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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
greenwashing?
creating the illusion of being sustainable and climate friendly ethically wrong and shows a lack of management integrity
26
can auditors accept gifts from their clients?
non trivial gifts, yes trivial gifts, no - as it can build a familiarity/self interest threat
27
covered persons?
- 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
public interest entity (PIE)?
includes PLCs, large private companies, credit institutions
29
are audits and other assurance engagements subject to the ethical standard?
yes
30
auditor's general responsibilities for compliance with the ethical standard?
- 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
when a threat to ethics is identified...
- consider the effectiveness of the safeguards in place - decline/discontinue the engagement if safeguards are ineffective
32
TWCG?
board members, trustees, executive management
33
must threats to safeguards be documented?
yes, must be documented in the engagement working paper
34
how must threats to ethics/problems be considered?
in consideration of past, present and future engagements
35
can an auditor own shares in the client?
no self interest threat
36
can the audit firm make/accept loans to/from the client?
- can't make loans to the client - can't accept loans
37
can an auditor be in business relationships with a client?
no
38
is dual employment between client and auditor allowed?
no loan staff only allowable if less than 3 months and no management involvement
39
what happens if there's potential employment between an auditor and the client?
remove from engagement and review their work
40
when a partner leaves the firm and works with the client, what happens?
must discontinue the engagement and can't re-engage for at least 2 years
41
when an auditor leaves the firm to work for the client, what happens?
reconsider the composition of the audit team
42
if a member of the audit team has close relations with the client...
remove from the engagement
43
safeguards to long association?
- EQR - partner rotation - independent partner review
44
non-listed and listed client partner rotation rules
non-listed = after 10 years, consider rotation listed = after 5 years, rotate partner (audit committee can extend to 7 years)
45
client becomes listed, and audit partner has served for 4+ years...
partner can serve for 2 more years max before mandatory rotation
46
how often must EQR reviewer be rotated?
every 7 years, can't return for another 5 years
47
how often must other senior staff at an audit firm be rotated?
after 7 years, review safeguards
48
audit fees? contigent fees? overdue non-trivial fees? non-audit fees?
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
listed client audit fees threshold?
5%, review safeguards 10%, cannot act
50
non-listed client audit fees threshold?
10%, review safeguards (consider safeguards & disclose) 15%, cannot audit
51
can auditors be judged on their ability to sell non-audit services?
no
52
what must auditors do if being sued by the client?
resign, intimidation threat
53
what must be done before accepting non-audit work from an audit client?
get a 3rd party to assess if it'll impair objectivity
54
can an auditor ever provide management services?
no
55
safeguards when offering non-audit services?
- separate offices - separate teams - EQR - confidentiality agreements - information barriers
56
examples of prohibited services to PIEs?
- 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
examples of services prohibited to any client?
- internal audit services - design/implementation of IT - management decision making - valuation service (if material to FS) - corporate finance services - recruitment/remuneration - restructuring
58
how are small entities treated regarding?
- no EQR requirement - when audit partner joins them, firm can continue as auditor as long as it's disclosed
59
confidentiality remains unless...
- 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
how can conflict of interest be prevented?
- separate engagement teams - info barriers (NDA) - independent partner safeguard - separate offices

BUS273 - Audit & Assurance Services (24 decks)

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