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Flashcards

3. Professional Standards

Ed Blocksidge Audit and Assurance ACA English 60 cards

Cards in this deck (60)

  1. 1Describe the fundamental professional features of assurance engagements (3)- Provided by independent professionals to particular standards (1)
    - Carried out in the public interest (1)
    - Important they are carried out within context of professional and ethical standards (1)
  2. 2What expectations do users have of assurance providers? (2)- Providers to be independent & objective and competent (1)
    - Expect sufficient and appropriate amount of work to be done to support conclusion given (1)
  3. 3What results do readers of financial statements expect from an audit? (2)- Assurance that the reliability of FSs does not vary from company to company (1) and knowing that each one has been audited to common standards for comparison (1)
  4. 4Summarise regulation in audits (2)- Need for audits to be regulated to ensure same standards, auditors follow rules issued by variety of bodies (1)
    - Obligations imposed by governments in law, statute and professional bodies (mandatory by law) (1)
  5. 5Summarize the regulation system/tree for audits (5)ASSURANCE ENGAGEMENTS, governed by:
    - Ethics
    -Risk Assessment
    - Terms of engagement
    - ISQCs (1)
    AUDITS *assurance engagement*, governed by:
    - ISAs (1)
    OTHER ASSURANCE ENGAGMENTS
    *assurance engagement* (1)
    UK AUDITS, governed by:
    Companies act, ISA's (UK&I)
    *audits* (1)
    Other audits
    *audits* (1)
  6. 6Summarize 'IFAC' (3)- 'International Federation of Accountants' (1)
    - Professional body representing accountants from around world (1)
    - 163 member organisations, from 119 countries (1)
  7. 7List the UK organisations who are members of IFAC (6)- ACCA (Certified accountants) (1)
    - CIMA (Management accountants) (1)
    - CIPFA (Public sector accountants) (1)
    - ICAEW (1)
    - ICAI (Ireland) (1)
    - ICAS (Scotland) (1)
  8. 8What is the 'forum of firms'? (1)Set up by the largest accounting practices to co-operate on standard setting and other matters (1)
  9. 9What is the IAASB? (2)- International Auditing and Assurance Standards Board (1)
    - Set up by IFAC, to issue professional standards on its behalf (1)
  10. 10How are IAASB members nominated? (1)The majority by IFAC, the remainder by the forum of firms (1)
  11. 11What are the five standards that the IAASB issues? (5)1. International Standards on Auditing (ISAs)
    2. International Standards on Assurance Engagements (ISAEs) (applicable to assurance engagements dealing with matters other than historical financial information)
    3. International Standards on Review Engagements (ISREs) (applicable to the review of historical financial information)
    4. International Standards on Related Services (ISREs) (applicable to other, non-assurance engagements)
    5. International Standards on Quality Control (ISQCs) (applicable to all engagements carried out under any of the IAASB's standards)
  12. 12Describe the guidance IFAC offers in addition to its members aside from the IAASB (2)- Statements of Membership Obligations (SMOs) to assist its members in ensuring high quality performance (1)
    - 'SM01 Quality Assurance' is to be applied to quality assurance review programmes by members carrying out audits of financial statements (1)
  13. 13Where is an explanation of the workings of the IAASB, the authority of the ISAs and so on laid out? (1)Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services (1)
  14. 14What is the mission of IFAC? (1)'The development and enhancement of an accountancy profession with harmonised standards able to provide services of consistently high quality in the public interest' (1)
  15. 15How does the IAASB take into account that laws and regulation on accounting and audtitin vary in different countries? (1)The IAASB takes into account of documents and difference in different countries and issues ISAs which are intended for international acceptance (1)
  16. 16For what kind of information do ISAs apply to? (1)Historical financial information (1)
  17. 17Describe what the IAASBs Clarity Project is (2)- 2009, issued new set of ISAs, effective for audits of FS beginning on or after 15/12/2009 (1)
    - Aim to improve readability & understanding of the ISAs thereby encouraging consistent application and eventual improvement in audit quality worldwise (1)
  18. 18Describe how the IAASB's clarity project was implemented (2)- Each new ISA given objective, requirements and separate application and other explanatory material which provides additional guidance on the requirements (1)
