El discurso ante la Unión de Estudiantes

46

C

47

D

48

D

49

C

50

B

CHAPTER 11 – SUBSTANTIVE PROCEDURES: OTHER AREAS

51

C

52

A

53

A

54

A

55

A

CHAPTER 12 – RELATED PARTY TRANSACTIONS

56

C

57

D

CHAPTER 13 – RELIANCE ON OTHERS

5

59

B

60

D

61

D

62

A

63

D

CHAPTER 14 – PROFESSIONAL ETHICS AND CODES OF CONDUCT

64

A

65

A

66

B

67

A

68

A

CHAPTER 15 – AUDIT FINALISATION AND REPORTING

69

B

70

A

71

C

72

C

73

B

CHAPTER 16 – INTERNATIONAL STANDARDS ON REVIEW ENGAGEMENTS

74

B

75

A

76

D

Certificate in Accounting and Finance

Audit and Assurance

S E C

T

I

O

N

D

Objective test and

long-form answers

1

1

ICAP Code of Ethics

(a) (i) The fundamental principles of professional ethics for chartered accountants are as follows:

‰ Integrity:

A chartered accountant should be straightforward and honest in all professional and business relationships.

‰ Objectivity:

A chartered accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.

‰ Professional competence and due care:

A chartered accountant has a continuing duty to maintain the required professional knowledge and skill to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A chartered Accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services.

‰ Confidentiality:

Confidential information acquired as a result of professional and business relationships should not be disclosed to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for personal advantage of the chartered accountant or third parties.

‰ Professional Behaviour:

A chartered accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.

(ii) The threats to compliance with the fundamental principles may be categorized as follows:

‰ Self-interest threats:

These may occur as a result of the financial or other interests of a chartered accountant or of an immediate or close family member.

‰ Self-review threats:

These may occur when a current assignment requires re-evaluation of the opinion previously expressed by the same chartered accountant.

‰ Advocacy threats:

These may occur when a chartered accountant promotes a position or opinion to the point that subsequent objectivity may be compromised.

‰ Familiarity threats:

These may occur when, because of a close relationship, a chartered accountant becomes too sympathetic to the interests of others.

‰ Intimidation threats:

These may occur when a chartered accountant may be deterred from acting objectively by threats, actual or perceived.

(b) Assisting financial statement audit client in matters such as preparing accounting records or financial statements may create a self-review threat when the financial statements are subsequently audited by the firm.

It is the client’s management responsibility to ensure that accounting records are kept and financial statements are prepared.

In the above case, the firm can provide assistance provided it does not involve taking management decisions. Such management decisions include:

‰ Determining or changing journal entries, or the classifications for accounts or transaction or other accounting records without obtaining the approval of the audit client;

‰ Authorizing or approving transactions; and

‰ Preparing source documents or originating data (including decisions on valuation assumptions), or making changes to such documents or data.

2

2

Levels of assurance

Reasonable assurance is a concept relating to the accumulation of the audit

evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements taken as a whole.

Whereas absolute assurance provides a guarantee that the financial statements are free from material misstatements.

An audit carried out in accordance with ISAs is designed to provide reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether due to fraud or error. In an audit-engagement, the auditor provides a higher, but not absolute, level of assurance that the information subject to audit is free of material misstatements.

An auditor cannot obtain absolute assurance because there are inherent limitations in an audit that affect the auditor’s ability to detect material misstatements. These limitations result from factors such as:

(i) The use of testing;

(ii) The inherent limitations of any accounting and internal controls system (for example, the possibility of collusion);

(iii) The fact that most audit evidence is persuasive rather than conclusive.

Also, the work undertaken by the auditor to form an opinion is permeated by judgment, in particular regarding:

(i) the gathering of audit evidence, for example, in deciding the nature, timing and extent of audit procedures; and

(ii) the drawing of conclusions based on the audit evidence gathered, for example, assessing the reasonableness of the estimates made by management in preparing the financial statements.

