Ch. 1 - International regulatory environments for audit and assurance services Flashcards
(11 cards)
What is Money Laundering?
The process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activity, allowing them to maintain control over the proceeds and providing a cover for their sources of income.
What are the key offences of money laundering to the auditor?
(a) Acquiring, using, possessing or concealing criminal property.
(b) Failing to report knowledge or suspicion of money laundering to the appropriate authority.
(c) Tipping off a client of suspicions relating to money laundering or disclosing any information that may prejudice an investigation.
What are the key elements of ACCA’s guidance on anti-money laundering?
(a) Internal controls and policies - staff receive regular training to ensure that client identification procedures are carried out correctly. Clear procedure for reporting suspected money laundering.
(b) Client identification - Verify the identity of the potential client, ‘know your client’ (KYC) or ‘customer due diligence’ and requires awareness of the client’s identity, their ownership structure and their operating cash flows.
(c) Record keeping - retain all client identification records for at least five years after the end of the client relationship.
(d) Recognition of suspicion - requires members to have sufficient understanding of the clients and their activities.
(e) Reporting suspicious transactions - request that their MRLO promptly report their suspicions to the relevant authority.
(f) Tipping off - Members should not ‘tip off’ a client. Members should take extra care that carrying out the procedures will not tip off a client. Attempts to discourage a client from breaking the law will not be seen as tipping off.
What are the key elements of KYC (‘know your client’)?
(a) Who this client is.
(b) Who controls it.
(c) The purpose and intended nature of the business relationship.
(d) The nature of the client (what they do).
(e) The client’s source of funds.
(f) The client’s business and economic purpose.
What are some of the key Money Laundering risk indications?
(a) Transactions routed through several jurisdictions.
(b) Secrecy over transactions.
(c) Excessive use of wire transfers.
(d) A pattern of same day and amount deposit and transfer to another financial institution.
(e) Large currency or bearer instrument transactions.
(f) Repeated deposits or withdrawals just below the monitoring threshold on the same day.
g) High value deposits or withdrawals not characteristic of the type of account.
What is ISA 250?
ISA 250 (revised) Consideration of Laws and Regulations in an Audit of Financial Statements.
What is Non-compliance and NOCLAR?
(a) Non-compliance refers to acts of omission or commission, intentional or unintentional, committed by the entity/TCWG/Management/Individuals working under the direction of the entity, which are contrary to the prevailing laws or regulations.
(b) Non-compliance with laws and regulations (NOCLAR).
When does the auditor need to consider the impact of NOCLAR?
(a) Those that have a direct effect on determining material amounts in the financial statements (such as tax laws) require the auditor to obtain evidence of compliance.
(b) Those that are fundamental to the operating aspects of the client which have a material (but not direct) effect on the financial statements (such as compliance with an operating license) require the auditor to undertake procedures to identify any non-compliance.
What should be the auditors course of action when a possible NOCLAR is dicovered?
(a) Obtain an understanding of the nature of the act and the circumstances in which it has occurred.
(b) Seek further information to evaluate the possible effect on the financial statements. This may lead to amendments of both amounts and disclosures (and potentially casting doubt on an entity’s going concern status).
(c) All such information and evaluations should be fully documented.
Who should the auditor report instances of NOCLAR to?
(a) Any cases of NOCLAR should be reported to the appropriate level of management and ,where appropriate, to TCWG UNLESS…
(b) Certain laws and regulations prohibit this (reporting results in ‘tipping off’) or if the auditor suspects that TCWG/management are involved in the NOCLAR, then the auditor should communicate the matter to the next higher level of authority (audit committee or regulator), usually after seeking suitable legal or professional advice to confirm who this is.
What is the summarised process for auditors dealing with laws and regulations?
(a) Obtain general understanding of legal and regulatory framework.
(b) If NOCLAR is discovered, obtain further understanding.
(c) Evaluate the impact of NOCLAR on the financial statements.
(d) Report to appropriate level of management (or higher).
(e) Consider withdrawal from engagement if client refuses to co-operate.
