71305 Auditing Modules 1 & 2 2016

Engagement process (Perkins)

- Selective acquisition of clients, is the client desirable, profitable and does the auditor want to deal with this client. - can't afford high risks, consider source of the introduction - why are they changing accountant - look at recent history of the company and directors - expectations around fees, are they compatible and can work be done within the clients budget - any ethical conflicts with existing clients, competitors - logistics and resources, do you have enough staff - technical ability and degree of difficulty involved - terms and conditions need to be understood at written down (letter of engagement)

Types of audit

- external financial and non-financial - internal - performance audits

An audit of financial statements involves

1. An expression of an opinion to identifiable users 2. Utilising recognised auditing standards 3. Reasonable assurance concerning governing body assertions 4. No material misstatement due to fraud or error 5. Conducting the audit in accordance with the applicable financial reporting framework 6. Both historical and forecast financial statements.

Misstatement

A difference between the amount, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud. Where the auditor expresses an opinion on whether the financial statements are presented fairly, in all material respects, or give a true and fair view, misstatements also include those adjustments of amounts, classifications, presentation, or disclosures that, in the auditor's judgement, are necessary for the financial statements to be presented fairly, in all material respects, or to give a true and fair view.

Arms length

A transaction conducted on such terms and conditions as between a willing buyer and a willing seller who are unrelated and are acting independently of each other and pursuing their own best interests.

AG PES 1

AUDITOR-GENERAL'S STATEMENT ON PROFESSIONAL AND ETHICAL STANDARD 1 (REVISED) Code of Ethics for Assurance Practitioners Fundamental principles: Section 100 Introduction and Fundamental Principles Section 110 Integrity Section 120 Objectivity Section 130 Professional Competence and Due Care Section 140 Confidentiality Section 150 Professional Behaviour http://oag.govt.nz/2014/auditing-standards/docs/03-ag-pes-1-code-of-ethics.pdf

International Federation of Accountants (IFAC)

All major accounting bodies worldwide have accepted the standards of http://www.ifac.org/

International Federation of Accountants (IFAC)

All major accounting bodies worldwide have accepted these standards http://www.ifac.org/

Audit team

An audit team (on other than small and low-risk engagements) will typically have an engagement second partner, manager, specialist manager for tax and other areas requiring particular expertise, supervisor(s), senior(s) and assistant(s).

Assurance engagement

An engagement in which an assurance provider expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.

Assurance provider

Any person or organisation appointed or engaged to provide assurance services.

Companies Act 1993 s207a

Audit must be carried out in accordance with auditing and assurance standards (1) An auditor must, in carrying out an audit for the purposes of section 207, comply with all applicable auditing and assurance standards. (2) Subsection (3) applies if the Registrar notifies a large overseas company (A) that the Registrar is satisfied that standards relating to auditing or assurance that are in force in the country where A is incorporated or constituted (the overseas standards) are— (a) substantially the same as the applicable auditing and assurance standards referred to in subsection (1); or (b) sufficiently equivalent, in relation to the quality of auditing they achieve, to the applicable auditing and assurance standards referred to in subsection (1). (3) The auditor of A's financial statements or group financial statements may, in carrying out the audit of those statements and in preparing the auditor's report, comply with the overseas standards instead of the applicable auditing and assurance standards. (4) This section does not apply to a company that is a public entity.

Information theory

Auditing improves the efficiency of financial markets by ensuring that all investors receive accurate financial information. This improves the ability of investors to make rational investment decisions.

Disadvantages of audit

Costs outweigh benefits Risk of auditor not being entirely independent Gives minimal information on the effectiveness and economy of service provided

The big four

Deloitte EY KPMG PWC

AG 3 OAG Public sector standards

Effectiveness and efficiency, waste and a lack of probity or financial prudence http://oag.govt.nz/2014/auditing-standards/docs/26-ag-3-effectiveness.pdf

Financial Markets Authority (FMA)

Promoting fair, efficient and transparent financial markets. The Financial Markets Authority (FMA) has established itself as an agency with a critical role in regulating capital markets and financial services in New Zealand. As a risk-based conduct regulator, we focus our resources on conduct that we think poses the most significant risk to achieving this objective. Our main vision is to promote and facilitate the development of fair, efficient and transparent financial markets.

Assertions

Representations, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements that may occur.

Professional & Ethical Standard(PES3)

Requires auditors to establish and maintain a system of quality control policies and procedures that include: 1. leadership responsibilities for quality within the firm 2. relevant ethical and professional requirements 3. acceptance and continuance of client relationships and specific engagements 4. human resources 5. engagement performance 6. monitoring. Reinforced by XRB ISA (NZ) 220 Quality control for an audit of financial statements.