Further, other limitations may affect the persuasiveness of evidence available to draw conclusions on particular financial statement assertions (for example, transactions between related parties)

3

Shamsuddin

(i) As per the “Code of Ethics” for Chartered Accountants issued by ICAP, the practicing chartered accountants are not allowed to publicize their services in a manner as is done by other normal businesses.

Appropriate newspaper/magazine may be used to inform the public of the establishment of a new practice. But such announcements should be limited to a bare statement of facts giving due consideration to the appropriateness of the area of distribution of the newspaper/magazine and number of insertions.

What practicing members write or say should not be promotional of themselves or their firm.

Thus, Mr Shamsuddin can accept a discount offer provided he ensures compliance to the above.

(ii) The Code of Ethics for Chartered Accountants issued by ICAP states that: “Chartered Accountants in practice should be careful not to quote fee lower than that charged by the chartered accountants in practice previously carrying out the audit unless scope and quantum of work materially differs from the scope and quantum of work carried out by the previous auditor.” Keeping in view of the above, it is not advisable for Shamsuddin to accept the audit unless the reduction in fee is on account of the reason discussed above.

(iii) As per the Code of Ethics for Chartered Accountants, issued by ICAP, the professional fees should not be contingent upon the findings or results of such services.

Condition imposed by Design Limited impairs the objectivity of the auditor on account of self-interest threat. Therefore, Shamsuddin should not accept such a proposal.

(iv) Being a sole proprietorship the existing and proposed auditors should immediately communicate the fact to ICAP and the proposed auditor should not accept the offer without clearance from ICAP and the existing auditor.

4

4

Core concepts

(a) The management’s responsibilities in relation to the financial statements include the following:

‰ The overall responsibility for the preparation and presentation of the financial statements.

‰ Identifying the financial reporting framework to be used in the preparation and presentation of the financial statements.

‰ Designing, implementing and maintaining internal controls relevant to the preparation and presentation of financial statements that are free from material misstatement whether due to fraud or error.

‰ Selecting and applying appropriate accounting policies.

‰ Making accounting estimates that are reasonable in the circumstances. (b) Audit Scepticism

Audit scepticism is an attitude of professional scepticism which means that the auditor should recognize the fact that circumstances may exist that may cause the financial statements to be materially misstated. Consequently, he should make a critical assessment with a questioning mind of the validity of audit evidence obtained. He should remain alert to audit evidence that contradicts or brings into question the reliability of documents and responses to inquiries and the reliability of other information obtained from management and those charged with governance.

Elaboration on the response of the audit manager that auditor should always maintain an attitude of professional scepticism throughout the audit:

Although the auditor cannot be expected to disregard past experience of the honesty and integrity of the entity’s management and those charged with governance, the auditor’s attitude of professional scepticism is particularly important in considering the risks of material misstatement on account of changes in circumstances.

5

5

Threats

Following are the categories of threats that may potentially affect the fundamental principles:

(i) Self-interest threats

This may occur as a result of the financial or other interests of a chartered accountant or of an immediate or close family member.

‰ A financial interest in a client or jointly holding a financial interest with a client.

‰ Undue dependence on total fees from a client.

‰ Having a close business relationship with a client.

‰ Concern about the possibility of losing a client.

‰ Potential employment with a client.

‰ Contingent fees relating to an assurance engagement.

‰ A loan to or from an assurance client or any of its directors or officers. (ii) Self-review threat

This may occur when a previous judgment needs to be re-evaluated by the chartered accountant responsible for that judgment.

‰ The discovery of a significant error during a re-evaluation of the work of the chartered accountant in practice.

‰ Reporting on the operation of financial systems after being involved in their design or implementation.

‰ Having prepared the original data used to generate records that are the subject matter of the engagement.

‰ A member of the assurance team being, or having recently been, a director or officer of that client.

‰ A member of the assurance team being, or having recently been, employed by the client in a position to exert direct and significant influence over the subject matter of the engagement.

‰ Performing a service for a client that directly affects the subject matter of the assurance engagement.

(iii) Advocacy threats

This may occur when a chartered accountant promotes a position or opinion to the point that subsequent objectivity may be compromised.

