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AA > 7. Responsibilities > Flashcards

7. Responsibilities Flashcards

1
Q

Are mgmnt responsibilities the responsibilities of auditors?

A

Not at all

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2
Q

Who’s responsibilities: Business risk

  1. Assess business risk
  2. Strategies to mitigate them
A

Management

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3
Q

CA: Mgmnt responsibilities

A

Promote C success for benefit of all members

  1. Safeguarding assets
  2. Proper accounting records
  3. Preparing and delivering FS
  4. Compliance (laws & regs)
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4
Q

Past sustainable global initiatives

A
  1. United Nations Global Impact (2000)
  2. Global Reporting Initiative (2000)
  3. Task Force on Climate-related Financial Disclosure (or TCFD, 2015)
  4. Sustainable Development Goals (2016).
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5
Q

The international body that monitors the global financial system

A

Financial Stability Board (FSB)

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6
Q

Group who develops recommendations on the disclosures companies should make to help users properly assess risks related to climate change

A

Task Force on Climate-related Financial
Disclosures (TCFD)

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7
Q

TCFD recommendations

A
  1. Governance
  2. Strategy
  3. Risk management
  4. Metrics/Targets
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8
Q

Which Cs need to state that the disclosures are in line with TCFD’s recommendations?

A

Larger
UK companies

(In the annual report)

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9
Q

Who has responsibility for developing a set of sustainability disclosure standards (IFRS Sustainability Disclosure Standards)? (In 2021)

A

International Sustainability Standards
Board (ISSB)

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10
Q

When will the first international sustainability standards be issued for public consultation and aim to provide users with reliable and comparable sustainability-related information

A

2022

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11
Q

Current ISS drafts

A

IFRS S1 General requirements for disclosure of sustainability-related financial information

IFRS S2 Climate-related disclosures.

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12
Q

Particular user interests relating to climate

A

E.g.
Social aspects
C value impact

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13
Q

ISSB areas covered?

A

Environmental, social and governance (ESG) sustainability topics

With urgent focus on climate-related matters

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14
Q

Will the IFRS Sustainability Disclosure Standards follow the same standard setting process used by the IASB?

A

Yes

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15
Q

Where do ESG issues arise from?

A

Stakeholder or political concerns

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16
Q

ESG: Environment: Key issues

A

Reduce the businesses environmental footprint and counter the impact of climate change

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17
Q

ESG: Key issues: Social

A

Focus on the well being and operational impact on society/stakeholders. Create a positive working environment for staff

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18
Q

ESG: Key issues: Governance

A

Practices implemented from the top down. Provide goods/services in a sustainable way. Offers good working conditions

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19
Q

Which audit and assurance issues are affected by sustainability issues?

A
  1. Risk management
    Need to integrate into governance and risk management processes
  2. Assurance
    Info disclosed needs to be credible
  3. Law and regulation
    And best practice from the UK listing authority
    Encourages transparency
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20
Q

What are the responsibilities of the assurance provider in all assurance engagements?

A
  1. Relevant legislation or regulation
  2. Terms of engagement
  3. Ethical and professional standards
  4. Quality management standards.
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21
Q

CA: Auditor responsibilities when conducting a statutory audit

A
  1. Form an independent opinion on the truth and fairness of the financial statements.
  2. Confirm that the accounts have been properly prepared
    In accordance with Companies Act 2006
  3. State in the audit report whether the information given in the directors’ report is consistent with the annual accounts
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22
Q

How does an auditor achieve its objectives relating to CA?

A
  1. Plan
  2. Obtain sufficient evidence
  3. Draw valid conclusions
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23
Q

OBT: Two types of misstatement arising from fraud

A
  1. Fraudulent financial reporting
  2. Misappropriation of assets
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24
Q

Management responsibility to fraud

A

Preventing and detecting

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25
Q

Auditor responsibility relating to fraud

A

Obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error

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26
Q

OBT: Procedures to identify misstatement
caused by fraud

A
  1. Fraud risk assessment:
    – incentives/pressures
    – opportunities
    – attitudes/rationalisations
  2. Professional scepticism
  3. Discuss among team (be aware that it may
    occur).
  4. Respond appropriately to the assessed level of fraud risk e.g.
    – assign appropriate personnel to the audit
    – assess controls and look for instances of management override
  5. Introduce an element of unpredictability into audit procedures.
  6. Consider the implications for other areas of the audit
    e.g management representations.
27
Q

What sort of fraud reported to: Mgmnt

A

All

Except if mgmnt suspected

28
Q

What sort of fraud reported to: Mgmnt when mgmnt suspected

A

TCWG

29
Q

What sort of fraud reported to: Shareholders

A

Only if material misstatement/uncertainty in FS

30
Q

What sort of fraud reported to: 3P

A

If duty/right to disclose
(E.g. regulator)

31
Q

What sort of fraud reported to: Important case to watch out for

A

Money laundering
(But avoid tipping off)

32
Q

OBT: Mgmnt responsibilities: Laws and regulations

A

Responsible for complying with relevant laws and regulations.

33
Q

OBT: Auditor’s responsibility: Laws and regulations

A

Obtain sufficient appropriate evidence of compliance with laws and regulations generally recognised to have a direct effect on the financial statements

34
Q

Laws and regulations: Procedures to test

A
  1. Risk assessment
    a. relevant laws and regulation
    b. how client ensures compliance
  2. Obtain evidence about compliance:
    a. enquiries of management
    b. inspect correspondence with regulatory bodies
    c. obtain written management representations to confirm all known instances of non-compliance have been disclosed
35
Q

Reporting legal non-compliance to management: If suspected in involvement but no higher level of management?