SOI

Statement of Intent

SSP

Statement of service performance = non-financial information

Behavioural theory

Suggests that the presence of an audit or auditors will, by increasing the likelihood of the detection of wrongful acts, influence managers and employees to make sure that their behaviour is always in the entity's best interests.

AG 4 OAG Public sector standards

The audit of service performance reports http://oag.govt.nz/2014/auditing-standards/docs/ag-4-rev-service-performance.pdf

Ethical alignment

The engagement partner should ensure that there is ethical alignment with the audit entity. An engagement partner must evaluate a potential client before deciding to accept an engagement. For continuing engagements, because of regular changes that will occur in the governing board and chief executive, the engagement partner must also reassess ethical alignment. A significant part of this alignment will be established through determining a chief executive's attitude toward controls in the business.

External financial audit

The expression of an independent opinion on financial statements prepared by biased parties, accompanied by recommendations of how controls could be improved

Identifiable user

The identifiable users will in most cases be the owners of the entity who will have engaged the auditor to provide an opinion. There may be other identifiable users, such as in the regulated electricity industry. Marlborough Lines Limited is required to have its electricity distribution information audited and reported to both its community trust owner and the Commerce Commission.

Quality control

The objective of the quality control system implemented by an auditor is to provide reasonable assurance that the: 1. audit complies with professional standards and applicable legal and regulatory requirements 2. auditor's report issued is appropriate in the circumstances.

Ex ante

The term ex-ante (sometimes written ex ante or exante) is a phrase meaning "before the event" most commonly in the commercial world, where results of a particular action, or series of actions, are forecast in advance (or intended). The opposite of ex-ante is ex-post (actual) (or ex post).

Roles and responsibilities of external auditor

Utilise auditing standards to provide an independent opinion on the financial statements submitted by the governing body Report to the governing body on internal controls that could be improved

Reasonable assurance

means a high, but not absolute, level of assurance. An audit engagement is a reasonable assurance engagement.

NZICA

monitors the conduct of its members and their adherence with ISA on behalf of the Financial Markets Authority (FMA). The FMA can intervene at any time and conduct its own review of licensed issuer auditors if it considers NZICA is not carrying out its monitoring properly.

Audit risk

the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated

Commerce Commission

Disclosure requirements: http://www.comcom.govt.nz/regulated-industries/electricity/electricity-information-disclosure/current-electricity-information-disclosure-requirements

State Sector Organisations

http://www.ssc.govt.nz/state_sector_organisations

Module 2 Topics

1. Auditor's quality control responsibilities 2. Auditor's ethical responsibilities 3. Audit engagement letter 4. Role of IFAC, XRB and FMA in securing high-quality audits 5. Role of the profession with respect to non-regulated audits 6. Contract and common law liability and why auditor's settle out of court 7. Audit expectation gap

Six elements of audit

1. The auditor is engaged to express an independent opinion to the identifiable users of the entity on the truth and fairness of financial statements which have been prepared by the governing body. 2. New Zealand subscribes to an internationally accepted body of auditing standards. These auditing standards prescribe the minimum requirements for an audit of financial statements. And, in the case of issuers, are legally enforceable on auditors. A high but not absolute level of assurance. Auditors cannot be certain that they will identify all problems with the financial statements, but aim to report that they are materially OK. 4. Error is where management has made a genuine mistake in preparation of the financial statements. Fraud however is an intentional action designed by management to mislead the user of the financial statements. Auditors plan their audit procedures to identify material errors and frauds. 5. There is an internationally accepted framework for the preparation of financial statements. In New Zealand this is embodied in the financial reporting standards upheld by the External Reporting Board (XRB). 6. All financial statements contain historical information. The financial statements record activities that have occurred in the past year. Some include information about future activities by way of forecasts.

Module 1 Topics

1. What is an audit of financial statements? 2. Auditing terminology 3. Why are external financial statements needed? 4. Types of audit 5. Auditing requirements of private sector companies and public sector entities 6. Auditor obligations under other legislation, entity specific requirements and agreed-upon-procedures engagements 7. Role and responsibilities of governing body and audit committees 8. Financial statement assertions and the auditor opinion

International Standard on Auditing (New Zealand) (ISA (NZ)

Deals with the independent auditor's overall responsibilities when conducting an audit of financial statements in accordance with ISAs(NZ). Specifically, it sets out the overall objectives of the independent auditor, and explains the nature and scope of an audit designed to enable the independent auditor to meet those objectives

Public sector accountability

Appropriations (Estimates) = SOI Non-financial Performance = SSP Ex ante specification - ex post reporting Parliamentary scrutiny - Select Committees Public scrutiny - front page news Ref: Macdonald DJ (2007)

High risk

As Defined by OAG' the definition of 'high risk' include entities: - that are likely to be privatised, either wholly or in part - where there is significant media or political interest - that engage in large and complex financial transactions - where there may be significant doubt about the validity of the going concern assumption.