‰ Promoting shares in a listed entity when that entity is a financial statement audit client.

‰ Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.

(iv) Familiarity threats

This may occur when, because of a close relationship, a chartered accountant becomes too sympathetic to the interests of others.

‰ A member of the engagement team having a close or immediate family relationship with a director or officer of the client

‰ A member of the engagement team having a close or immediate family relationship with an employee of the client who is in a position to exert direct and significant influence over the subject matter of the engagement.

‰ A former partner of the firm being a director or officer of the client or an employee in a position to exert direct and significant influence over the subject matter of the engagement.

‰ Accepting gifts or preferential treatment from a client, unless the value is clearly insignificant.

‰ Long association of senior personnel with the assurance client. (v) Intimidation threats

This may occur when a chartered accountant may be deterred from action objectively by threats, actual or perceived.

‰ Being threatened with dismissal or replacement in relation to a client engagement.

‰ Being threatened with litigation.

‰ Being pressured to reduce inappropriately the extent of work performed in order to reduce fees.

6

6

Burewala and Kamal

(a) Burewala Bank Limited:

Threats

(i) A threat to independence may be created if the loan is made under abnormal lending procedures, terms and requirements and the loan is material to both the firm and the BBL.

(ii) A self-interest threat may be created if the loan amount is material to the firm/ partner.

Safeguards:

As the Companies Ordinance, 1984, restricts a person who is indebted to the company from being auditor of the said company, therefore the course of action available to the partners of UCC is to withdraw from the engagement or repayment of the loan by the partner concerned.

(b) Faisalabad Textile Mills Limited:

Threats:

It has created self-interest, familiarity and intimidation threats.

The assurance team’s independence is threatened,on account of the fact that Kamal is in a position to exert direct and significant influence over the

assurance engagement as Kamal was a member of the assurance team during the previous year audit.

Safeguards:

The safeguards might include:

(i) Consider the appropriateness or necessity of modifying the assurance plan for the assurance engagement;

(ii) Assigning an assurance team that is of sufficient experience in relation to the individual who has joined the assurance client;

(iii) Involve an additional chartered accountant who was not a member of the assurance team to review the work or advise as necessary; or

(iv) Quality control review of the assurance engagement.

(v) Ensuring that the individual concerned is not entitled to any benefits or payments from the firm unless these are made in accordance with fixed pre-determined arrangements. In addition, any amount owed to the individual should not be of such significance to threaten the firm’s independence.

(vi) Ensuring that the individual does not continue to participate or appear to participate in the firm’s business or professional activities.

7

7

Zaman and Bilal

(a) ‰ As per the Companies Ordinance, 1984 a person shall not be appointed as auditor of a company, if he is disqualified for appointment of any other company, which is that company’s subsidiary or a holding company or a subsidiary of that holding company.

‰ Therefore, the firm cannot be appointed as an auditor of KL as Mr Zaman holds 5,000 shares in ML which together with KL is a subsidiary of DKL.

‰ For appointment as the auditor of the company, Mr .Zaman is required to dispose of the shares in ML.

(b) ‰ Bilal and Company, Chartered Accountants are eligible to act as the auditor of IJK Limited.

‰ IJK Limited is not an associated company of LMN Limited as LMN Limited holds 15.4% shares of IJK Limited. Therefore the wife of the partner is not required to dispose of the shares in LMN Limited.

‰ Holding of non-voting shares is not relevant in determining the status of the company.

8

8

Audit process

(a) Training materials: purpose of external audit and its role

(i) The external audit has a long history that derives largely from the separation of the ownership and management of assets. Those who own assets wish to ensure that those to whom they have entrusted control are using those assets wisely. This is known as the 'stewardship' function. (ii) The requirement for an independent audit helps to ensure that financial

statements are free of bias and manipulation for the benefit of users of financial information.

(iii) Companies are owned by shareholders but they are managed by directors (in very small companies, owners and managers are the same, but many such companies are not subject to statutory audit requirements).

