General

Question 1

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Money Laundering Regulations 2017 state that client identification documents must be kept for … years?

Answer 1

for a minimum of five years and until five years since the relationship elapses.

Question 2

What best describes the evidence obtained and the opinion given in a reasonable assurance engagement?

Answer 2

Sufficient appropriate audit evidence is gathered and a positive opinion issued in a reasonable assurance engagement.

Question 3

What best describes the evidence obtained and the opinion given in a limited assurance engagement?

Answer 3

A lower level of evidence coupled with a negative opinion applies to a limited assurance engagement.

Question 4

Is inherent risk higher or lower if inventory is the largest balance on the balance sheet? Why?

Answer 4

Higher. Inventory is by its nature more inherently risky as it is susceptible to theft, omission and misstatement.

Question 5

What does the Brydon Report focus on?

Answer 5

Quality and effectiveness of audit

Question 6

What were Kingman’s recommendations, focus on broadly speaking?

Answer 6

Audit regulation

Question 7

What did the Competition and Marketing Authority’s recommendations focus on?

Answer 7

The audit market

Question 8

Some key points from Brydon report?

Answer 8

1. Redefinition of audit and its purpose
2. Creation of corporate auditing profession governed by principles
3. Introduction of suspicion into the qualities of audit
4. Extension of concept of audit beyond FS
5. Change to language of the opinion given by auditors
6. Increased use of tech
7. Greater clarity around role of audit committee

Question 9

Why did CMA recommend joint audits?

Answer 9

1. Concern over high profile corporate failures following clean audit reports
2. Improve audit quality
3. Second pair of eyes.
4. Increase competition in market
5. Increase public confidence
6. Increase capacity/resources of smaller firms to audit listed companies

Question 10

Criticisms of external auditors?

Answer 10

1. Lack of audit quality/scepticism
2. High profile collapses following issue of inappropriate audit opinions
3. Lack of independence
4. Non audit services provided to clients
5. Lack of separation of audit and advisory
6. Lack of competition/dominance of Big 4
7. Failure to assess business risks over periods >12 months

Question 11

Issues for auditors of extending the scope of the audit to include alternative performance measures? Brydon review.

Answer 11

1. Increased risk and liability
2. Additional staff, resources and audit work required
3. makes audit more pressured which may reduce quality
4. Increased time and cost for auditor
5. Training required due to lack of experience.
6. No set definition of alternative performance measures
7. No suitable criteria for assessment against

Question 12

Three recommendations of the Brydon report that would help to achieve a redefinition of the purpose of audit (to help establish and maintain deserved confidence in a company, its directors and the FS)

Answer 12

1. Creation of a corporate auditing profession based on a core set of principles
2. Introduction of suspicion into the qualities of auditing
3. Extension of concept of auditing beyond financial statements
4. Directors to present three year rolling A&A policy to s/hs
5. Process for s/hs and EEs to propose matters for audit
6. AGM to include a standing item to permit s/hs to question Audit Committee Chair and the auditor
7. Clear separation between audit team and team that negotiates fees with aduit team
8. Audit firms to publish profitability of audit work and remuneration of senior statutory auditors
9. Clear reasons given for resignation, dismissal or not participating in a retender
10. BEIS and ARGA to create protections and policies so audit firm can use client data to improve audit quality
11. Auditors to be trained in forensic accounting and fraud awareness
12. Increased use of tech

Question 13

Definition of assurance engagement

Answer 13

An engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.

Question 14

Advantages of continuing to have an audit even if below threshold

Answer 14

• Enhances credibility of the FS
• Enhances value of accounts for business valuation purposes in the event of sale
• Authorities such as HMRC can have more faith in figures
• Avoids future cost pf extra work by auditor when audit exemption limits exceeded
• Avoids potential future qualification over opening inv figs
• Makes it easier to raise finance
• Deterrent to fraud/management abusing assets/management bias
• More reliable info results in more informed decisions
• Provides management/shs with assurance that the FS are true and fair/prepared in accordance with standards
• By-products of audit e.g. identification of weaknesses in controls and recommendations – should reduce risk and improve performance
• Imposes discipline on management and accounts staff if they know the figures will be subject to third party scrutiny and therefore encourages best practice
• Gives management comfort that they are complying with their professional responsibilities/the accounts comply with CA 2006