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All notesAll notes
!ul"t#on #s needed to ensure th"t "ud#tors "re "ct#n!#n the publ#c
terest
ese 'reultons' come n 4 ws
Eth#cs
St"nd"rds
Re!ul"t#ons
St"tutor%
e nterntonl reultorfrmeworfor udt nd ssurnce servces encompsses
Intern!t"on!l Feder!t"on of Account!nts (IFAC) pronouncements
Corpor!te Govern!nce
ow the Structure, Role & Benef#ts / Dr"wb"c's
e!ul"tor#Env$ronment
ntern!t"on!l Re#ul!tor$Fr!mewor%s
Need for St"nd"rds "nd Re!ul"t$ons
d$t Comm$ttees
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ucture of the Commttee
At le!st one member of the comm"ttee should h!ve recent !nd relev!nt f"n!nc"!l exper"ence#
There should be !t le!st 3 non execut"ve d"rectors# In the c!se of sm!ller comp!n"es, th"s m!$be 2#
e of the commttee
To #mprove the qu"l#t%of f#n"nc#"l report#n!
To #ncre"se the conf#dence of the publ#c #n the f#n"nc#"l st"tements$
Ass#st d#rectors #n meet#n!the#r respons#b#l#t#es #n respect of f#n"nc#"l report#n!$
Prov#de "ch"nnel to extern"l "ud#tors to report concerns or #ssues$
Rev#ew the comp"n%s s%stem of #ntern"l controls$
Stren!then the pos#t#on of #ntern"l "ud#t b%prov#d#n!!re"ter #ndependence from m"n"!ement$
Appo#ntment of extern"l "ud#tor$
vntes of commttee
Independent Report$n!
Prov"des "ntern!l !ud"t w"th !n "ndependent report"n%mech!n"sm# W"thout th"s m!n!%ement m!$be tempted to h"de
unf!vour!ble reports#
Frees up Execut$ve t$me
Le!ves top execut"ves free to m!n!%e b$prov"d"n%expert"se on f"n!nc"!l report"n%
Corpor"te Govern"nce mon$tored
Ensures th!t corpor!te %overn!nce requ"rements !re brou%ht to !ttent"on of the bo!rd
Appropr$"te Intern"l Controls
Should ensure th!t !n !ppropr"!te s$stem of "ntern!l control "s m!"nt!"ned#
Better Commun$c"t$on
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Better commun"c!t"on between the d"rectors, extern!l !ud"t !nd m!n!%ement "s f!c"l"t!ted#
Stren!thens extern"l "ud$t $ndependence
Stren%thens "ndependence of extern!l !ud"t !s the"r !ppo"ntment "s now not m!de b$the bo!rd#
dvntes of Commttee
Execut#ve d#rectors m"%perce#ve #t "s "thre"t to the#r "uthor#t%$
F#nd#n!non execut#ve d#rectors w#th "ppropr#"te expert#se m"%be d#ff#cult$
Add#t#on"l costs w#ll be #nvolved$
Too much det"#l m"%be thrust upon non execut#ve d#rectors$
mmun#c"t#on w#th the "ud#t comm#ttee
hdoes the externl udtor spefrst to the Audt Commttee
To ensure #ndependence between the bo"rd "nd the "ud#t f#rm$
The "ud#t comm#ttee cons#sts of #ndependent NEDs, who c"n therefore t"'e "n ob(ect#ve v#ew of the "ud#t report$
The "ud#t comm#ttee h"s more t#me to rev#ew the "ud#t report "nd other commun#c"t#ons (e!m"n"!ement letters) th"n the bo"rd$
The "ud#tor should therefore benef#t from the#r reports be#n!rev#ewed c"refull%
The "ud#t comm#ttee c"n ensure th"t "n%recommend"t#ons from the "ud#tor "re #mplemented$
The NEDs c"n pressur#se the bo"rd to t"'#n!"ct#on on "ud#tor recommend"t#ons
The "ud#t comm#ttee "lso h"s more t#me to rev#ew the effect#veness "nd eff#c#enc%of the wor'of the extern"l "ud#tor th"n the
bo"rd$
The comm#ttee c"n therefore m"'e recommend"t#ons on the re-"ppo#ntment of the "ud#tor, or recommend " d#fferent f#rm #f th#s
s "ppropr#"te
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profess#on h"s "respons#b#l#t%to the publ#c
blc Interest Oversht Bords
Oversees IFAC's "ud#t#n!"nd "ssur"nce
Bel#eves st"nd"rds should be h#!h qu"l#t%, cle"r "nd us"ble
Ensures "ud#tors "ct #ndependentl%of person"l #nterests, "nd be respons#ve to emer!#n!needs of st"nd"rd users
Promote compl#"nce w#th IFAC st"nd"rds b%the member bod#es of IFAC "round the world
mples
h"ng up
s"ness t!&"n%l!r%e !mounts of sm!ll ch!n%e e!ch wee&(e#%#!conven"ence store) needs to depos"t th!t mone$"n !b!nIf
epos"ts v!r$%re!tl$for no obv"ous re!son th"s c!n dr!w susp"c"on'but "f the tr!ns!ct"ons !re re%ul!r !nd rou%hl$the s!me
susp"c"on "s e!s"l$d"scounted#Th"s "s the b!s"s of !ll mone$l!under"n%, !tr!c&record of depos"t"n%cle!n mone$before
p"n%throu%h d"rt$mone$#
e Un"ted St!tes, for ex!mple, c!sh tr!ns!ct"ons !nd depos"ts of more th!n $10,000 must be reported b$the c!sh"er (the
&etc) !s "s"%n"f"c!nt c!sh tr!ns!ct"ons" to the F"n!nc"!l Cr"mes Enforcement Networ&F"nCEN, w"th !n$other susp"c"ous
nc"!l !ct"v"t$"dent"f"ed !s "susp"c"ous !ct"v"t$reports" (SARs)#
her (ur"sd"ct"ons susp"c"on-b!sed requ"rements m!$be pl!ced on f"n!nc"!l serv"ces emplo$ees !nd f"rms to report susp"c"ous
bl$c Interest Overs$!hts Bo"rd
Mone$L!under"n#
ne#L"under$n!B"s$cs
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t"v#bus"n#ss
ther method "s to st!rt !bus"ness whose c!sh "nflow c!nnot be mon"tored, !nd funnel the sm!ll ch!n%e "nto "t !nd p!$t!xes
#But !ll b!n&emplo$ees !re tr!"ned to be const!ntl$on the loo&out for tr!ns!ct"ons th!t seem to be tr$"n%to %et !round
rt"n%requ"rements#To !vo"d susp"c"on, shell comp!n"es should de!l d"rectl$w"th the publ"c, perform some serv"ce (not
"de ph$s"c!l %oods), !nd h!ve !bus"ness th!t re!son!bl$would !ccept c!sh !s !m!tter of course#De!l"n%d"rectl$w"th the
"c "n c!sh %"ves !pl!us"ble re!son for not h!v"n%!record of customers#
ex!mple, "t "s qu"te re!son!ble to th"n&th!t !h!"rst$l"st "s p!"d "n c!sh !nd, even "f she &nows her customer's n!mes, does
&now the"r b!n&det!"ls#A record of !h!"rcut must ostens"bl$be !ccepted !s pr"m!f!c"e ev"dence#Serv"ce bus"nesses h!ve!dv!nt!%e of the !non$m"t$of resources but the d"s!dv!nt!%e th!t the$must de!l "n c!sh#A bus"ness th!t sells
puters h!s to !ccount for the computers, where!s the h!"rst$l"st does not h!ve to produce the cut h!"r, but the rece"pt for
computer, even "f "nfl!ted, ex"sts th!t for the h!"rcut prob!bl$does not#It "s of course !lso poss"ble to "nvent customers,
l$for the purpose of !ccept"n%mone$from them#
terntonl efforts to combt monelundern
F"n!nc"!l Act"on T!s&Force (FATF) "s !n "ntern!t"on!l bod$, wh"ch promotes pol"c"es %lob!ll$to comb!t mone$l!under"n%!nd
or"st f"n!nc"n%#In 1990 FATF "ssued recommend!t"ons to comb!t the m"suse of f"n!nc"!l s$stems to l!under dru%mone$#
recommend!t"ons "nclude)
&"n%mone$l!under"n%!cr"m"n!l offence
sures to be t!&en b$bus"nesses !nd profess"ons to prevent mone$l!under"n%, "nclud"n%)
tomer due d"l"%ence !nd record&eep"n%
ort"n%of susp"c"ous tr!ns!ct"ons to !n !ppropr"!te !uthor"t$
ern!t"on!l cooper!t"on "nclud"n%extr!d"t"on of suspects#
se recommend!t"ons h!ve become the benchm!r&!%!"nst wh"ch !countr$s rules !re !ssessed#
e !re v!r"ous cr"m"n!l offences connected w"th mone$l!under"n%#The U+ex!mples !re)
ess"n%or conce!l"n%the proceeds of !n$cr"me
mpt"n%or help"n%to comm"t the !bove offence
re b$!person "n the re%ul!ted sector to "nform the !ppropr"!te p!rt$of !susp"c"on th!t someone "s mone$l!under"n%
"n%!d"sclosure wh"ch "s l"&el$to pre(ud"ce !n "nvest"%!t"on "nto mone$l!under"n%(t"pp"n%off)
l!st two offences !re the ones th!t !ccount!nts m!$f"nd themselves !ffected b$even "n!dvertentl$, !s !ccount!nts oper!te
e re%ul!ted sector !nd !re therefore requ"red to report susp"c"ons of mone$l!under"n%
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ences to ch"r!es of mone#l"under$n!%
port h!d been m!de to the !ppropr"!te p!rt$
e w!s !n "ntent"on to m!&e !report !nd !re!son!ble excuse (l"&el$to "nclude fe!r of ph$s"c!l v"olence or other men!ces) for
h!v"n%done so
u"r"n%or us"n%propert$for !dequ!te cons"der!t"on "n %ood f!"th
one%l"under#n!#s cre"t#n!the "ppe"r"nce th"t mone%obt"#ned from
mes or#!#n"ted from "le!#t#m"te source$
S l!w "t "s the pr!ct"ce of en%!%"n%"n f"n!nc"!l tr!ns!ct"ons to conce!l the "dent"t$, source, or dest"n!t"on of "lle%!ll$%!"ned
e$#
+l!w the common l!w def"n"t"on "s w"der#It "s t!&"n%!n$!ct"on w"th propert$of !n$form wh"ch "s e"ther wholl$or "n p!rtproceeds of !cr"me th!t w"ll d"s%u"se the f!ct th!t th!t propert$"s the proceeds of !cr"me or obscure the benef"c"!l
ersh"p of s!"d propert$#
!s"c!ll$me!ns !n$f"n!nc"!l tr!ns!ct"on wh"ch %ener!tes !n !sset or !v!lue !s the result of !n "lle%!l !ct, wh"ch m!$"nvolve
ons such !s t!x ev!s"on or f!lse !ccount"n%#
e$l!under"n%"s thus the process b$wh"ch cr"m"n!ls !ttempt to conce!l the true or"%"n !nd ownersh"p of the proceeds
er!ted b$"lle%!l me!ns, !llow"n%them to m!"nt!"n control over the proceeds !nd, ult"m!tel$, prov"d"n%!le%"t"m!te cover for
r sources of "ncome#
e term s wdeldefned to nclude
ay audio pause audio
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Possess#n!
De"l#n!w#th #n "n%w"%
Conce"l#n!
$$$the proceeds of "n%cr#me
e F#n"nc#"l Act#on T"s'Force on Mone%L"under#n!(FATF) #s "n
tern"t#on"l bod%wh#ch sets st"nd"rds, "nd develops pol#c#es to comb"t
one%l"under#n!"nd terror#st f#n"nc#n!
rrentl$h!s 35 member countr"es/terr"tor"es !nd observers such !s the World B!n&!nd Intern!t"on!l Monet!r$Fund)#
r recommend!t"ons !re endorsed b$more th!n 180 countr"es !nd !re the "ntern!t"on!l !nt"-mone$l!under"n%st!nd!rd
nst wh"ch n!t"on!l !nt"-mone$l!under"n%s$stems !re !ssessed
e recommendtons cover
Pol"c"es !nd coord"n!t"on
Mone$l!under"n%!nd conf"sc!t"on
Terror"st f"n!nc"n%!nd f"n!nc"n%of prol"fer!t"on
ern"t$on"l Efforts on Mone#L"under$n!
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re specfcllthese del wth
The scope of the cr#m#n"l offence of mone%l"under#n!
