Module 9

Question 1

Audit must ensure they do what to fulfil their responsibilities?

Answer 1

Adequately plan
Obtain sufficient appropriate evidence
Report findings and opinion

Question 2

Auditors rights

Answer 2

To receive information

• access
• explanations

Resolutions and meetings

• written resolution
• AGM
• heard

Question 3

Matters to be reported by exception?

Answer 3

Returns received 
Accounts agree
Proper records kept
Information and explanations received 
Directors emoluments and disclosures complete

Question 4

CA 2006 makes it an offence to

Answer 4

Knowingly or recklessly give a misleading false or deceptive statement

Question 5

Auditor appointment

Answer 5

Passing of ordinary resolutions (50% + shareholder via vote) 
Directors allowed:
- before 1st period
- fill causal vacancy 
- previous exemption

Question 6

Public vs private companies appointment?

Answer 6

Public - at each AGM

Private- automatically unless 5% shareholders object

Question 7

Auditor remuneration fixed by

Answer 7

Whoever makes the appointment

Question 8

Auditor removal during terms of office

Answer 8

Can be at any time, rights:
Copy of motion
Written statement
Attend AGM in year

Failure to reappoint- right to written representation

Question 9

Auditor resignation

Answer 9

Letter of resignation

If PIE statement of circumstances, may request a general meeting

Question 10

Statement of circumstances must either:

Answer 10

Asset no connected circumstances

Or disclose them

Question 11

Statement must also be sent to

Answer 11

Appropriate audit authority
PIE = FRC
RSB otherwise

Question 12

What is money laundering?

Answer 12

Involves possessing, concealing or dealing with the proceeds of any crime

Question 13

Legal guidance of money laundering is in?

Answer 13

POCA 2002 proceeds of crime act
ML regs 2017
SOCPA 2005

Question 14

Client may conduct money laundering by?

Answer 14

Knowingly or actively

Inadvertently

Question 15

Principal offences of the proceeds of crime act 2002 POCA 2002

Answer 15

Concealing or transferring the proceeds
Arrangements to facilitate the acquisition, retention use of control
Acquiring, using or possessing criminal property

Question 16

Common law cases

Answer 16

Kingston- auditor negligence
AWA - duty of care to clients
Caparo - fury of care to 3rd parties and shareholders
RBS- 3rd parties doc

Question 17

What are the regulated sectors?

Answer 17

Auditors, external accountants and tax advisors 
Credit institutions 
Financial institutions
Independent legal professionals
Trust or company service professionals
Estate agents
High value dealers
Casinos

Question 18

Potential additional offences for those in the regulated sector under the POCA include?

Answer 18

Failure to report

Tipping off

Question 19

POCA requires disclosures to be made internally to?

Answer 19

A nominated officer

Money laundering reporting officer in an audit firm

Question 20

It is an offence under the POCA for an individual in a regulated sector to fail to report to the NCA, the MLRO or equivalent in a timely fashion where:

Answer 20

a) knew or has reasonable grounds to know or suspect that someone is engaged in money laundering
AND
b) either the individual can identify the person or whereabouts of property OR believes the info they provide will identify them
c) the information has come through the normal course of business

Question 21

By making a disclosure, the individual has discharged their responsibility, the passes to the

Answer 21

MLRO who should investigate

Question 22

An MLRO or equivalent commits and offence where they fail to report back to the NCA where

Answer 22

a) knew or has reasonable grounds to know or suspect that someone is engaged in money laundering
AND
b) either the individual can identify the person or whereabouts of property OR believes the info they provide will identify them
c) the information has come from individual reporting to them

Question 23

The POCA contains no de minimis provisions, this means that

Answer 23

All suspicions that fall under the requirements must be reported

Question 24

What is tipping off?

Answer 24

Offence to tip off someone who has been reported for a known or suspected money laundering

May prejudice any investigation that is conducted

Question 25

Tipping off arises when an individual discloses information which was received in their ordinary course of business including:

Answer 25

That a report has already been made An investigation is being contemplated or is being carried out to determine whether a report has to be made

Question 26

Tipping off and failure to report sentences

Answer 26

Imprisonment, fine or both Failure to report - up to 5 years prison Tipping off - max 2 years

Question 27

What do the ML Regulations require?

Answer 27

Everyone who carries on a relevant financial business in a regulated sector to establish and maintain specific policies and procedures to guard against their services being used for money laundering

Question 28

What are the key areas that the ML regulations cover?

Answer 28

1. Risk assessment and controls 2. Customer due diligence 3. Supervision and registration

Question 29

Risk assessment and controls of the ML regs include

Answer 29

Risk assessment Policies, controls and procedures- kept in writing Internal controls- individual appointed for compliance Training- to identify instances and understand how policies affect their work

Question 30

What is customer due diligence in ML regs?

