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ACCT3014 - Auditing and Assurance
Semester 1, 2013
Essential Learning
Students to download from BB and complete Mini Final Practice Exam before attending this weeks tutorial
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corporate collapses (Enron, HIH, One.Tel etc.) Collapse of major auditing firm (Arthur Andersen) Auditor value questioned during this period.
2004-2010 Developments: Recognition of the need for a strong, independent auditing profession. There have been many continuing legislative and professional developments aimed at ensuring (or even increasing) the auditors professional competence and independence (e.g. clarity of ASAs project).
ICAA Release of Benefit of an Audit, A Guide to Audit Quality which sets out five drivers of audit quality: The culture within an audit firm The skills and personal qualities of audit partners and staff The effectiveness of the audit process Factors outside the control of auditors The reliability and usefulness of audit reporting
2006-2010 Developments: New force of law standards (ASAs) released in late May 2006 (legally enforceable for years commencing 1 July 2006). AUASBs revision of remaining AUSs (e.g. AUS 902) and AGSs (e.g. AGS 1050). Differential auditing project: discussion of alternative assurance services of SMEs.
AUASB revised Clarity ASAs: operative for financial periods starting on or after 1 January 2010.
Going concern and ability to refinance Impairment fair value Off balance sheet arrangements
IAASB has released throughout 2009 36 newly updated and clarified ISAs and a clarified International Standard on Quality Control (ISQC) including:
New ISA addressing communication of deficiencies in internal control.
16 revised and redrafted ISAs (i.e. contain new and revised requirements).
19 redrafted ISAs (i.e. redrafted to apply Clarity conventions).
Overall an increase of approximately one third in number of requirements (356 mandatory requirements under current ASAs have become 547 in new ISAs)
The UK APB has estimated an increase in the cost of individual audit engagements of applying Clarify ISAs by 13.9% for SMEs and 5% for listed and large companies.
Reasons: Public interest Improved global auditing standards Need to improve audit quality Enhanced quality of performance in many areas materiality and evaluating misstatements, risk assessment in key areas (e.g., estimates and related parties), using the work of others (e.g., group audits), auditor communication and reporting
Clarity ASAs released at the end of October 2009, operative for reporting periods beginning on or after 1 January 2010.
Accounting standards
Auditing standards
Ethical standards
Auditor conduct
Auditor rotation requirements Documentation of decision made to provide nonaudit services to audit clients Preparation to deal with likely changes to the definition of network firms in APES 110 Requirements of revised ASAs applicable from 1 July 2006, specifically those addressing: audit documentation responsibility to address fraud consideration of laws and regulations audit sampling risk standards
Continued to focus on areas as per earlier inspections (e.g. independence, audit quality, s307 reporting, partner rotation, compliance with ASAs) Also focus on: Audit quality and processes Difficult judgment areas Impairment testing and asset valuation Use of external experts and impairment testing Use of appropriate senior resources Consultation and review within firms
Continue to focus on areas covered in 2009 Additional focus on a number of areas including: Audit fees Audit evidence and documentation Risk clients Business and risk Basic procedures Professional scepticism Group audits New dividend test
investors and other users of financial information in understanding the performance of an entitys business activities. Material disclosures necessary for investors to understand the financial position and performance of a company should be included in financial reports. This includes key assumptions supporting asset values, sources of estimation uncertainty and information on difficult accounting policy choices.
segment reporting consolidation of controlled entities use of the going concern assumption asset impairment fair value of financial assets financial instrument disclosures disclosures of estimates and accounting policy judgements accounting for business combinations related party disclosures operating and financial review, and alternative profits
Assurance on sustainability reporting (i.e. increasing emphasis not simply on financial disclosure but also on social and environmental credentials and impact). Assurance on carbon trading schemes. Greenhouse gas reporting and emission trading (the NGER Act). eXtensible Business Reporting Language (XBRL).
The International Integrated Reporting Council (IIRC) is a taskforce which aims to bring together data that is relevant to the performance and impact of a company in a way that will create a more profound and comprehensive picture of the risks and opportunities a company faces, specifically in the context of the drive towards a more sustainable global economy. Among the key challenges in the adoption of integrated reporting are: how the connectivity between financial information and non-financial information is to be achieved how, and the efficiency with which, more detailed information outside the integrated report will be accessed by both users and regulators clarity as to the audience of integrated reporting and their requirements striking the appropriate balance between disclosure which supports the legal, or otherwise valid, interests of stakeholders and the risk of disclosure of commercially sensitive information the means by which national regulators and standard setters either compel or encourage the uptake of integrated reporting So already in South Africa companies are producing One Integrated Report with all the companies Financial, and Non-financial information all in the one report.