Me"sures to prevent mone%l"under#n!#nclud#n!)
customer due d#l#!ence (CDD) "nd record-'eep#n!*"nd
report#n!of susp#c#ous tr"ns"ct#ons "nd compl#"nce to "n extern"l f#n"nc#"l #ntell#!ence un#t (FIU)*
Me"sures needed #n s%stems for comb"t#n!mone%l"under#n!, #nclud#n!tr"nsp"renc%of le!"l persons "nd "rr"n!ements
ntern"t#on"l co-oper"t#on #nclud#n!mutu"l le!"l "ss#st"nce "nd extr"d#t#on
nc#p"l Offences of Mone%L"under#n!$$
ese re the common ones under Uleslton but enerllpplworldwde nd hencehe exm
Not "ppo#nt#n!"Mone%L"under#n!Report#n!Off#cer (MLRO)
Not h"v#n!r#s'm"n"!ement procedures "nd #ntern"l controls compl%#n!w#th "nt#-ML le!#sl"t#on
Not ver#f%#n!#dent#t%of "ll new cl#ents
No on!o#n!cl#ent due d#l#!ence
F"#lure to report "susp#c#on of ML
T#pp#n!off
T"x ev"s#on
pe of Mone#L"under$n!
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p n!-o
"s when !n "nd"v"du!l who "s susp"c"ous, d"scloses th!t susp"c"on to the suspect
ct even non-d"sclosure/!ct"on m!$be cons"dered t"pp"n%off (e#%#not c!rr$"n%out !cl"ent's "nstruct"ons th!t "s effect"vel$!
e$l!under"n%oper!t"on)#
e cl"ent !s&s the !ccount!nt to comm"t !suspected ML offence, th"s must be reported to the !ppropr"!te !uthor"t$
not be"n%susp"c"ous "s not !defence "f "t "s cle!r th!t !re!son!ble person should h!ve been susp"c"ous
fe!r of t"pp"n%off should not prevent the profess"on!l !ccount!nt from d"scuss"n%mone$l!under"n%m!tters w"th cl"ents on
n-spec"f"c b!s"s#Not do"n%so, when requested, m!$!mount to t"pp"n%off#
p"rtners "re potent#"ll%l#"ble on "(o#nt "nd sever"l b"s#s for bre"ches
the f#rm's obl#!"t#ons
nerl Defences
ences to mone$l!under"n%offences "nclude)
Report"n%to the MLRO
Intend"n%to report BUT there w!s !re!son!ble excuse for not do"n%so (fe!r of v"olence)
We thou%ht the cl"ent's !ct"ons were "n %ood f!"th (!nd "t's !re!son!ble !ssumpt"on)
count"nts h"ve mone%l"under#n!obl#!"t#ons$$
w Account"nts M"#Be Protected
w Account"nts Prevent Mone#L"under$n!
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e follownwll prevent ther ornstons benused for monelundernpurposes
Est"bl#sh "top-down "nt#-mone%l"under#n!culture
H"ve r#s'm"n"!ement procedures & #ntern"l controls
Appo#nt "mone%l"under#n!report#n!off#cer (MLRO)
H"ve record 'eep#n!s%stems for "ll tr"ns"ct#ons
&eep s%stems for #n#t#"l ver#f#c"t#on "nd cont#nued mon#tor#n!of cl#ents' #dent#t#es
H"ve #ntern"l susp#c#on report#n!procedures
Educ"te "nd tr"#n "ll st"ff #n the m"#n requ#rements of the le!#sl"t#on
Ident"f"c!t"on procedures
ent Accept"nce Procedures
uld "nclude
&now $our Cl"ent "nform!t"on
"nclud"n%###
The"r expected p!tterns of bus"ness
The"r bus"ness model
Where the"r funds come from
neLundernReportnOffcer
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f the MLRO #s "w"%then "deput%must be "ppo#nted ("s reports must be m"de "s soon "s pr"ct#c"ble)
Sole pr"ct#t#oners do not need to "ppo#nt "n MLRO
c! $s ou !ve !su"t! e eve o sen"or"t$!n exper"ence
Respons"b"l"t"es Include
ntern!l reports of mone$l!under"n%
Dec"d"n%"f suff"c"ent %rounds for susp"c"on
Prep!r"n%the extern!l report to present to the !ppropr"!te !uthor"t$
+e$l"!"son "nd"v"du!l w"th the !uthor"t"es
Adv"s"n%the en%!%ement "nd"v"du!l/te!m on how to cont"nue the"r wor&!nd "nter!ct w"th the cl"ent
Tr!"n"n%on ML m!tters
Des"%n"n%!nt"-ML s$stems
ofess#on"l "ccount"nts must report mone%l"under#n!to the
propr#"te "uthor#t%(e$!$MLRO, Pol#ce)$
e Po"nts !bout Report"n#
It "s !cr"m"n!l offence not to report
Re%!rdless of the !mount or ser"ousness
port$n!Dut$es
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ere s no o %! on o qu!n $ e cer ! n $o susp c on
There "s no !utom!t"c need to ce!se wor&"n%for !p!rt"cul!r cl"ent where !report h!s been f"led
Do"n%so m!$even be t"pp"n%off,
extern"l report should be m"de to the "uthor#t#es
hould nclude the follown
N!me of the report"n%bus"ness
Ident"f"c!t"on "nform!t"on of e!ch person (DOB, !ddress etc)
Role of e!ch person (e%Suspect)
An$references seen (e%B!n&!ccount)
Det!"ls of susp"c"ous tr!ns!ct"on
Loc!t"on of !n$l!undered propert$
s#!n"t#on
should cons"der res"%n"n%where##
It "s "n $our commerc"!l "nterests to do so
It "s profess"on!ll$!nd eth"c!ll$respons"ble to do so
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be c!reful to !vo"d t"pp"n%off#A%!"n, le%!l !dv"ce should be sou%ht "f "n doubt
ht re suspcous trnsctons
L!r%e c!sh depos"ts
Unexpl!"ned fore"%n tr!ns!ct"ons
Tr!ns!ct"ons w"th no bus"ness expl!n!t"on
e MLRO #s respons#ble for sett#n!up the "nt#-mone%l"under#n!
o!r"mme
follow"n#"s requ"red
Dedcted Resources
An MLRO "n pl!ce
The MLRO h!s !ppropr"!te &nowled%e, exper"ence !nd respons"b"l"t$
Wrtten Polces nd Procedures
The procedures should use "v"#l"ble technolo!%"nd #dent#f%r#s'f"ctors - #tems to loo'for when detect#n!mone%l"under#n!
These r"s%f!ctors could "nclude
Secrec$w"th !tr!ns!ct"on
$-Mone#L"under$n!Pro!r"mme
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Us"n%centr!l b!n&or %overnment-owned b!n&s !s the source of funds
A r!p"d "ncre!se/decre!se "n !b!l!nce, not expl!"ned b$fluctu!t"ons "n the underl$"n%m!r&et v!lue of "nvestments held
Frequent or excess"ve use of funds/w"re tr!nsfers "n or out of !n !ccount
Repe!ted depos"ts or w"thdr!w!ls (ust below the mon"tor"n%!nd report"n%threshold on or !round the s!me d!$
A p!ttern th!t !fter !depos"t or w"re tr!nsfer the s!me (or s"m"l!r) !mount "s w"red to !nother f"n!nc"!l "nst"tut"on
(espec"!ll$one th!t "s offshore)#
A frequent cle!r"n%out of !n !ccount for purposes other th!n m!x"m"s"n%the v!lue of the funds held "n the !ccount
Comprehensve Covere
All !spects of !comp!n$'s bus"ness, p!rt"cul!rl$those th!t
h!ve cont!ct w"th customers should be covered
A comp!r"son of the !ccount holder's "dent"t$to the %overnment l"sts of &nown or suspected terror"sts
TmelEsclton nd Resoluton
T"mel$reports
Appropr"!te rev"ews of the report
Ident"f$the outcome / resolut"on of m!tters
Explct Mnement Support
Sen"or m!n!%ement should set the tone
The"r support cle!rl$v"s"ble to !ll emplo$ees
Suffcent Trnnnd Educton
Inte%r!l to the whole pro%r!mme
Courses on how to reco%n"se susp"c"ous !ct"v"t$!nd wh!t to do next
Reulr Revew of the Prorm
To m!&e sure "t "s wor&"n%!s des"%ned
Accomp!n"ed b$!form!l !ssessment / report
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he offences F!"l"n%to d"sclose or report mone$l!under"n%T"pp"n%off
Pre(ud"c"n%!n "nvest"%!t"on
#stems "nd Controls Ident"f$complex / unusu!ll$l!r%e tr!ns!ct"ons
Prevent use of !non$m"t$%r!nt"n%products
Perform customer due d"l"%ence
Appo"nt mlro
Customer record &eep"n%for 5 $e!rs
ML compl"!nce mon"tor"n%
M!&e emplo$ees !w!re of ML re%ul!t"ons
s&-B"sed "ppro"ch T!r%et efforts where r"s&"s h"%hest
W!tch for unusu!l tr!ns!ct"ons
+eep customer due d"l"%ence up to d!te
ustomer Due D$l$!ence Test r"s&"ness of cl"ent to see !mount of DD
Alw!$s !t the st!rt of !bus"ness rel!t"onsh"p
When there's unusu!l tr!ns!ct"onWhen susp"c"ous
To new !nd old cl"ents on !r"s&sens"t"ve b!s"s
Ident"f$benef"c"!l owner
Mon"tor throu%hout rel!t"onsh"p
eport$n! Susp"c"ous !ct"v"t$reports
H!ve !n MLRO to report to
F!"lure to report "s !n offence
When reports m!de, the$!re protected
Report !s soon !s poss"ble
LRO S"%n"f"c!nt respons"b"l"t$
Sen"or person
Absences covered
The f!ct sheet "n full b!b '
rn more lst
CA f"ctsheet 145 on Mone#L"under$n!
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Good luc&w"th "t, !nd "f $ou %et to the end, %"ve $ourself !med!l
rrent Issue - Is "n eth#c"l fr"mewor'better th"n rules+
re's some resons whfrmewors ood
Needs "ud#tor to cons#der h#s s#tu"t#on "ct#vel%- not (ust "chec'l#st
Ensures there "re no loopholes b%#nterpret#n!rules too n"rrowl%
Ever%s#tu"t#on #s d#fferent
A fr"mewor'wor's better #n ch"n!#n!env#ronments
"n"!ement #s respons#ble for ensur#n!th"t the comp"n%compl#es w#thws "nd re!ul"t#ons
dtors re responsble for
conclud"n%FS free from m"st!tements c!used b$non-compl"!nce w"th l!ws !nd re%ul!t"ons
h!v"n%!%ener!l underst!nd"n%of the le%!l !nd re%ul!tor$fr!mewor&w"th"n wh"ch the comp!n$oper!tes
!ppl$"n%profess"on!l scept"c"sm
$c"l Fr"mewor&or Rules
!ws !nd re#ul!t"ons
pons$b$l$t$es of m"n"!ement "nd "ud$tors
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obt!"n"n%!%ener!l underst!nd"n%of !ppl"c!ble l!ws !nd
re%ul!t"ons
underst!nd"n%how the ent"t$compl"es w"th those l!ws !nd re%ul!t"ons
"dent"f$"n%"nst!nces of non-compl"!nce
be"n%!w!re of the "mp!ct of bre!ches of re%ul!t"ons on the !ssert"ons
sponsbltes of Mnement (nd Those Chred Wth Governnce)
Prevent#on AND detect#on of fr"ud "nd error
Stron!r#s'm"n"!ement "nd #ntern"l control
A culture of honest%"nd eth#c"l beh"v#our
Compl#"nce w#th "ppl#c"ble l"ws "nd re!ul"t#ons
Mon#tor#n!le!"l requ#rements
Develop#n!, publ#c#s#n!"nd follow#n!"Code of Conduct
Tr"#n#n!