    - Language amended in some cases to remove ambiguity (1)
  19. 19When might an auditor judge it necessary to depart from an ISA? (1) What requirement follows this (1)- In order to more effectively achieve the objective of an audit (1)
    - The auditor must be prepared to justify the departure (1)
  20. 20Discuss the two outcomes of the cases where ISAs a. conform (1) and b. differ from local regulations on a particular subject (1)a. Audit of financial or other information in that country in accordance with local regulations will automatically comply with ISA regarding that subject (1)
    b. Member bodies should comply with the obligations of members set forth in the IFAC Constitution as regards these ISAs (ie encourage changes in local regulations to comply with ISAs) (1)
  21. 21How do ISAs apply to the public sector? (2)- 'Considerations specific to public sector entities' are set out at relevant points in the text of the ISA (1)
    - Where no specific public sector considerations, ISA is applicable in all material aspects to public sector (1)
  22. 22Describe the working procedures of the IAASB (6)1. Procedure is to select subjects for detailed study by subcommittee established for that purpose
    2. IAASB delegates to subcommittee the initial responsibility for preparation & drafting of accounting standards & statements
    3. Study results in 'exposure draft' prepared for consideration by IAASB.
    4. If approved, it is widely distributed for comment by member bodies of IFAC & to such international organisations that have interest in auditing standards as appropriate
    5. Comments and suggestions received as result of exposure & then considered by IAASB & exposure draft revised as appropriate
    6. Provided revised draft is approved, it's issued as a definitive International Standard and become operative
  23. 23What happened and why in the Clarity Project 2009? (2)- IAASB reissued existing ISAs (1) redrafted as to make them clearer (1)
  24. 24What were the two main purposes of the IAASB Clarity Project? (2)1. Eliminating ambiguity in ISAs
    2. Improving the overall readability of ISAs
  25. 25Summarise the 'Harmonisation/Convergence' process in one sentence (1)The increasingly close alignment of standards which affect accountants across the world in the areas of:
    - Ethics
    - Financial reporting
    - Auditing
    (1)
  26. 26Historically, what have been the two barriers towards 'harmonisation to ISAs'? (2)- ISAs have always been regarded as something that, although good in theory, would never have very much impact in individual jurisdictions (1)
    - GAAP was markedly differently in the US, the UK and Europe and there appeared to be little appetite for change (1)
  27. 27What are the four drivers that have caused attitudes towards ISAs and harmonisation to change? (4)- Global companies are now truly global, and will move their operations at will (1)
    - EU is increasingly harmonising the rules & regulations affecting the business across its member states (1)
    - The euro (1)
    - The Enron affair (1)
  28. 28Describe why the Enron scandal helped in changing the attitude towards ISAs (2)As Enron and auditor were both US based (1), the US were forced to look again at their own standard, and so it probably did as much as anything to enable compormises to be made (1)
  29. 29What is the latest status of ISA harmonisation worldwide? (5)1. IAS should have been adopted by all EU listed companies for APs commencing on or after 1 January 2005
    2. ISAs should have been adopted for audit of all EU FSs for periods starting on/after 1 January 2005
    3. October 2009 APB issued new ISAs (UK&I) for audits of financial statements for periods ending on or after 15 Dec 2010, these were necessary to address specific UK&I statutory requirements
    4. July 2012: role of APB assumed by the Codes and Standards Committee of the restructured Financial Reporting Council
    5. APB didn't adopt ISA 700 forming an Opinion and Reporting on Financial Statements but instead issued ISA 700 (UK&I) The Auditor's Report on Financial Statements. Revised ISA was issued in Feb 11, and another in June 13
  30. 30Show how the UK system for auditing standards works (5)IAASB Issues, FRC (formely APB) adopts --> ISAs --> FRC (formerly APB) Modifies & issues --> ISAs (UK&I) (5)
  31. 31What is the purpose of the FRC? (1)To promote good financial reporting in the UK through the setting of accounting standards and the review of published financial statements (1)
  32. 32In which year was the FRC established? (1)1990 (1)
