Responsibilities

Question 1

Audit engagement

Answer 1

Reasonable assurance
Positive opinion

Question 2

Other assurance engagements

Answer 2

Limited assurance
Negative conclusion

Question 3

Audit purpose

Answer 3

Enforce accountability ensuring Directors act in the best interest of the company
Promote confidence of the intended user
Express an opinion on truth and fairness of financial statements

Question 4

Audit threshold (2/3 criteria)

Answer 4

50 employees
£10.2 million turnover
£5.1 million profit

Question 5

Benefits of assurance

Answer 5

Deters fraud
Reduces risk
Provides credible and reliable information
Holds management accountable
Improves decision-making / confidence
Confirms compliance

Question 6

Director’s responsibilities

Answer 6

Prevent and detect fraud and error
Manage sustainability concerns

Question 7

Auditor’s responsibilities

Answer 7

Form an independent opinion on the truth and fairness of the annual accounts
Detect material misstatement through performing a reasonable assurance engagement
Conduct themselves with professional scepticism

Question 8

Types of fraud

Answer 8

Misappropriation of assets
Fraudulent financial reporting
Aggressive earnings management

Question 9

The Companies Act 2006 to grants the auditor’s the right…

Answer 9

Of access at all times to the company’s books and accounts
To obtain any information necessary for the audit form any employee
To attend any general meeting of the company

Question 10

Non assurance services

Answer 10

Firm is only responsible for providing the services specifically negotiated with management
Management retains the overall responsibility, firm employed as support

Question 11

FRC Climate Thematic Audit document

Answer 11

Raises issues for auditors to consider at all stages of a statutory audit in relation to climate issues

Question 12

Error

Answer 12

An unintentional misstatement in financial statements

Question 13

Fraud

Answer 13

The intentional act to deceive or obtain an unjust or illegal advantage

Question 14

Management responsibilities regarding fraud

Answer 14

Primary responsibility for the prevention and detection of fraud
- Creating a culture of honesty and ethical behaviour
- Establishing a sound system of internal control
- Implementing policies and procedures to ensure efficient conduct of the business

Question 15

Auditor responsibilities regarding fraud

Answer 15

Obtain reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error
Assess the risk of material misstatement
Report to the appropriate party when discovered

Question 16

Risk assessment

Answer 16

Discussion of the susceptibility of the entity’s financial statements to fraud

Question 17

What should auditors do where fraud is detected?

Answer 17

Consider the implications of this for other aspects of the audit
- management representations may not be trustworthy - may limit scope of the audit

Question 18

Characteristics of journals that heighten the risk of fraud

Answer 18

Relate to seldom used / suspense accounts
Processed by individuals that do not usually do journals
Unusual in timing
Contain no description or vague references
Made outside of office hours
Lack commercial rationale
Involve related parties

Question 19

Auditor reporting fraud / non-compliance procedure

Answer 19

Report it to the Audit Committee
Modify the auditor’s report appropriately as financial statements no longer give a true and fair view
Determine whether there is a responsibility to report to a third party

Question 20

Categories of law and regulations which auditors are interested in

Answer 20

Those with a direct impact on the financial statements
Those which provide a legal framework within which the company operates

Question 21

Areas of law which affect all businesses

Answer 21

Employment
Social security
Health and safety

Question 22

Management’s responsibilities regarding compliance with laws and regulations

Answer 22

Primary responsibility
Monitor legal requirements
Operate internal control
Develop a code of conduct
Monitor compliance with the code
Engage legal advisors

Question 23

Auditor responsibilities regarding compliance with laws and regulations

Answer 23

Make inquiries of management
Inspect correspondence with relevant licensing or regulatory bodies
Obtain written representations that management has disclosed all known instances of actual or possible non-compliance
Report issues of non-compliance

Question 24

Bribery Act 2010

Answer 24

Regards a payment as bribery if it leads to ‘improper performance’ by another person

Question 25

Impact of the Bribery Act 2010 on an Audit

Answer 25

Introduced severe penalties for offering / accepting a bribe and bribing a foreign public official
Auditors may have duty to report suspicions of bribery to the National Crime Agency under the Proceeds of Crime Act 2002

Question 26

Principles underpinning bribery prevention policies

Answer 26

Proportionate procedures designed to mitigate risks and prevent unethical conduct
Top-level commitment creating a culture where bribery is unacceptable
Periodic, informed and documented risk-assessment
Proportionate and risk-based due diligence procedures
Communication to ensure that bribery prevention is embedded and understood throughout the organisation
Monitory and review and making improvements to procedures where necessary

Question 27

Related party transactions

Answer 27

May be carried out on terms which may not be the same as in an arm’s length transaction with an independent third party
Auditor must consider the risk of there being undisclosed material related party transactions
Written representations should always be requested from directors - know the identities of related parties

Question 28

Purpose of money laundering

Answer 28

Disguise the origins of funds derived from illicit sources
Enable illicit funds to be used by those who control them

Question 29

Illicit sources of funds

Answer 29

Crime
Criminal property - any gain from non-compliance with laws and regulations

Question 30

Firm’s responsibilities regarding money laundering

Answer 30

Appoint a Money Laundering Nominated Officer
Perform Client Due Diligence
Conduct training
Keep records - 5 years after engagement has ended

Question 31

Auditors responsibilities regarding money laundering

Answer 31

Comply with the Proceeds of Crime Act
Avoid tipping off

Question 32

Money laundering paradox

Answer 32

If auditor’s qualify the report to disclose probable money laundering, it could tip-off the firm, which is an offence