Lecture 2

Question 1

5 ethical standards now…

Answer 1

1 standard

Question 2

ES1

Answer 2

Integrity, objectivity and independence > free from bias, must have ethics partner

Question 3

ES2

Answer 3

Financial, business, employment and personal relationships

Question 4

ES3

Answer 4

Long association with audit engagement

Question 5

ES4

Answer 5

Fees, remuneration and evaluation policies, litigation, gifts and hospitality

Question 6

ES5

Answer 6

NAS provided to audited entities

Question 7

Purpose of ethical standards

Answer 7

To provide professional auditors with a set of rules to ensure they remain independent

Question 8

All breach of ethical standards must be (3)

Answer 8

• Reported
• Addressed
• Safeguarded against

Question 9

Threats to objectivity and independence

Answer 9

Management threat > eg auditor preparing console
Advocacy threat > advocate on behalf of firm
Self-interest threat > personal gain
Self-review threat > KPMG audit and tax > must review
Intimidation threat > bullying/ pressure
Familiarity > too cosy with client

Question 10

Safeguards for independence (5)

Answer 10

• Training
• External/ hot & cold reviews
• Evaluating/ reevaluating clients
• Segregation of duties
• Rotation of audit partners

Question 11

International Standards on quality control (ISQC) (3)

Answer 11

• Set by FRC audit and assurance committee
• Aim to provide guidance for firm’s system of quality control for audits
• Policies and procedures addressing:
  ~ Leadership responsibilities
  ~ Ethical requirements
  ~ Client acceptance and continuance
  ~ HR

Question 12

International standards on auditing (ISAs)

Answer 12

Based on auditing standards issued by IAASB. Amended by FRC where necessary.

Question 13

Purpose of ISAs

Answer 13

To set out principles and essential procedures auditors should follow when forming opinion on set FSs to ensure high standards, meeting needs users and public confidence in auditing process.

Question 14

ISA 200

Answer 14

Objective and General Principle of Governing and Audit of Financial Statements

Question 15

ISA 200 detail (3)

Answer 15

• Audit should be performed in accordance ethical standards, ISAs and with profession skepticism
• Audit is designed to give reasonable assurance
• Audit should be performed to reduce audit risk to acceptably low level that is consistent with objective on audit

Question 16

ISA 210

Answer 16

Terms of audit engagements

Question 17

ISA 210 detail

Answer 17

Auditor and client should agree terms of engagement in writing in form of engagement letter. Should be sent before audit work commences.

Question 18

Contents of engagement letter PRINCIPLE (5)

Answer 18

• Objective of audit and scope
• Management’s responsibility for FSs
• Form of audit report
• Unavoidable RoMM
• Need for unrestricted access to records

Question 19

Contents of engagement letter ADDITIONAL (5)

Answer 19

• Written management confirmations
• Use of other auditors/ experts
• Involvement of internal auditors
• Liability caps on NAS
• Fee and billing arrangements

Question 20

ISA 230

Answer 20

Audit documentation

Question 21

ISA 230 detail (3)

Answer 21

• Should be prepared on timely basis (no later than 60 days after audit opinion issued)
• Must include details of NET of procedures: results/ conclusion
• Cannot be discarded/ deleted until end of retention period (5 years)

Question 22

ISA 300

Answer 22

Planning an audit of financial statements

Question 23

ISA 300 detail (3)

Answer 23

• Should reduce audit risk to acceptably low level

- NET, supervision, review and communication with previous auditor (if necessary)

Question 24

ISA 315

Answer 24

Understanding entity, environment and assessing RoMM

Question 25

ISA 315 detail (3)

Answer 25

- Internal controls, information systems, business objectives and how entity measures financial performance to assess RoMM and design appropriate procedures - Gain understanding external factors affecting company - Auditor should communicate material weaknesses in internal controls to TCWG

Question 26

ISA 320

Answer 26

Audit Materiality

Question 27

ISA 320 detail (2)

Answer 27

- Auditor should consider materiality and relationship with audit risk when determining NET of procedures and evaluating effect misstatements - Auditor should assess whether uncorrected misstatements have material impact on accounts

Question 28

ISA 500

Answer 28

Audit Evidence

Question 29

ISA 500 detail

Answer 29

Auditors should obtain sufficient appropriate evidence to draw reasonable conclusions on which to base audit opinion. Including evidence of C & A of information.

Question 30

ISA 520

Answer 30

Analytical Procedures

Question 31

ISA 520 detail

Answer 31

Analytical procedures should be used to obtain understanding of the entity and when forming conclusions

Question 32

ISA 570

Answer 32

Going Concern

Question 33

ISA 570 detail (2)

Answer 33

- Auditors must consider if management's use of GC principle is appropriate - Evaluate management's assessment of GC and consider business risks

Question 34

ISA 620

Answer 34

Using work of external experts

Question 35

ISA 620 detail

Answer 35

If intend to rely on work from external expert, need to ensure work is adequate for purposes of audit and whether expert is competent

Question 36

ISA 701

Answer 36

Communicating Key Audit Matters in Independent Auditor's Report

Question 37

ISA 701 detail

Answer 37

Objectives of auditor to determine key audit matters, and, once formed opinion on FSs, communicate these matters in auditor's report