ere "re #nd#c"tors th"t Non-compl#"nce m"%h"ve occurred
n-Compl$"nce D$scover#
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ese re
Government Invest#!"t#ons
F#nes or pen"lt#es
Unspec#f#ed p"%ments for to rel"ted p"rt#es or (!overnment) emplo%ees
Excess#ve s"les comm#ss#ons
Purch"s#n!"t not m"r'et pr#ce
Unusu"l b"n'tr"nsfers
P"%ments w#thout exch"n!e control document"t#on
L"c'of "dequ"te "ud#t tr"#l
nsequences of Non-Complnce
Prov"s"on for f"nes, ch!r%es etc
Potent"!l d"sclosures needed
Dec"de "f so ser"ous th!t true !nd f!"r v"ew "s quest"oned
ocedures when poss#ble noncompl#"nce #s d#scovered
ese re
Document f#nd#n!s
D#scuss w#th m"n"!ement
D#scuss w#th the#r l"w%er
D#scuss w#th own l"w%er
Cons#der #mp"ct on other "re"s of the "ud#t
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Cons#der #f %ou c"n now rel%on other m"n"!ement represent"t#ons
d#tors should tell d#rectors of "n%non-compl#"nce #mmed#"tel%
should h!ppen w"thout del!$, !nd m!&e !ppropr"!te reports, !s set out below)
OSE CHARGED WITH GOVERNANCE
If the !ud"tors suspect non-compl"!nce w"th l!ws !nd re%ul!t"ons
Commun"c!te to !ud"t comm"ttee
Cons"der the need for le%!l !dv"ce
AREHOLDERS
Onl#"f "t c!uses FS to not %"ve !true !nd f!"r v"ew or there "s !fund!ment!l uncert!"nt$
Report "n usu!l w!$(See report"n%sect"on)
GULATORY AUTHORITIES
w to Report on Non-Compl$"nce
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Aud"tor dec"des "f there's !respons"b"l"t$to report to p!rt"es outs"de the ent"t$
#s #s "l"st resort
ere re mnfctors to consder
Are m"n"!ement #mpl#c"ted+
Non-compl#"nce "ffect on rel"t#onsh#p w#th cl#ent
Le!"l respons#b#l#t#es+
An%"ltern"t#ves+
HEN TO WITHDRAW
M!n!%ement refuses to remed$the s"tu!t"on
S"%n"f"c!nt doubts !bout the competence or "nte%r"t$of m!n!%ement
hen wthdrwnthe udtor must
D"scuss the re!sons for WITHDRAWING w"th the !ppropr"!te level of m!n!%ement
Cons"der !n$profess"on!l or le%!l requ"rements to report h"s w"thdr!w!l
en to W$thdr"w From the En!"!ement
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e 5 fund"ment"l pr#nc#ples of the ACCA Code of Eth#cs must be
lowed
e 5 Fundmentl prncples nd wht themen
ntert
Be str"#!htforw"rd "nd honest #n "ll profess#on"l rel"t#onsh#ps
Obectvt
No b#"s or confl#ct of #nterest #nfluenc#n!%our bus#ness (ud!ements
Professonl Competence & Due Cre
&eep up %our profess#on"l 'nowled!e "nd s'#ll so "s to !#ve "competent profess#on"l serv#ce, us#n!current developments "nd
echn#ques
Act d#l#!entl%"nd w#th#n "ppropr#"te st"nd"rds when prov#d#n!profess#on"l serv#ces
Confdentlt
Don't d#sclose "n%conf#dent#"l #nform"t#on to th#rd p"rt#es w#thout proper "nd spec#f#c "uthor#t%
You c"n, however, #f there #s "le!"l or profess#on"l r#!ht or dut%to d#sclose
Obv#ousl%never use #t for person"l "dv"nt"!e of %ourself or th#rd p"rt#es
rofess$on"l "nd Eth$c"l Cons$der"t$ons
ode of Eth"cs for Profess"on!l Account!nts
d"ment"l Pr$nc$ples
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Professonl behvour
A profess#on"l "ccount"nt should "ct #n "m"nner cons#stent w#th the !ood reput"t#on of the profess#on
Refr"#n from "n%conduct wh#ch m#!ht br#n!d#scred#t to the profess#on
n the ex!m quest"on $ou m!$h!ve to !ppl$hese to !c!se stud$- #roov$b!b$((
"ud#tor must be #ndependent "nd be seen to be #ndependent
eores of Thret
tors need to be full$!w!re of s"tu!t"ons th!t m!$d!m!%e the"r "ndependence#
Self-$nterest
Here the "ud#tor m"%h"ve "f#n"nc#"l (or other) #nterest #n "m"tter$
Therefore the "ud#tor m"%not "ct w#th ob(ect#v#t%"nd #ndependence$
Self-rev$ew
Here the "ud#tor rev#ews "(ud!ement she h"s t"'en herself$
Or "n "ud#t f#rm prep"red the f#n"nc#"l st"tements "nd then "cted "s "ud#tor$
Th#s #s "thre"t to ob(ect#v#t%"nd #ndependence$
e"ts
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Advoc"c#
Here the "ud#tor #s expected to defend or (ust#f%the pos#t#on of the cl#ent, "nd "ct "s "n "dvoc"te$
Th#s #s "thre"t to ob(ect#v#t%"nd #ndependence$
nt$m$d"t$on
Here the "ud#tor c"n't "ct #ndependentl%"s she #s sc"red due to #nt#m#d"tor%thre"ts such "s the thre"t to t"'e "w"%the wor'
unless the%do "s the cl#ent w#shes$
F"m$l$"r$t#
Here the "ud#tor "nd cl#ent h"ve "too close rel"t#onsh#p, for ex"mple due to "lon!"ssoc#"t#on over m"n%%e"rs #n c"rr%#n!out the
"nnu"l "ud#t$
mples of Threts
Fnncl Interest
Here loo&for the n!ture of the "nterest !nd the de%ree of control the !ccount!nt h!s over "t - obv"ousl$the more control
the h"%her the r"s
No member of the !ssur!nce te!m (or "mmed"!te f!m"l$) should hold !f"n!nc"!l "nterest "n !cl"ent#
The "nterest should e"ther be d"sposed of, or the te!m member removed from the en%!%ement#
Lons nd urntees
If the cl"ent "s !b!n&(or s"m"l!r) !nd the lo!n "s on norm!l commerc"!l terms then there "s no thre!t to "ndependence#
All other lo!ns or %u!r!ntees !re !self- "nterest thre!t !nd should be !vo"ded#
Close busness reltonshps
A m!ter"!l (o"nt venture w"th !cl"ent "s !self-"nterest thre!t, so should be !vo"ded#
Bu$"n%th"n%s from !cl"ent "s f"ne "f on norm!l commerc"!l terms !nd "n the norm!l course of bus"ness#
Fmlnd personl reltonshps
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Th"n&here !bout the sen"or"t$of the !ssur!nce st!ff !nd the closeness of the rel!t"onsh"p#
If the f!m"l$member "s !ble to exert s"%n"f"c!nt "nfluence over the sub(ect m!tter then the thre!t to "ndependence c!n onl$
be !vo"ded b$remov"n%the "nd"v"du!l from the !ssur!nce te!m#
Recent emploment wth clent
The thre!t c!n be reduced b$%ett"n%!n "ndependent th"rd p!rt$to rev"ew the !ud"t f"le#
If !member th"n&s the$m"%ht soon be emplo$ed b$the cl"ent (h!v"n%!ppl"ed for !(ob there) then th"s should be d"sclosed
b$the member "mmed"!tel$#
Servnon the bord of ssurnce clents
Aud"tors should not do th"s#
Althou%h "f "t's onl$rout"ne !dm"n"str!t"ve serv"ces, l"&e ! comp!n$secret!r$, then "t m!$be o
Wh!t "s v"t!l "s th!t the$!re not "nvolved "n m!&"n%m!n!%ement dec"s"ons#
Lonssocton of senor personnel wth ssurnce clents
Th"s m!$c!use !f!m"l"!r"t$thre!t#
In the ex!m $ou need to loo&!t the n!ture of the role !nd the len%th of t"me th!t he h!s been do"n%"t when dec"d"n%
wh"ch st!ff members to "nvolve "n !ssur!nce wor
An !ud"t en%!%ement p!rtner !nd/or qu!l"t$control rev"ewer shouldn't wor&on the s!me cl"ent for more th!n seven $e!rs
!nd should not be returned to the en%!%ement for !t le!st two $e!rs !fter be"n%rot!ted off the te!m#
Fees
If the cl"ent fees !re !l!r%e proport"on of !f"rms tot!l fees, there "s !s"%n"f"c!nt self-"nterest thre!t#
ACCA rules st!te th!t recurr"n%fees p!"d b$one cl"ent or !rel!ted %roup of cl"ents should not exceed 15% of the "ncome of
the !ud"t pr!ct"ce (10% "f the cl"ent "s l"sted)#
In l!r%er f"rms !n "nd"v"du!l off"ce m!$exceed these l"m"ts !s lon%!s respons"b"l"t$for s"%n"n%off the !ud"t f"le should be
p!ssed to !d"fferent off"ce#
Overdue fees should be !vo"ded !s the$!re pr!ct"c!ll$!lo!n#
Gfts nd hosptlt
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Were rem!"n"n%members of the te!m properl$superv"sed-
n$!ccept not s%n c!nt to e t er p!rt$
Cons$der the follow$n!%
Could the v!lue !ffect ob(ect"v"t$-
W!s the hosp"t!l"t$when the !ud"tors should h!ve been wor&"n%-
Ensure the member chec&ed w"th more sen"or people "n the f"rm to chec&"f "t w!s !llowed - otherw"se "t "s !
d"sc"pl"n!r$offence !lso#
Actul nd thretened ltton
If !ctu!l l"t"%!t"on then res"%n from the en%!%ement#
fe!u"rd#n!#ndependence #s the respons#b#l#t%of the "ud#t f#rm & the
ofess#on
e!u"rds
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dt Frm Level
lture of "ndependence should be cre!ted, th"s me!ns !rot!t"on of the en%!%ement p!rtner !nd sen"or st!ff#
dd"t"on, !n !ud"t f"rm should h!ve the follow"n%procedures "n pl!ce)
Trnn
To !n !ppropr"!te level for the role
Qultcontrol procedures
Th"s ensures th!t "ndependence "s cons"dered "n !ll wor&performed b$the !ud"t f"rm#
Consultton
So "ssues c!n be d"scussed "ntern!ll$!nd procedures !re l!"d out to f!c"l"t!te th"s
Ethcl Codes
of conduct
Internl Controls
e Professon
profess"on should t!&e d"sc"pl"n!r$!ct"on !s !ppropr"!te#
profess"on re%ul!rl$su%%est new pr!ct"ces !nd procedures des"%ned to "mprove !ud"tor "ndependence#
h"n%s th!t the profess"on do to help s!fe%u!rd !%!"nst eth"c!l thre!ts !re)
Re!ul"r rot"t#on of "ud#tors m"de compulsor%
Us#n!"ud#t comm#ttees
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ACCA Ex"ms "nd CPD ))
Corpor"te Govern"nce "nd of course "ud#t#n!st"nd"rds
e Indvdul
nd"v"du!l !ud"tor c!n l"m"t eth"c!l thre!ts b$##
Compl#$n!w"th CPD re%ul!t"ons - !nd st!$"n%up to d!te
'eep$n!$n cont"ctw"th fellow profess"on!ls
To "nform!ll$d"scuss "ssues !nd problems
Independent Mentorused to d"scuss "nd"v"du!l thre!ts
ever d#sclose unless consent h"s been !#ven or %ou're obl#!ed to
consed exceptons to the dutof confdentlt
et"mes d"sclosure "s requ"red !nd somet"mes "t "s volunt!r$
Obltordsclosure
when the !ud"tor &nows, or h!s re!son to suspect th!t, !cl"ent h!s comm"tted##
Tre!son
Terror"sm
Dru%tr!ff"c&"n%
nf$dent$"l$t#
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Mone$l!under"n%
re exceptons
Voluntrdsclosure
Th"s "s perm"tted "n the follow"n%c"rcumst!nces)
1# Protect$n!Member Interests
For ex!mple, defend"n%$ourself !%!"nst !n !ccus!t"on of ne%l"%ence
2# Le!"l Process
The courts m!$requ"re documents
3# Publ$c Interest
For ex!mple - Inform"n%t!x !uthor"t"es of non-compl"!nce b$!cl"ent comp!n$w"th t!x re%ul!t"ons
hen the "ud#tor #s susp#c#ous of "n eth#c"l thre"t, "ct#on must be t"'en
low these steps
Assess the f"cts
Cons#der eth#c"l Issues
Fund"ment"l Pr#nc#ples Are the%"ffected+
See wh"t est"bl#shed procedures there "re for de"l#n!w#th #t otherw#se$$
olv$n!Eth$c"l Issues
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Loo'for "ltern"t#ve me"sures such "s "n extern"l re!ul"tor, or worst c"se scen"r#o, res#!n#n!,
or's on pr#nc#ples, not l#st#n!ever%re"son wh%"ud#tors m"%not do
e r#!ht th#n!
