continue as auditor as long as it’s disclosed
59
Q

confidentiality remains unless…

A
  • ordered by court
  • required by regulator
  • comply with quality review of pro body
  • permission’s granted by client
  • to defend against legal proceedings
  • if it’s a matter of public interest
60
Q

how can conflict of interest be prevented?

A
  • separate engagement teams
  • info barriers (NDA)
  • independent partner safeguard
  • separate offices

BUS273 - Audit & Assurance Services (20 decks)

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