Auditor involvement in MDS disclosures Driving audit quality New COSO Internal Control Framework delayed Audit scepticism which is currently a topic of worldwide professional interest Communication between auditors and audit committees-improve transparency Audit Rotation focusing on whether the requirements of the Code of Ethics for Professional Accountants (the Code) on partner rotation, including the seven year time limit used in the Code, remain appropriate Non-assurance services reviewing the Code's position on the provision of non-assurance services to audit clients, including the use of materiality, and how these services, if permitted, should be managed and disclosed.
Special Topics: IT environment / IT audit techniques (CAATs) analytical procedures (planning / substantive testing)
Other: role of internal auditor / corporate governance public sector auditing/Sustainability Assurance current issues
1. Pre-engagement activities
Accept / reject new client Established terms of engagement Engagement letter Obtain knowledge of the business ASA 315 (including ASA 250) 2.1.1 Preliminary analytical procedures ASA 520 Appraisal of risks, including fraud risk (ASA 240) going concern (ASA 570) ASA 315 Estimate of materiality ASA 320 Review of control components ASA 315 2.4.1 Preliminary evaluation of control environment ASA 315 Develop overall audit plan (i.e. develop an audit strategy) in response to risks ASA 330 2.5.1 Determine reliance on internal controls ASA 330 2.5.2 Determine extent and nature of testing ASA 330 2.5.3 Write audit plan Assignment of staff Tests of control ASA 500 3.1.1 Conducts tests 3.1.2 Make final evaluation of internal control 3.1.3 Modify audit approach ASA 330 Substantive testing activities ASA 500 3.2.1 Conduct substantive tests of transactions and balances 3.2.2 Conduct substantive analytical procedures ASA 520 3.2.3 Evaluate results of substantive procedures 3.2.4 Modify audit approach ASA 330 Obtain representations 3.3.1 Management 3.3.2 Solicitors 3.3.3 Bank Review financial report ASA 520 Review audit results Subsequent events ASA 560 Fraud and error ASA 240 4.5 Related party transactions 4.6 Formulate audit opinion ASA 700 etc 4.7 Draft issue reports
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A U D I T
P R O C E S S
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5. Continuous activities
5.5 5.6 5.7
Supervise conduct of examinations Review work of assistants Consider appropriateness of continuing relationship with client Make required special communication 5.4.1 Material weaknesses of internal accounting control 5.4.2 Material errors or irregularities Consult with appropriate persons in connection with special problems Document work performed, findings, and conclusions in appropriate working papers Consider going concern ASA 570
Final Exam Consultation Times Check BB in Week 13 and Lookout for Announcement
These will be run centrally within the Faculty by SIO. The SIO will notify all students approved to sit Further Test of times and locations via their university email.
Final Examination
Weighting 50% of Final Grade Instructions: This exam paper has a total of 22 pages. Exam consists of two sections. Students should ensure their name and SID are written on this booklet. For Section A: Students should mark the best answer on the Multiple Choice Grid sheet supplied. Students should select the BEST answer. For Section B: Students should place their answers in the spaces provided. Section B consists of 5 questions. Students should attempt ALL questions. Time Allowed: 120 minutes plus 10 minutes reading time Total Marks 50 No calculators or Handbooks permitted
Success seems to be connected with action. Successful people keep moving. They make mistakes, but they dont quit. ~ Conrad Hilton Conrad Nicholson Hilton was (1887 1979) was an American hotelier and founder of the Hilton Hotels chain.
All the Best, from Eric, Peter & Angela ACCT3014 Teaching Staff
Success is the sum of small efforts, repeated day in and day out. ~ Robert Collier Robert Collier (1885 1950) was an author of self help, and New Thought metaphysical books in the 20th century.
A lot of us would like to move mountains, but few of us are willing to practice on small hills. ~ Anonymous
Thank You
Engagement/Enjoyment You are the Future of Audit
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