W9 - L2 Flashcards
Money Laundering + Any kind of legal environment an auditor may be in.
What’s internal audit?
Appraisal or monitoring activity established by management for the review of the accounting and internal control systems.
What’s ISA 610
Considering the work of other auditors:
- External auditors consider activities of internal audit
- Effect on the external audit procedures
- Most large companies have internal audit department
Name 2 aspects of the work of internal audit
External + Internal Audit Work
- Accounting and internal systems review
- Transaction and balance verification
Internal Audit Work
- Operational audits
- Reports on economy, effectiveness and efficiency has been achieved
- Special investigations
Who are external auditors appointed by?
Shareholders
Who do external auditors report to?
Shareholders
Who’re external auditors governed by?
Companies Act 2006 and ISA.
Can external auditors be and employee of companies that’re being auditors?
No
Who do internal auditors report to?
Audit committee and Directors
Who’re internal auditors appointed by?
Audit committee and Directors
Who governs the internal auditors work?
Audit committee and Directors
Who employs internal auditors?
Companies or they’re contracted out.
Name 2 ways an external audit relies on an internal audit
- Looks at objectivity of internal audit
- Competence of internal audit
- Due professional care of work
- Effective communication with external audit
- Limit reliance on internal audit in areas that’re high risk and need judgement
Name 2 things an auditor is liable for
Criminal Law
- CA 2006, Fraud, Insider Trading, Money Laundering
Civil Law
- Contract Law (Breach of Contract), Duty of care to third parties
What makes someone an auditor?
Member of recognised accounting body + someone directly authorised by the state.
Who can’t be an audtior?
Those managing company + Those with business/personal connection with company.
Who appoints/removes auditors?
Via vote at AGM.
What does CA 2006 say about offences in auditor’s report?
‘if they knowingly or recklessly causes a report under section 495 (auditor’s report on company’s annual accounts) to include any matter that is misleading, false or deceptive in a material particular.
The penalty is a fine.
What’s fraud?
Deception to obtain financial advantage and intentional misrepresentation affecting financial statements.
Name an example of fraud
- Fraudulent financial reporting
- Misappropriation of assets
What does ISA 240 require of Auditors?
‘identify and assess the risks of material misstatement in the financial statements due to fraud’
What’s money laundering?
Money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them.
What’re the stages of money laundering?
1 - Placement
2 - Layering
3 - Integration
Name 2 ways accountants can commit money laundering
- Being involved
- Failure to report knowledge or suspicion
- ‘Tipping off’ to suspected person/company
