Videos Flashcards
(26 cards)
fundamental principles
- professional competence and due care
- Integrity
- Professional Behavious
- Objectivity
- Confidentiality
Ethical threats
- self-interest threat (owns shares, fee is dependent, gift and hospitality, loans, Business and personal relationships, employment with client, litigation with client, over due fee, contingency fees)
- self review threat (accounts preparation)
- familiarity threat (long association, personal relationships, movement of staff bn the firm and client, gifts and hospitality)
- intimidation threat (fee dependency, audit client joins the client, personal relationships, litigation with client)
- Advocacy threat (representing the client, promoting the client, negotiating on behalf of the client)
6th threat - assuming management responsibilities
may create threat to independence - management threat in some jurisidctions
client mng makes all decisions and judgement eg setting policies and strategic direction, hiring or dismissing employees, directing and taking responsibility for employees’ actions, authorising transactions, deciding which recomendations to implement, reporting to TCWG on behalf of mng
taking responsibility for fair presentation
design and creation of internal controls
assessing the significance of threat
- value
- seniority (more senior, greater the threat)
- impact to audit firm
- materiality to FS - when considering fo rnon audit service (non-audit fee is big part)
safeguards
fee dependency
increase client base + independent review of work
listed - if fee from 1 client=15% of the total revenue for 2 consec years = threat -> firsm should disclose it to TCWG
+EQCR who is not a member of audit firm must be either as pre-issuance review, before 2nd year audit opinion is issued or a post-issuance review on the 2nd year before 3rd year audit opinion is issued
Audit risk
there is a misstatement in audited fin statement
1. draw different pieces of information from the scenario (listed, there is external targets, fin mng: info on that target). tell the story
2. bring in one of 3 risks
I. Inherent - risk that the problem occurs on the first place, about company’s trade or activities that put them at misstatement occurring
II. control risk - company’s systems don’t prevent or detect misstatent
III. detection risk - risk that auditor misses it for some reason.
3. specific account misstated: bes pecific amort expesne sis ovesrtate -> profits overastated
4. under/overstated
5. relevant calculations (materilaity and other) -3-4 points for calc and discussion
6. apply account standards
PIRAT - probable, intention to complete, technically feasible, fund is in place,
the product is at prototype - technical feasibility hasn’t been feasible, therefore we should not capitalize it
audit vs business risk
problem occurs bc of company’s trading - inherent risk; company’s system don’t detect or prevent it and auditor misses it for some reason
Audit risk = inherent risk * control risk * detection risk
if audit risk occurs, then audited FS is materially misstated -> WRONG audit opinion
Business risk - things that affect trade or performance of company - big customer not paying us, no cash, to supplier, impact relationship, -> going concern of the company
Audit risk - our AR might be overstated
DON’T TAKE SAME ISSUE FROM THE SCENARIO AND EXPLAIN IT AS BOTH BR AND AR
tendering
risks: waste of time, setting a low fee, making unrealistic claims/promises in order to win contract
matters to consider before
- resources
- competence
- independence
- risks
- special risks
- potential for profitability
- additional services
tendering code of ethics. Advertising and publicity
this material must not
- bring disrespute to ACCA and profession
- discredit services offered by others
- be misleading
- fall short of any ad codes
Fees
- basis for calculating fees should be pre-agreed and mentioned in the Engagement letter to avoid contention
- fees should be charged bearing in mind factors as staff seniority, expertise, time spent, apportionable OH, risk involved
- contingency fees should be avoided except customary (e.g. insolvency work)
prior to accepting engagement
- independence and objectivity
- money laundering (client due diligence)
- resources
- risks
- fees
- professional competence
- reputation of the client
- professional clearance
before accepting client
- permission to communicate with existing auditor (if refused, decline nomination)
- request all information to decide whether or not to accept nomination
- existing auditor requests permission of client to communicate with nominee proposed
engagement letter
- objective and scope of the audit
- the responsibilities of the auditor
-the responsibilities of management - applicable fin reporting framework
- expected form and content of reports to be issued
planning
ISA 300 - planning an audit of FS
Strategy
Scope:
- engagement characteristics
- reporting objectives
- significant engagement factors
- preliminary activity results
- the resources needed
Plan
nature, timing and extent of risk assessment procedures
- what audit procedures
- who should do them
- how much should be done
- when the work should be done
Business risk
factors threatening client’s ability to meet their strategic objectives, aka profit targets - essential part of inherent risk assessment;
impact on profit or cash flow should be assessed
Purchase of good from overseas - purchases may become more expensive if the exchange rate moves in adverse direction, reduce profit
change in laws - risk of unrecorded liabilities if the company is not compliant; fees and penalty for non-complliance may reduce profits
Sales decreased - AR, RMM - asset values mb overstated due to impairment
falling sales and reduced capacity will impact profit and cash flow
Risk assessment
Required to design procedures to reduce audit risk to an acceptable level
Audit risk = RMM*Detection risk
RMM = COntrol risk *Inherent risk
to understand level of inherent and control risk:
- must obtain understanding of the client entity, and its environment, in accordance with ISA 315:
- relevant industry, regulatory and other external factors
- the nature of entity
operations
ownership and governance structure
types of investment it makes
the way it is structured and financed
objectives, strategies and related BR
measurement and review of fin performance
the internal controls relevant to audit
Risk assessment
obtain understanding of accounting and internal control systems sufficient to plan the audit and develop an effective audit approach
- use professional judgement to assess components of audit risk and to
Ch8 Group and transnational audits
group is treated as a single entity in accounting terms
though in law is collection of separate legal entities
acceptance of group
- whether sufficient and appropriate audit evidence can reasonably be expected in relation to consolidation process and the fin information of the components of the group
- where component auditors are involved - evaluate whether group will be able to be involved in the work of component auditors
- whether we can rely on component auditor work
- materiality of the portion of the group not audited by them
component auditor acceptance
consider before accepting:
1. whether this component is independent of parent and other components and is compliant with ethical standards
2. whether we are ready for group auditors evaluating our work
3. do we have sufficient accounting standards knowledge and reporting framework = competence
4. whether we can comply with group audit instructions
group accounts
- group accounts require consolidation adjustments
- relevant accounting standards must be complied with
- mb audited by other than parent company auditors
group auditors
- must review work of component auditors. because no part of audit opinion can be delegated to component auditor
send consol-n quesstionaire - accounting policies
- accounting details needed for consolidation
group auditors review of component auditor work
- review of accounting policies for uniformity
- consideration of materiality
- consider whether all material areas are covered and whether the work of component auditor can be relied upon, and competence of component auditor