e conceptul frmeworwors le ths
dent#f%the thre"t th"t m"%c"use "fund"ment"l pr#nc#ple to be bro'en
The fund"ment"l pr#nc#ple how l#'el%#s #t to be bro'en+
L#m#t the r#s'#f the thre"t #s more th"n ne!l#!#ble - to "n "ccept"ble level
ere re 3 tpes of sfeurd
ch c!n l"m"t the r"s&
Professon
Tr!"n"n%& Educ!t"on G!"n"n%exper"ence !t wor&, p!ss"n%$our ex!ms )) & CPD on eth"c!l m!tters
Le%"sl!t"on On th"n%s such !s who "s f"t !nd proper to become !n !ud"tor
Corpor!te Govern!nce re%ul!t"ons These often set out best pr!ct"ce for some eth"c!l s"tu!t"ons
Indvdul
CPD +eep"n%up to d!te w"th !ud"t"n%st!nd!rds !nd developments
Networ&s +eep"n%"n cont!ct w"th other profess"on!ls to d"scuss m!tters "nform!ll$or cont!ct"n%ACCA for %u"d!nce
nceptu"l Fr"mewor&
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Independent Mentor A form!l rel!t"onsh"p w"th !nother !ud"tor to d"scuss eth"c!l thre!ts on !conf"dent"!l b!s"s
Wor
Codes of Conduct cre!ted !nd followed b$the f"rm w"th controls !nd procedures "n pl!ce
Eth"c!l St!nd!rds Rel!t"n%to !ud"t en%!%ements such !s d"scuss"ons w"th !ud"t comm"ttees !nd st!ff rot!t"on pol"c"es
e "ud#tor #s tempted to !"#n "person"l or f"m#l%benef#t r"ther th"n
ve "n "ppropr#"te serv#ce
ldnShres n clent
Don't,Here loo&for the n!ture of the "nterest !nd the de%ree of control the !ccount!nt h!s over "t - obv"ousl$the more
control the h"%her the r"s&
No member of the !ssur!nce te!m (or "mmed"!te f!m"l$) should hold !f"n!nc"!l "nterest "n !cl"ent#
The "nterest should e"ther be d"sposed of, or the te!m member removed from the en%!%ement
nfcnt Income from clent
L"m"t the !mount 10% of tot!l fees "f l"sted
15% of tot!l fees "f unl"sted
In l!r%er f"rms !n "nd"v"du!l off"ce m!$exceed these l"m"ts !s lon%!s respons"b"l"t$for s"%n"n%off the !ud"t f"le should be
p!ssed to !d"fferent off"ce#
Overdue fees should be !vo"ded !s the$!re pr!ct"c!ll$!lo!n
rte busness venture wth clent
$c"l thre"ts
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Don't,Althou%h bu$"n%th"n%s from !cl"ent "s f"ne "f on norm!l commerc"!l terms !nd "n the norm!l course of bus"ness
vnlon to the clent
m!$"nclude unp!"d !ud"t fees
Don't
ttnlon from clent
If the cl"ent "s !b!n&(or s"m"l!r) !nd the lo!n "s on norm!l commerc"!l terms then there "s no thre!t to "ndependence#
All other lo!ns or %u!r!ntees !re !self- "nterest thre!t !nd should be !vo"ded
wblln
Sett"n%!ver$low fee e"ther to !ttr!ct new cl"ents or ensure further wor&
S"fe!u"rd
Aud"tors should not set fees "n th"s w!$, the fee must be b!sed on !pre-determ"ned level of wor&requ"red
sptltnd Benefts
An$such "tems %"ven to the !ud"tor b$!cl"ent could be seen to be !br"be
So do not !ccept
ntnent Fees
Where !ud"tors fees !re cont"n%ent on !nother event h!ppen"n%#
Aud"t Fees !re not to be determ"ned "n th"s w!$
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ountnServces
If !n !ud"tor prep!res the !ccounts "t "s 100% sure th!t the$w"ll be rev"ew"n%the"r own worThe$m!$be tempted to h"de
errors to s!ve f!ce#
So the Aud"tor must not undert!&e !ccount"n%serv"ces for !cl"ent, "f the$!re !LISTED comp!n$#
No m!n!%ement dec"s"ons should be m!de "n other comp!n"es !nd !d"fferent te!m should prov"de e!ch serv"ce#
he"lth%scept#c#sm #s "fund"ment"l p"rt of "n%"ud#t
need to see more sceptcsm
Not !tot!l d"strust "t requ"res !n enqu"r"n%m"nd th!t "s open to the poss"b"l"t$th!t someth"n%m!$be wron%
Is "t supported b$ev"dence
Is "t cons"stent w"th wh!t "s &nown from elsewhere-
Are !ssumpt"ons re!son!ble-In tod!$'s world, "mp!"rment test"n%"s commonpl!ce !nd wor&s on !ssumpt"ons
The !ud"tor needs to not onl$see !record of wh!t the !ssumpt"ons !re, but !lso ch!llen%e them !nd underst!nd how the$
!ffect the conclus"ons the cl"ent h!s come to#
Too often "t seems th!t the !ud"tor "s loo&"n%for re!sons wh$!ssumpt"ons c!n be supported, w"thout !lso cons"der"n%f!cts
th!t m"%ht su%%est the$!re not !ppropr"!te - too opt"m"st"c, for ex!mple#
Is there suff"c"ent ev"dence-If !n !ud"t"n%st!nd!rd requ"res !cert!"n presumpt"on - for ex!mple, of !s"%n"f"c!nt r"s&of
fr!ud "n the c!se of revenue reco%n"t"on - does the !ud"tor too e!s"l$f"nd re!sons for overr"d"n%the presumpt"on-
hen pl"nn#n!"nd perform#n!"n "ud#t, the "ud#tor should "dopt "n
t#tude of profess#on"l scept#c#sm
fess$on"l Scept$c$sm
fess$on"l Scept$c$sm "nd Jud!ement
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An !tt"tude th!t "ncludes !quest"on"n%m"nd, be"n%!lert to cond"t"ons wh"ch m!$"nd"c!te poss"ble m"sst!tement due to
r or fr!ud, !nd !cr"t"c!l !ssessment of !ud"t ev"dence
her words, the$must not s"mpl$bel"eve ever$th"n%m!n!%ement tells them
e exerc#se profess#on"l (ud!ement #n pl"nn#n!"nd perform#n!"n "ud#t
!ud"tor w"ll need to exerc"se profess"on!l (ud%ement on both the qu!nt"t$!nd the qu!l"t$of ev"dence#
he hs toude
When #s there suff#c#ent ev#dence+
Wh"t #s the qu"l#t%of th#s ev#dence
tors to help wth theudement re
The ser"ousness of the r"s&
The m!ter"!l"t$of the "tem
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The stren%th of "ntern!l controls
The s!mpl"n%method used (see l!ter)
"ud
ntent$on"l "ct(((($nvolv$n!the use of decept$on to obt"$n "n un)ust or $lle!"l "dv"nt"!e
ree mn res of frud exst
Corrupt"on
M"s!ppropr"!t"on of !ssets
F"n!nc"!l st!tement fr!ud
ror
r!ud !nd Error
f$n$t$ons
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un$ntent$on"l m$sst"tement $n f$n"nc$"l st"tements, $nclud$n!the om$ss$on of "n "mount or "d$sclosure
mples re
A m"st!&e "n %!ther"n%d!t!from wh"ch FS !re prep!red
An "ncorrect !ccount"n%est"m!te due to !n overs"%ht
A m"st!&e "n !ppl$"n%!ccount"n%pr"nc"ples
e!ul"r#t%
ntent$on"l m$sst"tement to m$sle"d users
m!ter"!l error "s "dent"f"ed, but not corrected "t becomes !n "rre%ul!r"t$
"m#sst"tement #s d#scovered, the "ud#t #mp"ct needs to be cons#dered
s s done b
oo'#n!"t the c#rcumst"nces of the offence
G"ther#n #nform"t#on"bout the FS effect
est$!"t$n!M$sst"tements
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f m"ter#"l, "dd#t#on"l procedures should be c"rr#ed out
Commun#c"ted to those ch"r!ed w#th !overn"nce
F#nd out the#r "ct#on to rect#f%#t "nd whether #t #s l#'el%to h"ppen "!"#n
"n"!ement Respons#b#l#t#es
ese re
S"fe!u"rds cre"ted to "vo#d fr"ud "nd error us#n!#ntern"l controls
ntern"l "ud#t #s respons#ble for mon#tor#n!"nd #mplement#n!these
d#tor Respons#b#l#t#es
!ud or error le!ds to !m"ter$"l m$sst"tement, the !ud"tor "s respons"ble for detect"n%"t
n"!ement "nd Aud$tor Respons$b$l$t$es
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he Pl"nn$n!St"!e
!ud"tor must cons"der the r"s&of m!ter"!l m"sst!tement due to fr!ud !nd error when pl!nn"n%!nd perform"n%the"r !ud"t
"ud $s d$scovered
ort "t to the !ud"t comm"ttee or
est level of m!n!%ement ("f not "nvolved "n the fr!ud), or
eholders "f the fr!ud "s b$those "n sen"or m!n!%ement
"ud "nd error must be reported to m"n"!ement or the "ud#t
mm#ttee ASAP
ht bout reportnto shreholders
B$"nclud"n%!p!r!%r!ph "n the !ud"t report
ht f t's n the publc nterest
Report to !3rd p!rt$(e%#Re%ul!tor)
Espec"!ll$"f m!n!%ement "nvolved
port$n!Fr"ud "nd Error
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d#t te"ms members should d#scuss the r#s'of fr"ud "t pl"nn#n!st"!e
ther Procedures
As'M"n"!ement wh"t the#r "ssessment of the r#s'#s
As'M"n"!ement wh"t the#r processes "re for #dent#f%#n!"nd de"l#n!w#th these r#s's
As'M"n"!ement how the%commun#c"te th#s process to st"ff
As'm"n"!ement #f "n%"ctu"l or suspected fr"ud h"s occurred
e "ud#tor h"s "contr"ct w#th her cl#ent
me!ns th!t the contr!ct c!n be bro&en b$the !ud"tor !nd so become l"!ble
be%"ns when "t c!n be shown th!t the !ud"tor d"dn't use "re!son!ble s&"ll !nd c!re"
d$t Appro"ch
rofess"on!l L"!b"l"t$
en "re Aud$tors L$"ble to the$r Cl$ent*
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w cn ou show "Due sll nd cre"
Appl$"n%IFRS !nd ISA's correctl$
Follow"n%eth"c!l st!nd!rds
Follow"n%en%!%ement letter terms
Us"n%properl$tr!"ned !nd competent st!ff
nSued for Nelence
me!ns 3 tests need to be proven)
Dutof Cre owed
Th"s "s obv"ous for !n !ud"t cl"ent (thou%h not necess!r"l$for 3rd P!rt"es)
Brech of tht Dut
uch "s$$
ncorrect Op"n"on
SA's not followed correctl$
Clent suffered Fnncl Loss
The cl"ent wouldn't h!ve m!de th"s loss otherw"se
Cl$ent 3rd p"rt#
ut#of c"re ex$sts* Autom!t"c Needs prov"n%
re"ched* Needs prov"n% Needs prov"n%
oss m"de* Needs prov"n% Needs prov"n%
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MITING LIABILITY TO YOUR CLIENT
uc"n%l"!b"l"t$for st!tutor$!ud"t wor&"s norm!ll$not !llow!ble
wever there !re opt"ons)
Lmted LbltPrtnershps
A sep!r!te le%!l ent"t$the LLP "tself "s l"!ble to the full extent of "ts !ssets
The l"!b"l"t$of the members w"ll be however l"m"ted to the "nvestment m!de "n the LLP
Ne%l"%ent P!rtner w"ll st"ll be sued person!ll$- but non-ne%l"%ent p!rtners !re protected
Lmted LbltAreements
Here comp!n"es l"m"t !ud"tor l"!b"l"t$b$contr!ct - needs sh!reholder !pprov!l
It must be)
1# F!"r !nd re!son!ble
2# For the current $e!r onl$
3# M!de cle!r !s p!rt of !n$tender process
en "re Aud$tors L$"ble to 3rd P"rt$es*
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dut%of c"re must be owed to "3rd p"rt%- "nd #t needs prov#n!,
Cl$ent 3rd p"rt#
ut#of c"re ex$sts* Autom!t"c Needs prov"n%
re"ched* Needs prov"n% Needs prov"n%
oss m"de* Needs prov"n% Needs prov"n%
s nvolves loont
Foresee"b#l#t%of d"m"!e to the 3rd p"rt%
A rel"t#onsh#p of "prox#m#t%" w#th the 3rd p"rt%
t's f"#r, (ust "nd re"son"ble to #mpose such "dut%on the "ccount"nts
other wof loont ths s
The "ud#tor "cted ne!l#!entl%
The "ud#tor ou!ht to h"ve 'nown th"t 3rd p"rt#es rel#ed upon her op#n#on
The 3rd p"rt%suffered f#n"nc#"l loss "s "result
NSEQUENCES
A sh!reholder st!nds no d"fferent from !n$other "nvest"n%member of the publ"c to whom the !ud"tor owes no dut$
Sh!reholders !re seen !s !cl!ss, the !ud"tor reports to the cl!ss !nd not to !ss"st "nd"v"du!ls
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fference between cl#ent's expect"t#ons "nd "ctu"l "ud#t wor'
rformed
ht cuses the 'Expectton Gp'
M"n"!ement m#sunderst"nd#n!the#r respons#b#l#t#es
M"n"!ement m#sunderst"nd#n!the scope of the "ud#t
M"n"!ement m#sunderst"nd th"t #t #s THEIR respons#b#l#t%to detect fr"ud
M"n"!ement th#n'th"t the "ud#tors "re l#"ble for "n%errors
w s the 'Expectton Gp' nrrowed
In the Aud$t report
Respons"b"l"t"es of m!n!%ement !nd the !ud"tor'
Show th!t !ud"ts !re performed on !test b!s"s onl$
A st!tement th!t the op"n"on %"ves re!son!ble NOT !bsolute !ssur!nce th!t FS !re free from m!ter"!l m"sst!tement
In the En!"!ement letter
Respons"b"l"t"es of m!n!%ement !nd the !ud"tor
The n!ture, scope !nd purpose of !n !ud"t
e !re m!n$d"scl!"mers protect"n%the !ud"tor !nd reduc"n%the !mount of rel"!nce th!t users c!n pl!ce on these reports#
wever, !ud"tors !re exposed to the thre!t of l"!b"l"t$from b!d cl"ents !nd w"thout !n$protect"on m!$not !ccept m!n$
Expect"t$on G"p
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!%ements
"rn the me"n#n!of the follow#n!terms)
En!"!ement p"rtner
The p"rtner respons#ble for the "ud#t en!"!ement, perform"nce "nd report
Also she h"s the "ppropr#"te "uthor#t%from "profess#on"l, le!"l or re!ul"tor%bod%
En!"!ement Qu"l$t#Control Rev$ew
Prov#des "n ob(ect#ve ev"lu"t#on, before s#!n#n!the report,
of "n%s#!n#f#c"nt (ud!ments & conclus#ons
t #s for l#sted ent#t%"ud#ts "nd "n%where the f#rm th#n's such "rev#ew #s requ#red
En!"!ement Qu"l$t#Control Rev$ewer
Someone not p"rt of the en!"!ement te"m, w#th exper#ence "nd "uthor#t%to ob(ect#vel%ev"lu"te the s#!n#f#c"nt (ud!ments &
conclus#ons
En!"!ement te"m
All p"rtners "nd st"ff perform#n!the en!"!ement, plus "n%one en!"!ed b%to do "ud#t wor'
Th#s excludes extern"l experts
F$rm
A sole pr"ct#t#oner, p"rtnersh#p or corpor"t#on of profess#on"l "ccount"nts
nspect$on
These prov#de ev#dence of compl#"nce w#th the f#rms qu"l#t%control pol#c#es
L$sted ent$t#
An ent#t%whose sh"res (or debt) "re quoted on "stoc'exch"n!e
Mon$tor$n!