Answer 30

``` All firms must seek satisfactory evidence to identify and verify clients, includes: Directors (passport/driving license) Company itself (Companies house) Beneficial owners (25% or more of voting rights, or who can exercise control) (passport/dl) ```

Question 31

What approach should be taken to due diligence?

Answer 31

Risk based approach, more evidence where high degree of risk

Question 32

How long must records of client identification procedures be kept

Answer 32

5 years Include any transaction made by a firm on behalf of client MUST be deleted 5 years after completion of relationship

Question 33

The auditor must be careful that in gathering evidence they don’t tip off any who are on suspicion. ISA (UK) 250 Section A highlights what circumstance where auditor must be cautious not to tip off a client?

Answer 33

``` Instances of non-compliance Communication with those charges with governance Resigning unexpectedly Issuing modified audit report Delaying the audit report ```

Question 34

Accountants working outside the regulated sector obligations for money laundering?

Answer 34

Currently no obligation to make a money laundering report Unless it relates to terrorism Doesn’t preclude from criminal law - ethical

Question 35

What is common law?

Answer 35

The systems of law based on decisions made by judges in court Based on concept of judicial precedent - decision made by court is binding on other courts

Question 36

What is the condor rot negligence?

Answer 36

Occurs in situations where a party suffers loss or damage as a consequence of another party’s carelessness

Question 37

An auditor will be liable to pay compensation if?

Answer 37

Auditor owed a duty of care Audit was negligently performed Claimant suffered a quantifiable, reasonably foreseeable loss because of auditors negligence

Question 38

What is the Re Kingston Cotton Mill Co (1896) case?

Answer 38

Exaggerated stock quantities and value to overstate profits - auditor didn’t attend stock count In 1896 there was no requirement under law to attend stock count so not negligent ISA 501 now requires attendance if stock is a risky and or material balance

Question 39

What is the definition of duty of care?

Answer 39

A legal obligation imposed on auditors requiring them to exercise a reasonable standard of care whilst performing any acts that could foreseeably harm others

Question 40

The courts will only make an award of damages in relation to a negligence claim if

Answer 40

It can be proved that the auditor did owe a duty of care

Question 41

There is potential for duty of care to exist in what three groups?

Answer 41

Audit clients Shareholders Third parties

Question 42

What was the AWA limited v Daniels case (1992)

Answer 42

Duty of care to audit clients AWA managers concealed losses Sued auditor for failing to draw attention Had a duty of care through the engagement letter But the directors had a legal responsibility to safeguard assets Found to be jointly liable Auditor payed reduced damages

Question 43

What was the caparo industries v dickman case (1990)?

Answer 43

Duty of care to 3rd parties: Caparo relied on audited accounts of Fidelity in takeover, profit should have been a loss Alleged auditors negligent Was foreseeable but no close and direct relationship Principle of proximity Duty of care to shareholders: Owed to body as a whole No duty of care to shareholders acting as an individual

Question 44

What are the three conditions that must be met to establish duty of care?

Answer 44

Loss would have to be reasonably foreseeable Need to be close and direct relationship Imposition would have too be fair, reasonable and just

Question 45

What is the principle of proximity?

Answer 45

Restrict duty of care to third parties to those individuals with whom the auditor has a close and direct relationship

Question 46

What was the RBS v Bannerman (2002) case?

Answer 46

Duty of care to third parties RBS overdraft to APC APC went into receivership, sued auditors for negligence Auditor should have reviewed overdraft facility letter, RBS reliance on audit opinion Did owe duty of care Settlement

Question 47

Case that shows duty of care to shareholders?

Answer 47

Caparo

Question 48

Cases that show duty of care to third parties?

Answer 48

RBS | Caparo

Question 49

Duty of care to audit client case?

Answer 49

AWA vs Daniels

Question 50

Auditor negligence case?

Answer 50

Kingston cotton mill

Question 51

What are the three measures to prevent negligence?

Answer 51

Formalising the basis of the engagement contract Identifying the risk profile of potential clients Ensuring a sound audit approach followed - train and supervise - documentation standards - review

Question 52

What is a liability limitation agreement?

Answer 52

Limits the amount of liability owed to a company by its auditor

Question 53

The CA 2006 imposes a number of requirements on the use of LLA

Answer 53

Only for a particular financial year Must be authorised by shareholders Details disclosed in annual accounts Can be challenged in court Can face charges over knowingly or reckless if giving an incorrect opinion - penalty unlimited fine