  33. 33What are the core structures and responsibilities of the FRC under the overeaching FRC board, as approved in reform by parliament in July 2012? (6)- CODES AND STANDARDS COMMITTEE (1) - Responsible for actuarial policy, audit and assurance, corporate governance, and accounting and reporting policy (1)
    - CONDUCT COMMITTEE (1)
    Responsible for audit quality review, corporate reporting review, professional discipline, professional oversight, and supervisory inquiries (1)
    - EXECUTIVE COMMITTEE (1) - providing day to day oversight of the work of the FRC (1)
  34. 34Draw a tree of the full structure of the FRC (11)See textbook, p58 (11)
  35. 35Describe the characteristics of the FRC relevant to the issuing of auditing standards (4)The FRC issues auditing standards. It:
    1. Amends International Standards on Auditing for any specific UK factors and the issues these as ISA (UK&I)
    2. Can issue auditing standards in its own right without having to gain the approval of all the accountancy bodies
    3. Has strong representation from outside the accounting profession
    4. Has a commitment to openness, with agenda papers being circulated to interested parties and an annual report being published
  36. 36Which 6 types of standards and guidance does the FRC issue for auditing? (6)1. Auditing standards
    2. Ethical standards for auditors
    3. Practice notes
    4. Bulletins
    5. Standards for reviews of interim financial statements performed by the auditor of the entity
    6. Audit quality - thematic reviews
  37. 37What are the scope of the auditing standards issued by the FRC? (2)'Quality control standards and auditing standards and auditing standards for audits of financial statements include objectives for the auditor, together with requirements and related application and other explanatory material. (1) It is necessary to have an understanding of the entire text of a Standard, including its guidance, to understand its objectives and to apply its requirements properly (1)'
  38. 38Why does the issue of internal control have particular prominence in the UK? (1)After investigations into corporate governance in the 1990s, notably the Turnbull Report which concentrated on risks facing companies and need for directors to manage those risks (1)
  39. 39How has internal control been given prominence in the US as a result of the Sarbanes-Oxley Act? (1)The requirements that places on chief executive officers to give more ceritifcation that the financial statements produced are true, by implication, that the system operating them are strong and capable of preventing error (1)
  40. 40Explain how the issue of assurance over internal control has become an important issue (2)- Assurances given over internal controls in an audit are limited, so the provision of additional or alternative assurances are important (1)
    - July 2001: APB issued Briefing Paper on issue of providing assurance in the effectiveness of internal control (1)
  41. 41What were the two distinct areas of assurance highlighted by the Briefing Paper on internal control? (2)- Assurance on the design of internal control systems (1)
    - Assurance on the operation of the internal control system, in accordance with the design (1)
  42. 42Describe the process identified by the Briefing Paper in relation to internal controls (4)1. Identify business objectives
    2. Assess risks that will threaten those objectives
    3. Design internal controls to manage those risks
    4. Operate the internal controls in accordance with their design
  43. 43What are the three points of the internal control process over which assurance can be given? (3)- Risk identification (1)
    - Design of system (1)
    - Operation of system (1)
  44. 44What prerequisites are there for carrying out an internal controls engagement? (2)Sufficient knowledge of the business (1) that they can identify and understand the events, transactions and practices which will impact on the system of internal control (1)
  45. 45What is required in order to provide a high level of assurance over the operation of their internal control system? (1) Which issues should the related report include? (3)A detailed description of the design of their system of internal control (1)
    - Isolated control failures (1)
    - Observation about the abilities of staff involved in operating the system of control (1)
    - Potential weaknesses observed which were not contemplated within the design (1)
  46. 46Which two issues should a practitioner consider in an engagement that provides assurance over the design and operation of a system? (2)1. Design of the system in addressing a set of identified risks
    2. Operation of the system