r"ct$ce M"n"!ement
u!l"t$Controlf$n$t$ons for Qu"l$t#Control
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An on!o#n!ev"lu"t#on of the f#rms qu"l#t%control
t #ncludes per#od#c #nspect#ons of "select#on of completed en!"!ements
ms need to be sure th"t the "ud#ts the%perform meet qu"l#t%
"nd"rds
s s to decrese the rss of
L"t"%!t"on !%!"nst us for profess"on!l l"t"%!t"on
Incorrect Aud"t op"n"on !nd hence !n "ncre!sed "nvestor conf"dence "n the f"n!nc"!l st!tements
ere re 2 stndrds on QultControl
At the FIRM level Intern"t#on"l St"nd"rd on Qu"l#t%Control 1 (ISQC 1) Qu"l#t%Control for f#rms th"t perform "ud#ts "nd rev#ews
At the #nd#v#du"l AUDIT level ISA 220 Qu"l#t%Control for "ud#ts of h#stor#c"l f#n"nc#"l #nform"t#on
QC 1 (frm level)
C 1 "dent"f"es s"x bu"ld"n%bloc&s of !f"rms s$stem of qu!l"t$control)
Eth#cs
Cl#ent Rel"t#onsh#ps
Le"dersh#p
Hum"n Resources
En!"!ement Perform"nce
nc$ples & Purpose
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Mon#tor#n!
w"ll loo&!t the !bove "n more det!"l "n the next sect"on#See $ou there, hotp!nts####
#s follows on from the prev#ous sect#on
m Level QultControl
ob(ect"ve of the f"rm "s to est!bl"sh !nd m!"nt!"n !s$stem of qu!l"t$control to prov"de "t w"th re!son!ble !ssur!nce th!t)
he f"rm !nd "ts personnel compl$w"th profess"on!l st!nd!rds !nd !ppl"c!ble le%!l !nd re%ul!tor$requ"rements'!nd
Reports "ssued b$the f"rm or en%!%ement p!rtners !re !ppropr"!te "n the c"rcumst!nces
Ledershp
An "ntern!l culture focused on qu!l"t$"s &e$
Th"s me!ns tr!"n"n%, !ppr!"s!l & m"ss"on st!tements#
Commerc"!l cons"der!t"ons never overr"de qu!l"t$
P!$& Benef"ts must reflect comm"tment to qu!l"t$#
Resources must be !v!"l!ble to support qu!l"t$
ments of "QC s#stem
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All st!ff to h!ve the c!p!b"l"t"es & competence to ensure qu!l"t$#
Appr!"s!ls !nd development re%ul!rl$
Enement Issues - Plnnn
D"scuss &nown r"s&s w"th the cl"ent !nd document
St!ff su"t!bl$qu!l"f"ed !nd exper"enced, h!ve &nowled%e of the cl"ent
Content"ous !re!s must be consulted on "n !cost effect"ve w!$
A t"met!ble for su"t!ble rev"ews
Ensure "ndependence !nd !n$"ssues !ddressed
T"me pressure
All !ud"ts should be pl!nned to ensure th!t !dequ!te t"me
c!n be spent to obt!"n suff"c"ent !ppropr"!te !ud"t ev"dence to support the !ud"t op"n"on#
Enement Issues - Supervson
St!ff superv"sed !nd !ssessed to control the wor&flow#
An$problems t!c&led "mmed"!tel$!nd consult!t"on on !n$dev"!t"ons from the or"%"n!l pl!n#
Enement Issues - Revew
Rev"ew h!s the purpose of "dent"f$"n%prev"ousl$unreco%n"sed problems !nd ex!m"n"n%them !lon%w"th the rest of the
wor&c!rr"ed out#
s the !mount of ev"dence %!thered suff"c"ent or "s further wor&requ"red-
Qu!l"t$control c!n be !ch"eved dur"n%the rev"ew st!%e b$)
) Le!rn lessons from m"st!&es m!de
2) Appr!"s!l st!ff "mmed"!tel$!fter !ss"%nments to pr!"se &/or construct"vel$cr"t"c"se
Montorn
Ensure new developments "n st!nd!rds !nd re%ul!t"ons !re "mplemented
Ensure CPD "s &ept up to d!te#
An$bre!ches to mon"tor"n%s$stem de!lt w"th
Ethcl Requrements
H!ve procedures to compl$w"th eth"c!l requ"rements e%#"ndependence
Emph!s"se throu%h le!dersh"p, educ!t"on/tr!"n"n%, mon"tor"n%!nd de!l"n%w"th non-compl"!nce
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H!ve proce ures to " ent" $"n epen ence t re!ts e%#prompt not" "c!t"on $emp o$ees
Ensure th!t f"rm "s not"f"ed of bre!ches of eth"c!l requ"rements promptl$
pes Of Revew
Hot Revews
A hot rev"ew "s c!rr"ed out before the !ud"t report "s s"%ned#
Performed b$!su"t!bl$"ndependent rev"ewer such !s !sen"or m!n!%er (not p!rt of the m!n!%ement te!m)#
L"sted comp!n$en%!%ements must h!ve !hot rev"ew !s well !s those of publ"c "nterest or w"th s"%n"f"c!nt r"s&s#
"t rev"ews the qu!l"t$of the (ud%ements m!de such !s)
Is the f"rm "ndependent-
Are r"s&!ssessment (ud%ements (ust"f"ed-
Use of wor&outs"de the !ud"t te!m#
H!ve m"sst!tements been correctl$de!lt w"th-
Do wor&"n%p!pers support the conclus"ons re!ched-
Is the f"n!l en%!%ement report (ust"f"ed "n the c"rcumst!nces-
Cold Revews
A cold rev"ew "s !rev"ew c!rr"ed out !fter the !ud"t report "s s"%ned#
It w"ll be des"%ned to "dent"f$problems "n procedures !nd poor pr!ct"ce#
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rect#on, Superv#s#on "nd Perform"nce
ectnthe enement tem mens tellnthem bout
The#r eth#c"l respons#b#l#t#es
The#r need to pl"n "nd perform "n "ud#t w#th profess#on"l s'ept#c#sm
The ob(ect#ves of the wor'to be performed
The n"ture of the ent#t%s bus#ness
R#s'-rel"ted #ssues
Problems th"t m"%"r#se
The det"#led "ppro"ch to the perform"nce of the en!"!ement
pervson ncludes
See"n%"f the te!m h!s enou%h t"me !nd competence to do the"r (ob
Also whether the$underst!nd the"r "nstruct"ons
Address"n%s"%n"f"c!nt m!tters !r"s"n%dur"n%the !ud"t !nd mod"f$"n%the pl!n !ppropr"!tel$
Ident"f$"n%m!tters for consult!t"on w"th exper"enced en%!%ement te!m members
!"!ement Perform"nce
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vews nclude
Ensur"n%th!t wor&of less exper"enced te!m members "s rev"ewed b$more exper"enced ones
Ensur"n%th!t s"%n"f"c!nt m!tters h!ve been r!"sed for further cons"der!t"on
Appropr"!te consult!t"ons h!ve h!ppened
The wor&performed supports the conclus"ons re!ched !nd "s !ppropr"!tel$documented
e En!"!ement P"rtners Rev#ew of Wor'Performed
s nvolves tmelrevews of the follown
Cr#t#c"l "re"s of (ud!ment
S#!n#f#c"nt r#s's
!"!ement Qu"l#t%Control Rev#ew
te the follown
It helps to see "f suff"c"ent !ppropr"!te ev"dence h!s been obt!"ned
It "s done throu%hout the !ud"t so s"%n"f"c!nt m!tters !re promptl$resolved before the d!te of the !ud"tors report#
Document!t"on of the rev"ew m!$be completed !fter the !ud"tors report (!s p!rt of the !ssembl$of the f"n!l !ud"t f"le)
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The extent of the rev"ew depends on)
1) The complex"t$of the !ud"t
2) If the ent"t$"s l"sted !nd
3) The r"s&of !n "n!ppropr"!te !ud"tors report
u need to cons#der the te"m's competence "nd c"p"b#l#t#es
s mens loont ther
Underst"nd#n!of, "nd exper#ence w#th, s#m#l"r "ud#ts
Underst"nd#n!of profess#on"l st"nd"rds "nd re!ul"t#ons
T expert#se "nd "n%spec#"l#st "ccount#n!/ "ud#t#n!
&nowled!e of the cl#ent's #ndustr%
Ab#l#t%to "ppl%profess#on"l (ud!ment
Underst"nd#n!of the f#rms qu"l#t%control pol#c#es
$!n$n!the Aud$t Te"m
$v$du"l level of Qu"l$t#Control
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220 Qu!l"t$Control for Aud"ts of H"stor"c!l F"n!nc"!l Inform!t"onspec"f"es the follow"n%qu!l"t$control procedures th!t should
ppl"ed b$the en%!%ement te!m "n "nd"v"du!l !ud"t !ss"%nments#
ent cceptnce procedures
e should be full document!t"on, !nd conclus"on on, eth"c!l !nd cl"ent !ccept!nce "ssues "n e!ch !ud"t !ss"%nment#
en%!%ement p!rtner should cons"der whether members of the !ud"t te!m h!ve compl"ed w"th eth"c!l requ"rements, for
mple, whether !ll members of the te!m !re "ndependent of the cl"ent#
"t"on!ll$, the en%!%ement p!rtner should conclude whether !ll !ccept!nce procedures h!ve been followed, for ex!mple, th!t
!ud"t f"rm h!s cons"dered the "nte%r"t$of the pr"nc"p!l owners !nd &e$m!n!%ement of the cl"ent#
er procedures on cl"ent !ccept!nce should "nclude)
Obt"#n#n!profess#on"l cle"r"nce from prev#ous "ud#tors
Cons#der"t#on of "n%confl#ct of #nterest
Mone%l"under#n!(cl#ent #dent#f#c"t#on) procedures$
!Est"bl#sh the #dent#t%of the ent#t%"nd #ts bus#ness "ct#v#t%e$!$b%obt"#n#n!"cert#f#c"te of #ncorpor"t#on
!If the cl#ent #s "n #nd#v#du"l, obt"#n off#c#"l document"t#on #nclud#n!"n"me "nd "ddress, e$!$b%loo'#n!"t
photo!r"ph#c #dent#f#c"t#on such "s p"ssports "nd dr#v#n!l#cences
!Cons#der whether the commerc#"l "ct#v#t%m"'es bus#ness sense (#$e$#t #s not (ust "front for #lle!"l "ct#v#t#es)
!
