1. F8: Audit and Assurance

2. 2 Designed to give you knowledge and application of: Section A: Audit Framework and Regulation Section B: Internal audit Section C: Planning and risk assessment Section D: Internal control Section E: Audit evidence Section F: Review Section G: Reporting

3. 3 Section A: Audit Framework and Regulation Designed to give you knowledge and application of: A1. The concept of audit & other assurance engagements A2. Statutory audits A3. The regulatory environment & corporate governance A4. Professional ethics & ACCA’s Code of Ethics and Conduct

4. 4 Learning Outcomes A4: Professional Ethics & ACCA’s Code Of Ethics And Conducts  Define and apply the fundamental principles of professional ethics of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. [1]  Define and apply the conceptual framework, including the threats to the fundamental principles of self-review, advocacy, familiarity and intimidation. [1]  Discuss the safeguards to offset the threats to the fundamental principles. [1]  Discuss the auditor’s responsibility with regard to auditor’s independence, conflict of interest and confidentiality. [1]  Discuss the preconditions, requirements of professional ethics and other requirements in relation to the acceptance of new audit engagements. [1]  Discuss the process by which an auditor obtains an audit engagement. [1]  Explain the importance of engagement letters and state their contents. [1]

5. 5 Five main principles that members should comply at all times are as follows These are required for the best interests of their clients / employees, the accounting profession & the public at large. Objectivity Findings & judgments should be based on sound research i.e. form an opinion on facts alone. Professional competence & due care Keep knowledge & skill up-to-date, work diligently Confidentiality Never disclose confidential information of clients to any third party Professional behaviour  Avoid any action that discredits the profession & towards all with whom they come into contact in a professional capacity  Behave with courtesy & consideration Integrity Straightforward & honest in all professional & business relationships

6. 6 Self interest threats Personal / financial interest in an organisation Help members identify, evaluate & take action to mitigate the risk that threaten compliance with ethical principles The Conceptual framework Example: 1.Financial interest: ownership in equity / financial instruments / joint venture of client 2.Personal interest: personal relationship with senior member of client company 3.Probable employment with client 4.Excessive dependence on client’s fees 5.Apprehension about losing professional assignment Self review threats An accountant has to review & re-evaluate his previous judgments Example: 1.Reviewing results of an earlier assignment carried out by the auditor 2.Member of assurance team is a former employee of the client 3.Member of assurance team has been a director in the client’s company Continued…

7. 7 Advocacy threats A position / opinion to the point that subsequent objectivity may be compromised Familiarity threats Relationship with client stops being a purely professional one Intimidation threats deterred from acting objectively by threats, actual / perceived dismissal / replacement, being sued & reducing scope of audit Example: 1.Auditor acts as advocate for / against client 2.Auditor involved in corporate finance services 3.Company secretary position can lead to advocacy threat Example: 1.Assurance team member has a longstanding business relationship with the client 2.Assurance team member is a close friend of the assurance client 3.Director of assurance client is former partner / senior employee of audit firm Example: 1.Client threatens to remove auditor 2.Reduction in fees if scope of audit is not reduced 3.Recruitment of senior management of assurance client onto the audit team Refer to Test yourself 3 on page 69 Continued…

8. 8 fall into 3 groups By the profession / legislation / regulation Testing all professional accountant on the importance of ethics Investigate & take disciplinary action - ethical misconduct In the work environment Implementing a system of internal control Regular training programmes - ethics & corporate governance By the individual Attend regular training & professional development programmes Take advice from appropriate legal / regulatory body in situations of uncertainty e.g. whether he can take up a job Conceptual framework outlines safeguards

9. 9 Requirements of professional ethics for acceptance of new audit engagements Act ethically & in best interest of clients / profession Consider ethical responsibilities before signing engagement letter Be objective & independent in work Ensure professional competence & diligence Obey all relevant rules & regulations & do not engage in any activities that may bring profession into disrepute 9 Requirements of professional ethics & other requirements in relation to the acceptance of new audit engagements Refer to Test Yourself 6 on page 73 Refer to Self Examination Question 1 on page 79

10. 10 Process by which an auditor obtains an audit engagement New client approaches for audit, describes audit work it would like to be conducted & discussions, negotiations begin Is there a threat to the fundamental principles? Is the firm competent enough to perform a particular engagement? / can the competence be developed? Proceed with the audit Can safeguards be implemented to eliminate / reduce the threats? Reject the engagement Send an etiquette letter to the former auditor (if any) Decide the terms of engagement Reject the engagement No reply within reasonable given time Reply contains no issues worth attention Send an engagement letter to the client Obtain a signed copy from the client Adverse reply Report to the disciplinary authorities Discuss and resolve serious issues raised by former auditor with management Yes No Reject the engagement

11. 11 Recap  Define and apply the fundamental principles of professional ethics of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. [1]  Define and apply the conceptual framework, including the threats to the fundamental principles of self-review, advocacy, familiarity and intimidation. [1]  Discuss the safeguards to offset the threats to the fundamental principles. [1]  Discuss the auditor’s responsibility with regard to auditor’s independence, conflict of interest and confidentiality. [1]  Discuss the preconditions, requirements of professional ethics and other requirements in relation to the acceptance of new audit engagements. [1]  Discuss the process by which an auditor obtains an audit engagement. [1]  Explain the importance of engagement letters and state their contents. [1]

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