(iv) The requirement for a statutory audit is a public interest issue: the public is invited to invest in enterprises, it is in the interests of the capital markets (and society as a whole) that those investing do so in the knowledge that they will be provided with 'true and fair' information about the enterprise, This should result in the efficient allocation of capital as investors are able to make rational decisions on the basis of transparent financial information. (v) The requirement for an audit can help prevent investors from being

defrauded, although there is no guarantee of this because the external audit has inherent limitations. Reducing the possibility of false information being provided by managers to owners is achieved by the requirement for external auditors to be independent of the managers upon whose financial statements they are reporting.

(vi) The purpose of the external audit under International Standards on Auditing is for the auditor to obtain sufficient appropriate audit evidence on which to base the audit opinion. This opinion is to the effect that the financial statements give a 'true and fair view' (or 'present fairly in all material respects') of the position, performance (and cash flows) of the entity. This opinion is prepared for the benefit of shareholders.

(b) Main audit procedures and processes: interim and final audit

Interim

(i) The interim audit generally involves risk assessment, the testing of internal controls, and certain analytical and other substantive procedures. Many of these procedures are often performed concurrently.

(ii) Risk assessment involves gathering information about the business, inquiries, analytical procedures and determining the response to assessed risk. In practice it also involves the determination of materiality and tolerable error.

(iii) Risk assessment also involves evaluating the design of internal controls and determining whether they have been implemented.

Final

(iv) Final audit procedures involve further tests of controls, substantive procedures and audit finalisation procedures.

(v) Further tests of controls are designed to test transactions occurring between the date of the interim audit and the period-end. This is to ascertain whether the conclusions from controls testing during interim work remain valid for the full period.

(vi) Substantive procedures may involve a blend of substantive analytical procedures plus tests of detail. The tests of detail typically involve selecting a sample from a source, for example a collection of purchase transactions, and tracing the transactions through to originating evidence, for example purchase invoices. Tests of detail are also carried out in the opposite direction by selecting from the external source (e.g. supplier invoices) then tracing entries through to the books and records

(vii) Audit finalisation procedures involve a review of the financial statements as a whole to ensure that they are internally consistent and presented in accordance with the relevant financial reporting framework (and the auditor's knowledge of the business). This phase includes the Partner’s review of significant matters raised by the audit team during the audit.

9

9

Regulatory and professional requirements

(a) Current regulatory and professional requirements

(i) Auditing standards

Both national and international bodies produce Auditing Standards. International Standards on Auditing (ISAs) are produced by the International Audit and Assurance Standards Board (IAASB), a committee of the International Federation of Accountants (IFAC). IFAC is an international organisation of professional accountancy bodies, including ICAP.

National standard-setters are expected to aim for compatibility with ISAs as far as possible and some (for example the UK) issue their own version of ISAs. National accountancy bodies will then adopt all of the auditing standards produced by their own standard setting body. Failure by auditors to comply with auditing standards will then lend them open to disciplinary action by their own accountancy body.

Local legislation will usually require recognised supervisory bodies to have rules and practices as to the manner in which these standards are to be applied in practice. Each supervisory body will adopt auditing standards in order to meet local legislation and each body will be required to have arrangements in place for the effective monitoring and enforcement of compliance with those standards. Failure to apply relevant auditing standards is a factor which a supervisory body will take into account when deciding whether persons are fit and proper to be eligible for appointment as company auditor.

(ii) Fraud

Currently the responsibility within a company for the prevention and detection of fraud rests with management. The auditor is not responsible for preventing fraud but audit procedures should be designed to give the auditor a reasonable expectation of detecting any material misstatements, whether intentional or unintentional, in a company’s financial statements. (iii) Non-audit services

There is no objection in principle to a practice providing non-audit services but care must be taken not to perform management functions or make management decisions. The key factor is that there is no conflict of interest between audit and the other services provided.

Accountancy work, however, should not be performed for a public company

In document UNIVERSIDAD IBEROAMERICANA Estudios con Reconocimiento de Validez Oficial por Decreto Presidencial del 3 de abril de 1981 (página 50-53)