Obt"#n ev#dence of the comp"n%s re!#stered "ddress e$!$b%obt"#n#n!he"ded letter p"per
!Est"bl#sh the current l#st of pr#nc#p"l sh"reholders "nd d#rectors$
ement tem
edures should be followed to ensure th!t the en%!%ement te!m collect"vel$h!s the s&"lls, competence !nd t"me to perform
!ud"t en%!%ement#
en%!%ement p!rtner should !ssess th!t the !ud"t te!m, for ex!mple)
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l l l l
H"s exper#ence of "ud#t en!"!ements of "s#m#l"r n"ture "nd complex#t%
H"s the "b#l#t%to "ppl%profess#on"l (ud!ement
Underst"nds profess#on"l st"nd"rds, "nd re!ul"tor%"nd le!"l requ#rements$
ecton
en%!%ement te!m should be d"rected b$the en%!%ement p!rtner#
pl!nn"n%meet"n%should be led b$the p!rtner !nd should "nclude !ll people "nvolved w"th the !ud"t#
e should be !d"scuss"on of the &e$"ssues "dent"f"ed !t the pl!nn"n%st!%e#
edures such !s !n en%!%ement pl!nn"n%meet"n%should be undert!&en to ensure th!t the te!m underst!nds)
The#r respons#b#l#t#es
The ob(ect#ves of the wor'the%"re to perform
The n"ture of the cl#ents bus#ness
R#s'rel"ted #ssues
How to de"l w#th "n%problems th"t m"%"r#se*"nd
pervson
erv"s"on should be cont"nuous dur"n%the en%!%ement#
problems th!t !r"se dur"n%the !ud"t should be rect"f"ed !s soon !s poss"ble#
nt"on should be focused on ensur"n%th!t members of the !ud"t te!m !re c!rr$"n%out the"r wor&"n !ccord!nce w"th the
ned !ppro!ch to the en%!%ement#
"f"c!nt m!tters should be brou%ht to the !ttent"on of sen"or members of the !ud"t te!m#
vew
rev"ew process "s one of the &e$qu!l"t$control procedures#
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ewers should cons"der for ex!mple whether)
Wor'h"s been performed #n "ccord"nce w#th profess#on"l st"nd"rds
The ob(ect#ves of the procedures performed h"ve been "ch#eved
Wor'supports conclus#ons dr"wn "nd #s "ppropr#"tel%documented$
nsultton
l$the en%!%ement p!rtner should !rr!n%e consult!t"on on d"ff"cult or content"ous m!tters#
"s !procedure whereb$the m!tter "s d"scussed w"th !profess"on!l outs"de the en%!%ement te!m, !nd somet"mes outs"de
!ud"t f"rm#
sult!t"ons must be documented to show)
The #ssue on wh#ch the consult"t#on w"s sou!ht*"nd
The results of the consult"t#on$
e%should #nform "nd not tr%to #mpress
er!ll$the$should not reflect b!dl$on the member, the ACCA or the !ccount"n%profess"on !s !whole
eptble publctncludes
Appo"ntments !nd !w!rds
dvert"s"n#
ept"ble Advert$s$n!
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See&"n%emplo$ment or profess"on!l bus"ness
Profess"on!l d"rector"es
Boo&s, !rt"cle, "nterv"ews, lectures, med"!!ppe!r!nces
Tr!"n"n%courses !nd sem"n!rs
vertsements nd promotonl mterl must not
Br#n!ACCA #nto d#srepute
D#scred#t the serv#ces offered b%others
Cl"#m super#or#t%
M#sle"d
Be le!"l, decent & truthful
embers m"%be c"lled Ch"rtered Cert#f#ed Account"nts, but not
mp"n#es
e frm mdescrbe tself s Chrtered Certfed Accountnts f
At le!st h!lf the p!rtners or d"rectors !re ACCA members
The$control !t le!st 51% of the vot"n%r"%hts
mes & Descr$pt$ons
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p!rtners "n the f"rm !re ACCA members the$m!$st!te th"s on the"r st!t"oner$
me p!rtners !re members of !nother !ccount!nc$bod$however, th"s must be m!de cle!r
e of ACCA lo!o
eptble f
At le!st 1 p!rtner "s !n ACCA member
The lo%o "s sep!r!te from the f"rm lo%o
e b"s#s of c"lcul"t#on (e$!$hourl%) must be cle"rl%st"ted
reference to fees must not m"sle!d the re!der !bout the prec"se r!n%e of serv"ces !nd t"me comm"tment th!t "t rel!tes to
u cn compre our fee to others f
s
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t #s or t e s"me serv#ce
t #s "n ob(ect#ve comp"r#son
t doesn't d#scred#t the other
t doesn't cre"te confus#on
ent!%e d"scounts m!$be offered but must not detr!ct from the f"rm or the profess"on
surnce Enement Fees
Not c!lcul!ted on !% or cont"n%enc$b!s"s
Due to self-"nterest !nd !dvoc!c$thre!ts
n-Assurnce Enement Fees
Cont"n%ent fee poss"ble onl$"f poss"ble r!n%e !nd v!r"!b"l"t$of the fee "s sm!ll
Approv!l b$the !ud"t comm"ttee m!$be needed
tnFees
follow"n%needs cons"der"n%)
Level of expert#se needed
T#me needed
How #mport"nt the wor'#s to cl#ent
The r#s'of t"'#n!on the wor'& costs #ncurred
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w-B"ll#n!
"s sett"n%the "n"t"!l !ud"t fee low "n order to w"n the cl"ent
hcl Issues
Cl"ent needs to st!$to recover the "n"t"!l losses so "ndependence "s "mp!"red
Poss"bl$unprofess"on!l bec!use m!n$sm!ller pr!ct"ces c!n't compete
#s #s when "n "ud#t f#rm #s "ppro"ched b%"prospect#ve cl#ent to b#d
r the#r "ud#t
dt Frm Consdertons
How d"d the cl"ent %et to &now !bout them-
Wh$h!s the f"rm been !ppro!ched p!rt"cul!rl$-
der$n!
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How r"s&$"s the !ud"t to the f"rm-
Does the f"rm h!ve the necess!r$resources
nder documents contents
Fee "nd how #t h"s been c"lcul"ted
An "ssessment of the requ#rements of the prospect#ve cl#ent
Our "ppro"ch to the requ#rements
De"dl#nes "nd #nform"t#on needed
Outl#ne of the f#rm "nd our st"ff
d#tors should screen cl#ents to ensure the%"re not h#!h r#s'
rofess"on!l Appo"ntments
ept$n!"new en!"!ement
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r s o e !u or s repu ! on r s #e# ! e$w e !ssoc! e w !poor$re%!r e c en #
ud"tor "s requ"red under ISA 315 to %!"n !n underst!nd"n%of the"r cl"ent#
tors should screen cl"ents to ensure the$!re not h"%h r"s&
estons to swll be
s the cl#ent #nvolved #n "n%fr"udulent/#lle!"l "ct#v#t#es+
Wh"t #s the n"ture of the #ndustr%#n wh#ch the%"re #nvolved #s #t depressed+
H"s the cl#ent h"d "h#stor%of ch"n!#n!"ud#tor re!ul"rl%or h"d qu"l#f#ed "ud#t reports #n the p"st+
Do cl#ent d#rectors underst"nd the#r role "nd "re the%"ble to c"rr%#t out+
Are m"n"!ement trustworth%+
her Ares to help n n understndnre
The m!r&et !nd "ts compet"t"on
Le%"sl!t"on !nd re%ul!t"on
Re%ul!tor$fr!mewor&
Ownersh"p of the ent"t$
N!ture of products/serv"ces !nd m!r&ets
Loc!t"on of product"on f!c"l"t"es !nd f!ctor"es
+e$customers !nd suppl"ers
C!p"t!l "nvestment !ct"v"t"es
Account"n%pol"c"es !nd "ndustr$spec"f"c %u"d!nce
F"n!nc"n structure
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S"%n"f"c!nt ch!n%es "n the ent"t$on pr"or $e!r
tors m!$!dvert"se the"r serv"ces#
wever, !dverts should not br"n%the ACCA "nto d"srepute, d"scred"t the serv"ces of others, be m"sle!d"n%, or f!ll short of
l!tor$or le%"sl!t"ve requ"rements#
ocedures when offered "role
ese nclude
Get perm#ss#on to cont"ct the out!o#n!"ud#tor
Cont"ct the old "ud#tor, "s'#n!for "n%re"sons wh%we should not "ccept "ppo#ntment
Chec'we "re suff#c#entl%Independent
Chec'we h"ve the competence & resources to do #t
re-Cond$t$ons for "n Aud$ttors should onl$!ccept !new !ud"t en%!%ement when "t
been conf"rmed th!t the precond"t"ons for !n !ud"t !re present##
Is the FR fr"mewor&"ccept"ble*
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Cons"der the ent"t$& the purpose of the FS
Perh!ps, !lso, l!ws s!$wh"ch FR fr!mewor&should be used
Do M"n"!ement "ccept the$r respons$b$l$t$es*
For prep!r"n%FS
For "ntern!l controls
For %"v"n%the !ud"tor !ll relev!nt "nform!t"on the$request
he precondtons for n udt re not present
The !ud"tor sh!ll not !ccept the proposed !ud"t en%!%ement
nder#n!for "ud#t wor'
ns to consder
Fee
A fee w"ll be quoted for !p"ece of !ud"t wor&before "t "s c!rr"ed out under !tender"n%process
The !ud"tor must not lowb!ll !s we h!ve seen !bove, nor m!$the$m!&e unre!l"st"c cl!"ms or prom"ses to w"n the
contr!ct
Get Informton
The potent"!l cl"ent w"ll "nform the !ud"tor of wh!t "s expected, the t"met!ble, future pl!ns of the comp!n$!nd !n$
problems w"th current !ud"tor
Proposl
The "ud#tor m"%then dr"w up "propos"l cont"#n#n!)
w en!"!ement process
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Proposed !ud"t fee
N!ture, purpose !nd le%!l requ"rements of !n !ud"t#
Assessment of the requ"rements of the cl"ent#
How !ud"t f"rm proposes to s!t"sf$requ"rements
An$!ssumpt"ons m!de#
Proposed !ud"t methodolo%$#
Outl"ne of !ud"t f"rm !nd personnel
Ab"l"t$of f"rm to perform the !ud"t
e-condtons
Is the F"n!nc"!l fr!mewor&used !ccept!ble-(Cons"der the t$pe of bus"ness !nd relev!nt l!ws !nd the uses of the f"n!nc"!l
st!tements)
ent Decson
The cl"ent w"ll dec"de on the b!s"s of cl!r"t$, relev!nce, profess"on!l"sm, reput!t"on, t"mel"ness of del"ver$!nd or"%"n!l"t$wh"ch f"rm w"ll conduct the !ud"t
en!"!ement letter #s "letter from the "ud#tor to the cl#ent #nd#c"t#n!
