Week 2 - Why It Matters

Question 1

Possible causes for audit failure

Answer 1

unintenational human error
Auditor fraud
influence caused by financial interest
Caused by personal auditor-client relationship

Question 2

Definition of independence - flint 1988

Answer 2

Unprejudiced
Unbiased
Uninfluenced

Question 3

Independence

Answer 3

Of mind

Of appearance

Question 4

Independence of mind

Answer 4

I am independent - work ethic, judgement

Question 5

Independence of appearance

Answer 5

Others can see im independent

Question 6

Programming independence

Answer 6

Auditors have freedom to develop own programme, within overall bounds of engagement

Question 7

Investigative independence

Answer 7

Auditors have the freedom to examine info thst auditors themselves deem to be relevant

Question 8

Reporting independence

Answer 8

Protects the auditors ability to choose to reveal to the public any info they believe should be disclosed

Question 9

Conflicts of interest between auditor and client

Answer 9

Truthful audit report may not be seen as in the inteeest of management/shareholders/ both

Question 10

Conflict between auditors profesh duty and self-interest

Answer 10

Auditors have to Comply with management view even if not profesh acceptable to retain audit

Question 11

Conflict between managers and shareholders

Answer 11

Managers may mislead shareholders even if only in the short term

Question 12

Conflict between client organisation and third parties

Answer 12

Company may bribe the third parties for their money even if not for their best interests

Question 13

Published codes of ethics

Answer 13

to ensure the quality and independence of audit

Question 14

General principles of IFAC codes

Answer 14

Integrity 
Objectivity 
Professisional competence and due care 
Confidentially 
Professional behaviour

Question 15

IFAC code conceptual framework - Requires accountants to

Answer 15

THREATS:
Identify,
Evaluate,
Address & either eliminate/ reduce

Adopt a principal-based approach

Question 16

Potential threats to objectivity

Answer 16

Self interest
Self review
Familiarity 
Advocacy 
Intimidation


Question 17

Why ethics and independence may differ in different countries

Answer 17

History and origins
Development of financial markets
Cultural factors
Auditor liability and litigation
Audit market
Audit regulation

Question 18

This is sarbanes-Oxley act

Answer 18

Passed by US congregation in June 2002
Creation of PCAOB
Audit committees
Restriction of non-audit services
New financial reporting and auditing procedures
International repercussions 
Created in response to the failure of enron

Question 19

PCAOB

Answer 19

Public company accounting oversight board

Question 20

The public company accounting oversight board

Answer 20

Two sets auditing standers
Monitors/inspects audit firms
Can impose disciplinary sanctions
Auditors have to register with ^ 

Question 21

IFAC

Answer 21

International Federation of accountants

Question 22

International Federation of accountant

Answer 22

Auditing

Ethics 

Question 23

A clarified societal role for auditors

Answer 23

Increased audit quality
Enhanced transparency
Better accoutnability

Question 24

A strong independence regime

Answer 24

Mandatory Rotation of audit firms
Prohibition of certain non-audit services
Cap on the provision of non-audit services

Question 25

A more dynamic and competitive EU audit market

Answer 25

A single market for statutory audit More choice Enhanced supervision of the audit sector

Question 26

PIEs

Answer 26

Public interest entities Include all companies listed on an EU regulated market and in addition unlisted banking and insurance companies and groups

Question 27

Rotation

Answer 27

Mandatory audit firm rotation every 10 years

Question 28

Small companies

Answer 28

Turnover not to sxceed 10.2 million Balance sheet total not exceed $5.1 million Average number of employees not greater than 50

Question 29

Directors responsibilities

Answer 29

``` Preparation of accounts Accounting policies Accounting records Safeguarding of assets Prevention of fraud and error ```

Question 30

Auditors resps.

Answer 30

Form and reports opinion on companies accounts Consistency of directors report and corporate governance statement Compliance with certain aspects of combined codes Information required by law or listing rules not disclosed

Question 31

RSBs

Answer 31

Recognised supervisory bodies - admissions & expulsions - monitoring - disciplinary matters - complaints procedures

Question 32

RQBs

Answer 32

Recognised qualifying body - entry - examination - training

Question 33

FRC | + 2 subcommittees?

Answer 33

Financial reporting council 2 subcommittees - conduct - codes and standards

Question 34

Conduct committee - 3 subcommittees

Answer 34

Corporate reporting review Audit quality review Case management

Question 35

Codes and standards 3 subcommittees

Answer 35

Audit and assurance council Corporate reporting council Acturial council - analyses financial risk