Audit 2

• Auditor


  Can only form opinion based on audit evidence, cannot allow any other factors to influence opinion
• Auditor


  • Unbiased
  • Technical Ability
  • Time Ability
  • Staff Ability
• Public accountant


  Changes to an auditor
• Exceptions to confidentiality


  Modified Audit = Unfavourable Audit

  
• Audit report


  Reported to the Finance Minister
• Advocate


  Speak on behalf
• Management cannot influence the auditor on the audit report
• Before an audit begins (usually in big 4)


  1. Identify if any ethical threat exists by requiring all audit team members to make a declaration (20 Questions)

  2. Evaluate the ethical threat to assess its impact

  3. Apply safeguard to either remove or reduce the ethical threat
• Mitigate/Lessen Self-Interest Threat


  1. Request the audit staff to dispose off the shares

  2. If not possible then we do not involve this staff in the audit

  3. If it is necessary to include this audit staff then disclose to the AC
• Apply to bank audits Self-Interest Threat


  1. Remove this staff from the audit team

  2. If it is necessary to include this audit staff then disclose to AC
• Familiarity Threat


  1. Rotation of entire audit team after seven years of continuous audit

  2. Have a second audit partner to review the audit work
• Mitigate/Lessen Familiarity Threat


  1. Remove this audit staff from the audit team

  2. Allocate work to the staff such that he does not audit an area of work performed by his family member
• Mitigate/Lessen Self-Interest Threat when audit staff joins the client


  1. Assign more experience audit staff

  2. Change the audit approach and make it less predictable add in element of surprise
• Mitigate/Lessen Self-Review Threat when client staff joins the audit firm


  1. Remove this audit staff from the audit team

  2. Appoint a 2nd audit partner to review the audit files
• Mitigate/Lessen Self-Interest Threat


  Do not accept any benefits or gifts from the client unless the value is trivial and inconsequential
• Mitigate/Lessen Intimidation Threat


  1. If the audit staff is being sued, then remove this audit staff

  2. If the audit firm is being sued, then resign
• Threats to auditor independence


  • Self-Review Threat
  • Self-Interest Threat
  • Intimidation Threat
• Mitigate/Lessen threats


  1. Give up some non-audit work

  2. Separate staff to provide audit and non-audit services

  3. Ensure we do not make management decisions for the client
• Services auditors cannot provide for PIE clients


  • Accounting services
  • IT services
  • Internal audit services
• PIE (Public Interest Entities)


  • Financial Institutions (Banks, Insurance companies, Stock-broking firms, Fund/asset management companies)
  • Large Charities
• Auditor can either resign or be removed (no ethical threat involved)
• Mandatory for incoming auditor


  Write to the out-going auditor to inquire if there are any professional reasons why he should not accept appointment to be the new auditor (Professional Clearance)
• Mitigate/Lessen threats


  1. Look for new clients

  2. Monitor the fee income from large clients continuously to ensure we are not heavily dependent on any one client

  3. Inform Clients that auditors cannot charge fees on a contingency basis
• Fee income restrictions for PIE clients


  • Fee Income from one PIE client cannot exceed 15% of the audit firm's annual revenue for each two consecutive years
  • Fee income from non-auditor services cannot exceed 50% of its audit fee for the same PIE client in the same year
• Fee income restrictions for private limited companies


  • Fee income from any one private limited company cannot form a large proportion of the audit firm's annual revenue per year
• Letter


  Write to someone outside the audit firm
• Memo


  Write to someone within the audit firm
• CA 2006 + IAS/IFRS
• Critical areas in financial statements


  • Items that are likely to be materially misstated, e.g. when management is given a bonus based on revenue
• If the error amount is very big, you have to ask the CFO to edit the financial statement at the end of the audit
• Audit Risk


  Impact the auditor
• Business Risk


  Impact the entity, Prevent company from achieving its goal
• Potential new client: Roy Chandler- ICA EW TSE
• IFAC (International Federation of Foundation) code of ethics cover 3 Areas


  (1) Fundamental Principle

  (2) Ethical threats affecting the accountants compliance with fundamental principles

  (3) The independence of auditor
• Fundamental Principles 


  I can Overcome Professional Paper
• Fundamental Principles (Part 2)

  (1) Integrity

  (2) Confidentiality

  (3) Objectivity

  (4) Professional Competence and Due Care

  (5) Professional Behavioral
• Integrity (Fundamental principle)


  (1) An auditor should be honest in all his professional and personal relationship

  (2) An auditor should not prepare, attest, certify or make any reports or any form of communication he believes that to be false, inaccurate , misleading or contain omission or suppression of information
• Confidentiality (Fundamental principle)


  (1) An auditor should not use any confidential information for any personal advantage or for the advantage of a third party

  (2) An auditor should not disclose any confidential information relating to the client to any 3rd party unless there is a professional right or duty to do so. Unless, there is a legal duty to disclose.

  a third