r#ous m"tters concern#n!the en!"!ement
en%!%ement letter "s sent before the !ud"t to the cl"ent conf"rm"n%the"r !ccept!nce of the !ud"t
!"!ement letter
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ntents
210 Terms of En%!%ement %"ves %u"d!nce !s to the"r content, but !s !rule most w"ll "nclude)
The Ob(ect"ve of the !ud"t#
M!n!%ements respons"b"l"t$for the F"n!nc"!l St!tements#
The scope of the !ud"t "nclud"n%reference to le%"sl!t"on !nd profess"on!l st!nd!rds#
The form of report to be used
Use of the wor&of "ntern!l !ud"t
Reference to "nherent l"m"t!t"ons of !n !ud"t
Access to "nform!t"on to be !llowed
De!dl"nes !nd conf"dent"!l"t$
Expect!t"ons of m!n!%ement represent!t"ons
Fees
Compl!"nts procedures
ud$t of H$stor$c"l F$n"nc$"l Inform"t$on
!nn"n#, m!ter"!l"t$!nd r"s%
$ness R$s&
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e r#s'th"t the bus#ness won't meet #ts ob(ect#ves
ob(ect"ve "s norm!ll$prof"t m!x"m"s!t"on
we !re loo&"n%for problems wh"ch m!$"mp!ct on the bus"ness
loofor Rss
could use PESTEL
ness r"s&"dent"f"c!t"on "s l"ter!ll$putt"n%$ourself "n the shoes of the m!n!%ement##
Pol"t"c!l r"s&s
e#%#The current %overnment m!$be unst!ble !nd "f there "s !ch!n%e of %overnment, the new %overnment m!$"mpose
restr"ct"ons#
The Comp!n$w"ll need to !ssess the l"&el"hood of such restr"ct"ons#
Econom"c r"s&s
Soc"!l !nd t!ste ch!n%es
Technolo%"c!l ch!n%es
Env"ronment!l "ssues
Le%!l "ssues
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n"nc#"l St"tement R#s'
pl$the r"s&th!t the FS !re m!ter"!ll$m"sst!ted (before !n$!ud"t procedures)
r"s&comes from potent"!l errors or del"ber!te m"sst!tements
sness v Fnncl Rs
Bus"ness r"s&s w"ll !ffect the FS "f not !ddressed b$m!n!%ement
Bus"ness r"s&s c!n le!d to errors on spec"f"c !re!s of the FS (e%#Technolo%"c!l ch!n%e le!d"n%to obsolete stoc&)
Bus"ness r"s&c!n h!ve !more %ener!l effect on FS (e%#Poor controls le!d"n%to errors)
Bus"ness r"s&s c!n le!d to %o"n%concern problems#Th"s too would be !FS r"s&(wron%b!s"s of !ccount"n%)
A 320 def#nes #nform"t#on "s m"ter#"l #f #ts om#ss#on or m#sst"tement
uld #nfluence the econom#c dec#s#ons of users t"'en on the b"s#s of the
"nc#"l st"tements$
ter$"l$t#
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er"!l "tems could be l!r%e tr!ns!ct"ons or s"%n"f"c!nt events#
er"!l"t$"s "mport!nt to the !ud"tor bec!use "f !m!ter"!l "tem "s "ncorrect, the f"n!nc"!l st!tements w"ll not show !true !nd
v"ew#
The "ud#tor w#ll dec#de m"ter#"l#t%levels "nd des#!n the#r "ud#t procedures to ensure th"t the r#s'of m"ter#"l m#sst"tements #s
educed to "n "ccept"ble level$
Gener"ll%, m"ter#"l#t%w#ll be set w#th reference to the f#n"nc#"l st"tements such "s)
0$5 1% of turnover
5 10% of prof#ts reported
2 % of !ross "ssets
ud!ement w#ll be used b%the "ud#tor #n ch"r!e "nd w#ll depend on the t%pe of bus#ness "nd the r#s's #t f"ces$
terltLevels
Consdertons
Qu"nt$t#
The rel!t"ve s"ze of the "tem
Qu"l$t#
Th"s m"%ht be someth"n%th!t's low "n v!lue but could st"ll !ffect users' dec"s"ons e#%##D"rectors w!%es
erble Error
Th"s "s when the !ud"tor !ccepts the error
For ex!mple f"nd"n%one error out of 100 tested, m"%ht be "%nored
The toler!ble level w"ll be dec"ded !t pl!nn"n%st!%e
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rform"nce M"ter#"l#t%
As we &now, m!ter"!l"t$"s c!lcul!ted !t the pl!nn"n%st!%e
But "t m"%ht not st!$!t th!t !mount - oh no b!b$
Th"n%s h!ppen th!t m!&e the !ud"tor ch!n%e the level
Such th"n%s !re often "mm!ter"!l "n qu!nt"t$but m!ter"!l b$the"r n!ture
Ex"mple
The comp!n$$ou !re !ud"t"n%m!&es !$5,000 prof"t#
The m!ter"!l"t$"s set !t $10,000
You not"ce th!t !n "nvo"ce for $6,000 h!s been "ncorrectl$pl!ced "nto next $e!r#
Th"s would be m!ter"!l !s "t ch!n%es the loo&of the whole !ccounts (ch!n%"n%!prof"t "nto loss)
s s lower thn norml mterlt
"de!"s th!t th"s w"ll tr$to prevent !ll those sm!ll, undetected errors do not !%%re%!te to become m!ter"!l
There re now 2 stndrds to consder
1# ISA 320 Aud"t M!ter"!l"t$
2# ISA 450 Ev!lu!t"on of M"sst!tements Ident"f"ed Dur"n%the Aud"t
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The new st!nd!rd reco%n"ses th!t there could well be "nst!nces where cert!"n cl!sses of tr!ns!ct"ons, !ccount b!l!nces or
d"sclosures m"%ht be !ffected b$m"sst!tements wh"ch !re less th!n the m!ter"!l"t$level for the f"n!nc"!l st!tements !s !
whole, but wh"ch m!$well "nfluence the dec"s"ons of the user of those f"n!nc"!l st!tements re%!rdless of the f!ct the$!re
below m!ter"!l"t$ th"s "s where perform!nce m!ter"!l"t$"s to be !ppl"ed#
Spec"f"c!ll$, the cl!r"f"ed ISA 320 su%%ests perform!nce m!ter"!l"t$be !ppl"ed to !re!s such !s rel!ted p!rt$tr!ns!ct"ons
!nd d"rectors remuner!t"on#
"ter#"l M#sst"tements norm"ll%le"d to qu"l#f%#n!the "ud#t report
t!tements !ren't (ust monet!r$f"%ures, the$could !lso be "ncorrect cl!ss"f"c!t"on or d"sclosures
lutnMssttements
Get "l#st of m#sst"tements found
D#scuss these w#th m"n"!ement "t the end of the "ud#t
M"n"!ement w#ll norm"ll%correct these
An%rem"#n#n!m"ter#"l m#sst"tements w#ll c"use the "ud#tor to qu"l#f%the report
reton of Immterl Errors
Imm!ter"!l errors could !%%re%!te to become m!ter"!l
lu"t$on of M$sst"tements
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These w"ll be brou%ht to the !ttent"on of m!n!%ement
If m!n!%ement !mend m!ter"!l errors, then the !ud"tor w"ll "ssue !n unqu!l"f"ed !ud"t report
If m!n!%ement refuse to !d(ust the errors then the !ud"tor must persu!de them to do so or "ssue !qu!l"f"ed !ud"t report
m"sst!tements found must be commun"c!ted to those ch!r%ed w"th %overn!nce
"s to ensure th!t no m!n!%ement b"!s ex"sts "n the dec"s"on t!&en on wh!t const"tutes !n "mm!ter"!l m"sst!tement
!%ement must !lso prov"de wr"tten represent!t"ons th!t !ll uncorrected errors !re "mm!ter"!l
d#t r#s'#s the r#s'th"t the "ud#tor expresses "n #n"ppropr#"te "ud#t#n#on when the f#n"nc#"l st"tements "re m"ter#"ll%m#sst"ted
ed !nother w!$, th"s "s the r"s&th!t there "s !m!ter"!l m"sst!tement "n the f"n!nc"!l st!tements, but the !ud"tor m"sses "t
s!$s th!t the$present !true !nd f!"r v"ew#
mul!for !ud"t r"s&"s)
erent R$s& x Control R$s& x Detect$on R$s&
erent Rs
mponents of Aud$t R$s&
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w"ll be cons"dered !t the pl!nn"n%meet"n%!s "t depends on the !ud"tors &nowled%e of the bus"ness
mples !re###
A csh bsed busness
Th"s "s often !problem !s there must be ver$stron%controls "n pl!ce "f !bus"ness "s !c!sh b!sed one#
The !ud"tor m!$feel th!t there !re "nsuff"c"ent controls "n pl!ce to m"t"%!te th"s r"s&wh"ch m!$le!d to l"m"t!t"on ofscope#
Fst movnIndustr
In f!st mov"n%"ndustr"es such !s IT or f!sh"on there m!$be !r"s&th!t the "nventor$held b$the bus"ness becomes
obsolete#
The !ud"tor m!$t!&e expert !dv"ce on the v!lu!t"on of "nventor$, or the$m!$rev"ew post $e!r-end s!les to ensure
the %oods !re sold for more th!n the$!re v!lued !t "n the f"n!nc"!l st!tements#
ntrol Rs
"s the r"s&of m!ter"!l m"sst!tement due to "n!dequ!te "ntern!l controls w"th"n the bus"ness#
!ud"tor w"ll m!&e !(ud%ement !s to the su"t!b"l"t$!nd stren%th of "ntern!l controls we w"ll ex!m"ne how th"s "s done !t !
r st!%e#
mples !re###
No sereton of dutes
Se%re%!t"on of dut"es "s where d"fferent t!s&s "n !process !re performed b$d"fferent people e#%#!n "nvo"ce "s r!"sed
b$one person !nd the cheque "s wr"tten b$!nother !nd !uthor"se b$someone else#
If th"s control "s we!&or not "n pl!ce, the !ud"tor m!$h!ve to "ncre!se the s!mple s"ze to ensure the f"n!nc"!l
st!tements present !true !nd f!"r v"ew#
No controls over ccess to ssets
If emplo$ees h!ve unfettered !ccess to the !ssets of the bus"ness w"th no restr"ct"ons, th"s w"ll "ncre!se the r"s&of
theft or d!m!%e to those !ssets
If the !ud"tor f"nds th"s to be the c!se, more ph$s"c!l chec&s of the ex"stence !nd cond"t"on of !ssets w"ll h!ve to be
c!rr"ed out#
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o con ro s over ccess o
If !bus"ness does not use p!sswords !nd other protect"on to protect "ts computer s$stems th"s c!n le!d to d!t!loss
or m!n"pul!t"on w"thout !uthor"s!t"on#
If these controls !re not "n pl!ce the !ud"tor w"ll h!ve to underst!nd the s$stem to !ssess the e!se of wh"ch "t c!n be
m!n"pul!ted !nd chec&for !nom!lous trends us"n%!n!l$t"c!l rev"ew#
tecton Rs
"s the r"s&th!t the wor&c!rr"ed out b$the !ud"tor does not uncover !m!ter"!l m"sst!tement th!t ex"sts#
ect"on r"s&c!n be spl"t "nto s!mpl"n%& non-s!mpl"n%r"s&
Non-smplnrss
The !ud"tor d"d not suff"c"entl$"nvest"%!te !s"%n"f"c!nt b!l!nce
The procedures used m!$h!ve been "n!ppropr"!te or m"s"nterpreted
Smplnrs
!r"ses from the poss"b"l"t$th!t the !ud"tors conclus"on, b!sed on !s!mple m!$be d"fferent from the conclus"on
re!ched "f the ent"re popul!t"on were sub(ected to the s!me !ud"t procedure#
Th"s "s !nother w!$of s!$"n%th!t the s!mple selected b$the !ud"tor w!s not represent!t"ve of the d!t!#
Detect"on r"s&m!$be "ncre!sed b$th"n%s such !s "nexper"enced !ud"t st!ff or t"%ht de!dl"nes to complete the !ud"t#
e "ud#tor c"nnot "ffect #nherent r#s'or control r#s'"s these "re
tern"l (c"lled Ent#t%R#s')
ect$n!Aud$t R$s&
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!ud"tor therefore concentr!tes on detect"on r"s&once the$h!ve !ssessed the control !nd "nherent r"s
s"der the elements of Aud"t r"s&!nd how the$rel!te "n our formul!)
