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7/24/2019 p7 Acowtancy.com Text

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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


3/212

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


4/212

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%


6/212

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

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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!


8/212

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!


9/212

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!


10/212

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


11/212

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


12/212

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


13/212

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


14/212

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


15/212

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!
http://www2.accaglobal.com/pubs/members/publications/technical_factsheets/downloads/145.pdf


16/212

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
http://www2.accaglobal.com/pubs/members/publications/technical_factsheets/downloads/145.pdf


17/212

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#


18/212

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


19/212

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


20/212

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


21/212

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


22/212

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


23/212

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


24/212

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


25/212

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


26/212

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


27/212

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#


28/212

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


29/212

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&


30/212

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


31/212

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!$


32/212

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


33/212

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


34/212

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


35/212

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


36/212

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


37/212

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


38/212

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*


39/212

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%


40/212

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*


41/212

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


42/212

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


43/212

!%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


44/212

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


45/212

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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46/212

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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47/212

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#


48/212

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


49/212

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)


50/212

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


51/212

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)


52/212

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#


53/212

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!


54/212

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


55/212

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


56/212

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


57/212

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!


58/212

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


59/212

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


60/212

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*


61/212

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


62/212

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


63/212

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&


64/212

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


65/212

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#


66/212

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


67/212

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


68/212

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


69/212

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&


70/212

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#


71/212

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&


72/212

!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*


73/212

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#


74/212

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


84/212

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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