  47. 47Which matters would be discussed with management at the outset of an assurance engagement providing assurance on the design and operation of a system? (3)- Desired balance between prevention & detection controls (1)
    - Balance between costs & control (1)
    - Importance of specific control objectives (1)
  48. 48Which three things should be included in the assurance report, following the discussion with management in a design and operation of system assurance engagement? (3)- The applicable risks (1)
    - Any framework for design used by either the directors or the practitioners (1)
    - Description of design of system of internal control (1)
  49. 49Which factors would affect the level of assurance that is given in an assurance engagement over the design and operation of a system (3)- Nature of entity (1)
    - Knowledge of the business the practitioner possesses (1)
    - Scope of the engagement (1)
  50. 50Discuss the features of an assurance engagement on the applicable risk & the design & the operation of a system (5)- Would consider all three aspects of assurance of internal control (1)
    - Identification of risks likely to involve high degree of judgement (1)
    - because no universally recognised criteria suitable for evaluating the effectiveness of an entity's risk evaluation (1)
    - therefore unlikely that a high level of assurance can be given in this area (1)
    - Starting point would be consideration of the entity's business objectives (1)
  51. 51Give the four key considerations for an entity's business objective in a risks, design and operation assurance engagement (4)- The completeness of the applicable identified risks (1)
    - Probability of risk crystallising (1)
    - Materiality of the likely impact of the risk (1)
    - Time period over which crystallisation is anticipated (1)
  52. 52What are the inherent limitation of internal control systems? How should this be addressed in an assurance engagement? (2)- Limitation is the chance of staff colluding in fraud to override the system (1)
    - Therefore any assurance report should include a mention of this inherent limitation, in order to prevent an unnecessary expectations gap (1)
  53. 53How should a report for any given assurance engagement? (1)Depends on scope and nature of individual assignment - no standard report (1)
  54. 54What are the two planned activities relating to audit regulation in the FRC Work Plan for 2014/15? (2)1. Responding to the Competition Commission's enquiry into the audit market
    2. Addressing the proposed changes resulting from the EU directive
  55. 55What five changes with regards to audit did the EU Directive of April 2014 propose? (5)1. Improving the quality of audit and reporting
    2. Mandatory re-tendering after 10 years
    3. Change of auditor at least every 20 years
    4. Ban on providing non-audit services (including tax advice) to public interest entities (PIEs)
    5. Cap on fees for non-audit services
  56. 56Why did the FRC issue bulletin 4 in April 2014? (1)In response to developments in UK company law, the UK Listing Rules and changes in ISAs that have an effect on the auditor's duties and the wording of auditors reports (1)
  57. 57What are the consequences of Bulletin 4 for companies? (2)- They are now required to produce a Strategic Report (1)
    - The auditors report should state that the Strategic Report is consistent with the financial statements (1)
  58. 58Define 'professional scepticism' in terms of the auditing standards (1)- An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence (1)
  59. 59What did the FRC's paper on professional scepticism of March 2012 state? (3)1. Recognised difficulty with applying professional scepticism in audit when encouraging close working relationships with clients
    2. Emphasised role of audit committees in communicating to shareholders the extent of scepticism employed in carrying out audit work
    3. The conditions that need to be satisfied in order for an opinion to be expressed on the truth and fairness of the financial statements
  60. 60What are the four conditions that must be fulfilled before expressing a view on the financial statements as per the FRC PS report? (4)1. There has been sufficient inquiry and challenge
    2. Management's assertions have been thoroughly tested
    3. Audit evidence has been critically appraised and deemed to be sufficiently persuasive
    4. Alternative treatments for items in financial statements have been considered

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ACA Audit and Assurance Flashcards on 3. Professional Standards, created by Ed Blocksidge on 07/01/2015.
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Ed Blocksidge
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