erent R$s& x Control R$s& x Detect$on R$s&
herent & Control r"s&!re (ud%ed to be h"%h, then to m"n"m"se over!ll !ud"t r"s&, the !ud"tor must !ttempt to m"n"m"se
ct"on r"s
!ud"tor w"ll h!ve to "ncre!se the !mount of tests or the number of s!mples to ensure th!t there "s less ch!nce of !m!ter"!l
t!tement be"n%overloo&ed or m"ssed#
"n the "ud#t so th"t the en!"!ement w#ll be performed #n "n effect#ve
"nner
e spent pl!nn"n%the !ud"t to ensure "t "s c!rr"ed out eff"c"entl$w"ll reduce the t"me t!&en !nd thus the cost#
pl!nn"n%process w"ll !lso !ssess !nd thus reduce r"s
!ud"tor w"ll w!nt to ensure th!t the correct te!m "s "n pl!ce to conduct the !ud"t, the$!re wor&"n%eff"c"entl$!nd th!t wor&
cused on m!ter"!l !re!s of r"s&!nd potent"!l problem !re!s#
#Pl"n "n Aud$t*
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nnnActvtes
R"s%Assessment
We w"ll loo&"n det!"l l!ter !t r"s&!ssessment, but !t th"s po"nt we should be !w!re th!t the "dent"f"c!t"on of r"s&w"ll
determ"ne the ent"re !ud"t process#
Aud"t Str!te#$
The !ud"t str!te%$sets out the scope, t"m"n%!nd d"rect"on of the !ud"t#
The scope of the !ud"t w"ll be determ"ned b$the report"n%fr!mewor&!ppl"ed !s well !s !n$"ndustr$spec"f"c
requ"rements#
The str!te%$dec"ded upon w"ll be t!"lored to the cl"ent !nd the n!ture of the"r bus"ness !nd the"r structure# The!ud"tor must ensure th!t the str!te%$selected "s !ppropr"!te
Geo#r!ph$
If there !re !n$%eo%r!ph"c!l or other f!ctors wh"ch m!$!ffect the !ud"t, the$w"ll be cons"dered here#
De!dl"nes & T"m"n#
The t"m"n%of the !ud"t w"ll set out !n$de!dl"nes !ppl"c!ble !nd the d!tes of the "nter"m !nd f"n!l !ud"t v"s"ts#
The "nter"m !ud"t "s conducted before the f"n!l !ud"t to ev!lu!te controls !nd document the s$stems "n pl!ce#
In !dd"t"on there m!$be some subst!nt"ve tests c!rr"ed out#
The !ttend!nce !t the stoc&count w"ll be c!rr"ed out !t th"s t"me !nd perh!ps the rece"v!bles c"rcul!r"s!t"on#
The f"n!l !ud"t w"ll "nvolve the bul&of the !ud"t wor&!nd "t m!$be poss"ble to concentr!te on the st!tement of
f"n!nc"!l pos"t"on f"%ures "f suff"c"ent wor&h!s been c!rr"ed out dur"n%the "nter"m !ud"t#
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ere "re sever"l st"!es #n the pl"nn#n!process)
follows
Ensure underst!nd"n%of the bus"ness
Undert!&e !n!l$t"c!l rev"ew
Assess the r"s&s "nvolved w"th the bus"ness
Est!bl"sh m!ter"!l"t$levels
Est!bl"sh toler!ble error for m!ter"!l errors
Dec"de the !ud"t !ppro!ch
Ensure !ud"tor "ndependence
Dec"de the bud%et !nd st!ff requ"rements
T"met!ble the !ud"t & set de!dl"nes
rmnent fle
The perm!nent f"le &ept b$the !ud"t f"rm w"ll br"n%forw!rd !lot of the &nowled%e of the bus"ness, but th"s must be &ept up
ntents of the Pl"n
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#
rrent Fle
The current f"le cont!"ns the ev"dence !nd documents relev!nt to the current $e!r#
The pl!nn"n%sect"on of the f"le w"ll cover !ll of the !re!s !bove, !nd there w"ll be !complet"on sect"on wh"ch w"ll rev"ew the
!ud"t#
In between there w"ll be !sub-sect"on for e!ch b!l!nce sheet "tem (e#%#Non Current Assets) !nd for e!ch "ncome st!tement
"tem (e#%#purch!ses) w"th the wor&done outl"ned !nd ev"dence documented
"l%t#c"l procedures cons#st of ev"lu"t#ons of f#n"nc#"l #nform"t#on
rou!h "n"l%s#s of pl"us#ble rel"t#onsh#ps "mon!both f#n"nc#"l "nd non-
"nc#"l d"t"
he pl!nn"n%st!%e the$help $ou underst!nd the bus"ness !nd "ts env"ronment
!use $ou comp!re f"%ures to the "ndustr$!nd to prev"ous $e!rs
"tems wh"ch %o !%!"nst the expected rel!t"onsh"ps help $ou !ssess the r"s&of m!ter"!l m"sst!tement
"l#t$c"l Procedures $n Pl"nn$n!
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w o per orm n c roce ures
ep b$step %u"de
Pred$ct "f$!ure, b"sed on "rel"t$onsh$p
E!$Th#s could be !ross prof#t "s "% of revenue (b"sed on prev#ous %e"rs "nd #ndustr%"ver"!es)
Def$ne wh"t "s$!n$f$c"nt d$fference $s
We c"ll th#s the threshold below wh#ch we see "n%d#fference "s (ust "toler"ble 'error'
C"lcul"te the procedure "nd the d$fference to the pred$ct$on $n step 1
nvest$!"te the d$fference
D#fferences #nd#c"te "n #ncre"sed l#'el#hood of m#sst"tements
f c"used b%f"ctors prev#ousl%overloo'ed, loo'"t wh"t #mp"ct th#s would h"ve on the or#!#n"l expect"t#ons "s #f th#s d"t"h"d
been cons#dered #n the f#rst pl"ce, "nd to underst"nd "n%"ccount#n!or "ud#t#n!r"m#f#c"t#ons of the new d"t"
es of !n!l$t"c!l procedures
Trend "n"l#s$s
The !n!l$s"s of ch!n%es "n !n !ccount over t"me
R"t$o "n"l#s$s
The comp!r"son of rel!t"onsh"ps us"n%f"n!nc"!l !nd non- f"n!nc"!l d!t!
Re"son"bleness test$n!
Comp!r"n%expect!t"ons b!sed on f"n!nc"!l d!t!, non-f"n!nc"!l d!t!, or both to !ctu!l results
mttons when used for Plnnn
Often bud!ets "nd forec"sts needed
f done before Y/E extr"pol"t#ons used - these "ren't rel#"ble #f bus#ness #s se"son"l
M"n%"ccount#n!"d(ustments m#ssed "s onl%done "t Y/E
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l
Even more d#ff#cult for sm"ller comp"n#es who don't h"ve !ood m"n"!ement "ccounts
stl%the "ud#tor needs to underst"nd the ent#t%s env#ronment, th#s w#ll
qu#re the "ud#tor to "ssess)
e follown
Industr$cond"t"ons
Pr"nc"ple bus"ness str!te%"es
Compet"tors
L!ws !nd re%ul!t"ons
Technolo%$
St!&eholders
F"n!nc"n%
Acqu"s"t"ons !nd d"spos!ls
Rel!ted p!rt"es
Competence of m!n!%ement
Account"n%pol"c"es
w to !et In$t$"l Underst"nd$n!
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m number of sources
ntern"l to the "ud#t f#rm such "s l"st %e"rs f#le$
Extern"l sources such "s cred#t reference "!enc#es$
nform"t#on prov#ded b%the cl#ent$
The "ud#tors person"l exper#ence "nd 'nowled!e
315 requ"res !pl!nn"n%meet"n%where the members of the en%!%ement te!m should d"scuss the suscept"b"l"t$of the ent"t$s
nc"!l st!tements to m!ter"!l m"sst!tements# The m"nutes of th"s meet"n%should be documented !s ev"dence of "ts
rrence#
$t"c!l procedures should be undert!&en !t th"s st!%e to est!bl"sh !n underst!nd"n%of the f"n!nc"!l st!tements !nd dr!w
nt"on to !nom!l"es#
w"ll loo&more closel$!t !n!l$t"c!l procedures l!ter#
sert#ons "re used for tr"ns"ct#ons, b"l"nces "nd d#sclosures to see #f
ff#c#ent ev#dence on them h"s been collected
v"dence
Assert$ons Expl"$ned
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!ssert"ons help !ssess r"s&s
$help the !ud"tor cons"der potent"!l m"sst!tements !nd so des"%n !ud"t procedures for those p!rt"cul!r r"s&s#
nsctons Assertons
Occurrence
Completeness
Accur"c%
Cut-off
Cl"ss#f#c"t#on
E Blnces Assertons
Ex#stence
R#!hts "nd obl#!"t#ons
Completeness
V"lu"t#on "nd "lloc"t#on
closures Assertons
Occurrence
Completeness
Cl"ss#f#c"t#on "nd underst"nd"b#l#t%
Accur"c%"nd v"lu"t#on
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the "ssert#ons need test#n!to see #f the%'re true
s s done b
nspecton
Th"s me!ns !ph$s"c!l ex!m"n!t"on
Th"n%s to "nspect "nclude)document!t"on, contr!cts, records !nd m"nutes#
It !lso "ncludes ph$s"c!l ex!m"n!t"on of the !ssets#
Th"s en!bles the !ud"tor to ver"f$the ex"stence (thou%h not ownersh"p) of them
Observton
Th"s me!ns w!tch"n%others perform !procedure
Ex!mples "nclude observ!t"on of
P!$ment of w!%es
Inventor$counts
Open"n%m!"l
It %"ves !ssur!nce th!t off"c"!l procedures !re followed
nqur
Th"s me!ns %ett"n%"nform!t"on from people "ns"de or outs"de the ent"t$#
It c!n be !form!l wr"tten or !n or!l "nqu"r$
n!Assert$ons
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Confrmton
Th"s me!ns corrobor!t"n%ev"dence from th"rd p!rt"es w"th the "ntern!l ev"dence
For ex!mple, conf"rm"n%!ccounts rece"v!bles b$c"rcul!r"s"n%the debtors
Re-Performnce
Th"s c!n be rec!lcul!t"n%f"%ures or re-count"n%stoc&etc
Anltcl Procedures
Th"s "s the !n!l$s"s of r!t"os !nd trends
It "ncludes "nvest"%!t"n%fluctu!t"ons between current !nd prev"ous perform!nce !nd chec&whether other "nform!t"on "s
cons"stent w"th such rel!t"onsh"p#
For ex!mple, comp!r"n%the rent ch!r%e from one per"od to the next !nd see "f other ev"dence such !s number of rent!l
propert"es corrobor!tes the "ncre!se or decre!se
st remember A,E,I,O "nd U
here's remnder
An"l%t#c"l Procedures
Enqu#r%
nspect#on
Observ"t#on
Re-c"lcUl"t#on / Re-perform"nce
cedures for obt"$n$n!ev$dence
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rocedure Me"n$n! Control test Subst"nt$ve test
n"l#t$c"l
rocedure
Explor"n%rel!t"onsh"ps
between d!t!
Comp!r"n%$e!rl$%ross m!r%"ns
nqu$r# Gett"n%conf"rm!t"on
from !3rd p!rt$
Repl"es from !debtors c"rcul!r
spect$on Ex!m"n"n%records S"%n!ture !s ev"dence Gett"n%t"tle deeds to !propert$
bserv"t$on Loo&"n%!t !process W!tch"n%st!ff complete the"r
!ttend!nce sheet
e-"lcul"t$on
Chec&"n%m!them!t"c!l!ccur!c$
Add"n%"nd"v"du!l s!les "n the sdb tochec&the tot!ls
bst"nt#ve procedures help detect m"ter#"l m#sst"tement or fr"ud "t
e "ssert#on level
e !re two c!te%or"es of subst!nt"ve procedures - "n"l#t$c"l procedures*!nd tests of det!"l#
!l$t"c!l procedures %ener!ll$prov"de less rel"!ble ev"dence th!n the tests of det!"l
!re used !t d"fferent t"mes "n the !ud"t where!s tests of det!"l !re onl$!ppl"ed "n the subst!nt"ve test"n%st!%e
ltcl procedures re compulsort two stes of the udt under ISA 520
The pl"nn#n!st"!e &
"l#t$c"l procedures
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$t"c!l procedures use c!lcul!t"ons such !s f"n!nc"!l r!t"os to %ener!te !n expect!t"on of wh!t !f"%ure "s l"&el$to be !nd then
p!r"n%th"s to the !ctu!l f"%ure "n the !ccounts#
$c!n be used to h"%hl"%ht unusu!l f"%ures "n order to focus the !ud"t on them or to est!bl"sh th!t !trend h!s cont"nued#
e fnncl rtos used bthe udtor wll fll nto 3 enerl cteores
Proftblt/Return
1# Gross M!r%"n
2# Net M!r%"n
3# ROCE
Lqudt/Effcenc
1# Rece"v!bles/P!$!bles/Inventor$D!$s
2# Current R!t"o
3# Qu"c&R!t"o
Gern
1# F"n!nc"!l Ge!r"n%
2# Oper!t"on!l Ge!r"n%
hether or not the udtor reles on nltcl procedures s substntve procedures
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pen s on our c ors
Sutblt
An!l$t"c!l procedures w"ll not be su"t!ble for ever$!ssert"on
Relblt
The !ud"tor m!$onl$rel$on d!t!%ener!ted from !s$stem w"th stron%controls
Deree of Precson
Some f"%ures w"ll not h!ve !reco%n"s!ble trend over t"me or be comp!r!ble
Acceptble Vrton
V!r"!t"ons h!v"n%!n "mm!ter"!l "mp!ct on the f"n!nc"!l st!tements w"ll not hold !s much "nterest to the !ud"tor !s
those th!t do
pen#n!B"l"nces
t evdence tht
No m$sst"tements #n them
Pr#or per#od c/f correctl#
Or rest"ted #f necess"r%
Account$n!pol$c$es cons$stent
f not then the comp"r"t#ve needs rest"t#n!"nd d#sclosed
$"l En!"!ement
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or Per#od Not Aud#ted+
ocedures
Chec&post Y/E c"shfor conf#rm#n!open#n!rece#v"bles / p"%"bles
Do stoc'count "nd "roll b"c&"to open#n!b"l"nce
Get 3rd p"rt#conf$rm"t$onon other "ssets "nd l#"b#l#t#es
or per#od - D#fferent Aud#tor
dt procedures
Rev$ew the$r wor&$n!p"pers - for competence "nd #ndependence
Chec&FS & "ud$t reportfor #nform"t#on relev"nt to open#n!b"l"nces
f prev$ous report mod$f$ed- chec'#t h"s been rect#f#ed now
d#t Report Poss#ble Effects
"n't !et enou!h ev$dence "bout open$n!b"l"nces* "Except for" or "D"scl!"mer"
pen$n!b"l"nces or d$sclosures $ncorrect "Except for" or "Adverse"
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