A

Consider obtaining legal advice

36
Q

Can organisations be penalized for failing to prevent bribery?

A

Yes

So bribery prevention policies necessary

37
Q

What should bribery prevention policies focus on?

A
  1. Top level culture
    In which bribery is unacceptable
  2. Risk assessment
  3. Due diligence procedures
    Taking a risk-based approach
  4. Communication to staff
    Including training
  5. Monitoring and review
38
Q

Procedures to assess client’s compliance with bribery act

A

Assess risk of non-compliance with the Bribery Act
Exercise professional scepticism
Assess bribery prevention policies of the client.

39
Q

Who would auditor report suspicions of bribery to?

A

To the National Crime Agency (NCA) under the Proceeds of Crime Act 2002

40
Q

Sarbanes-Oxley Act 2002 (Sarbox/SOX): Provisions relevant to: Management

A

CEOs and CFOs attest to the
veracity of the financial statements

Greater disclosure of the amendments made to the financial statements during the audit process.

41
Q

Sarbanes-Oxley Act 2002 (Sarbox/SOX): Provisions relevant to: Auditors

A

Stricter enforcement of auditor independence rules

Public Company Accounting Oversight Board (PCAOB) can inspect the audit files of US listed companies, including subsidiaries based overseas.

42
Q

Sarbox: Who does it apply to?

A

US companies
So UK subs of US groups

43
Q

Related party definition

A

A company or person
that might have, or be expected
to have
undue influence on the company being audited

e.g.
directors and their families, key management, other companies in the same group.

44
Q

What can RPTs be?

A

‘Arms length’

45
Q

Procedures to identify misstatement caused by non-disclosure of related party transactions

A
  1. Obtain a list of all related parties from management
  2. Carry out detailed tests of transactions and balances as usual, looking out for related party transactions
  3. Review minutes of the meetings of shareholders and directors where related party transactions may have been discussed
  4. Review bank confirmation letters for evidence of guarantor relationships
  5. Review investment transactions
  6. Confirm that the correct disclosures have been made in the financial statements
  7. Obtain written management representations confirming that all related party transactions have been disclosed.
46
Q

Money Laundering

A

Using, acquiring, retaining, controlling, concealing, disguising, converting, transferring and removing from the UK the proceeds of criminal conduct

47
Q

Money laundering: Less obvious examples

A
  1. Tax evasion
  2. Saving costs by failing to comply with laws and regulations
  3. Offences committed overseas that are criminal offences in the UK
    e.g. bribes that would be covered by the Bribery Act 2010
48
Q

Money laundering: What should the auditor report?

A

Actual knowledge
OR
Reasonable grounds for suspicion

49
Q

Money laundering: Who should the auditor report to?

A

To the audit firm’s money laundering nominated officer (MLRO)

They will consider whether necessary to report to NCA

50
Q

Money laundering offences include

A
  1. Failure to report
  2. Failure to provide suitable training for staff
  3. Tipping-off the money launderer
51
Q

Money laundering: Most severe penalty

A

14y prison

52
Q

GDPR and data protection act: Who has to make sure personal info is correctly protected?

A

Anyone processing personal info

53
Q

GDPR and data protection act: What can individuals access?

A
  1. Their personal data
  2. Details of how it is processed
54
Q

GDPR and data protection act: When can personal data only be held

A
  1. Lawful reason
  2. Chosen to allow storage
55
Q

Who must people collecting personal data inform?

A

Information commissioner’s office (ICO)
(Effective for a year)

56
Q

GDPR and data protection act: Who is the person responsible for informing ICO called?

A

Data controller

57
Q

GDPR and data protection act: Is failure to notify ICO a criminal offence?

A

Yes

58
Q

If climate change impacts the entity, the auditor needs to

A

Consider the risk of material misstatement for the amounts/disclosures that are affected by the climate-related risks

Understand how climate-related risks relate to their responsibilities.

59
Q

Examples of where climate-related risks may have a material effect on the FS?

A
  1. A contingent liability for potential litigation
  2. Fines/penalties as a result of the breach
60
Q

Climate risk audit publications

A

The IAASB published a practice alert called ‘The Consideration of Climate-Related Risks in an Audit of Financial Statements’ in light of current developments on this area.

The Financial Reporting Council (FRC) have made recommendations for auditing climate-related risks in the publication ‘FRC Climate Thematic Audit – How are auditors taking account of climate-related challenges?’. They advise to ‘test and challenge the financial statements’.

61
Q

How do auditors close the expectations gap?

A

Improving the audit report to set out:
a. responsibilities of directors and auditors
b. explain how an audit is conducted
e.g. test basis, reasonable assurance, material misstatements

Further detail provided in the audit reports for listed companies
Including the responsibilities of directors and auditors in the engagement letter

Liaising with audit committees

62
Q

Audit failure: Usually due to some of what factors?

A
  1. Failure to adequately assess audit risk
  2. Failure to adequately respond to the assessed audit risk
  3. Failure to recognise or respond to threats to objectivity
  4. Failure to recognise or respond to situations where the auditor is not competent
63
Q

Can future changes in audit regulations occur due to the lessons learnt from audit failures?

A

Yes

64
Q

What other factor might need to be considered in relation to fraud?

A

Public pressures and the public’s interest (rather than just a single entity’s)

AA (16 decks)

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