Companies Act 1993 s207b

Auditor must report to shareholders (1) The auditor of a company must make a report to the shareholders on the financial statements or group financial statements audited by the auditor. (2) The auditor's report must comply with the requirements of all applicable auditing and assurance standards.

Companies Act 1993 s207c

Auditor's report must be sent to Registrar and External Reporting Board if requirements have not been complied with If the auditor's report indicates that the requirements of this Act have not been complied with, the auditor must, within 7 working days after signing the report, send a copy of the report and a copy of the financial statements or group financial statements to which it relates to the Registrar and the External Reporting Board.

Auditing and public sector

Auditor-General, David Macdonald, when he was teaching at Victoria University. Macdonald suggests that the New Zealand public as taxpayers, ratepayers and citizens want answers to four key accountability questions: 1. Is the Government managing its financial affairs prudently? 2. Is the Government achieving what it set out to achieve, and is it doing so in a cost-effective and efficient manner? 3. Is the Government looking after its assets (people, infrastructure, and intellectual capital) so it can deliver results [outcomes/outputs] in the future? 4. Are the Government's activities being carried out within the law and in accordance with expected standards of conduct and probity?

Societal theory

Entities have responsibilities to society at large, as well as to their owners. For example, society is concerned with the economic, social and environmental impact of an entity's actions. The societal theory of auditing states that auditors are therefore responsible to society as a whole by ensuring that published information does not mislead the general public.

Professional and Ethical Standard XRB (PES 1)

Code of ethics for assurance practitioners. Five fundamental principles: (a) Integrity (b) Objectivity (c) Professional competence and due care (d) Confidentiality (e) Professional behavior - comply with laws and regulations PES 1 requires assurance practitioners to comply with Auditing Standards; therefore auditors shall not sign an audit report that does not conform to the requirements of this ISA (NZ)

The Auditor General

Controller role responsible for auditing all public entities, it is important that the Office ensures that audits are performed effectively and efficiently, and in accordance with relevant professional accounting and auditing standards, as well as the Auditor-General's own published auditing standards. http://oag.govt.nz/2014/auditing-standards The standards establish the minimum standards to be applied to audits, inquiries, and other auditing services carried out on behalf of the Auditor-General. Under section 23 of the Public Audit Act 2001, the Auditor-General must publish the Auditing Standards, by way of a report to the House of Representatives, 'at least once every 3 years'. Each annual report must include a description of any significant changes made to the standards during a financial year. OAG standards follow the same numbering convention as the equivalent XRB Standards with two additional standards fro public sector entities AG-3 and AG-4 These standards recognise responsibilities of public sector entities to properly manage public monies, because of the coercive power they have to raise tax and rates revenue to finance their activities Public sector entities are predominantly service-oriented in contrast to private sector entities which are profit-oriented.

XRB

External Reporting Board a new body set up in 2011 to take over preparing and issuing auditing standards, professional engagement standards and ethical standards that govern the professional conduct of auditors. This role had previously been the responsibility of the New Zealand Institute of Chartered Accountants (NZICA). The New Zealand Auditing and Assurance Standards Board (NZAuASB) is a Committee of the XRB Board established under schedule 5 of the Crown Entities Act. The NZAuASB has delegated authority from the XRB Board to develop or adopt and issue auditing and assurance standards (including professional and ethical standards for auditors). In doing so the NZAuASB must operate with the financial reporting strategy established by the XRB Board. The NZAuASB strategic objective is to establish auditing and assurance standards which will encourage assurance providers to behave and provide assurance in a manner that engenders confidence in New Zealand financial reporting, assists entities to compete internally, and enhances entities' accountability to stakeholders. The provision of high quality assurance that provides users with confidence about the fair presentation of the information presented in financial reports is vital to the achievement of the XRB's outcome goal. The NZAuASB considers the suite of auditing and assurance standards, and how they are being applied with this objective in mind. It issues such standards or guidance as it considers necessary from time to time to achieve its strategic objective. https://www.xrb.govt.nz/

Legislation - Private Sector

Financial Markets Conduct Act 2013 New Zealand Institute of Chartered Accountants Amendment Act 2014 Companies Act 1993 Financial Reporting Act 2013

Audit legislation

Financial Markets Conduct Act 2013 New Zealand Institute of Chartered Accountants Amendment Act 2014 Companies Act 1993 Financial Reporting Act 2013

Companies Act 1993 s207

Financial statements must be audited (1) Every company or overseas company to which this section applies (A) must ensure that the financial statements or group financial statements prepared in respect of A under section 201, 202, or 204 (if any) are audited by a qualified auditor. (2) See sections 37 to 39 of the Financial Reporting Act 2013 (which provide for the appointment of a partnership and access to information in relation to a company or an overseas company).

Companies Act 1993 s210

Financial statements must be prepared. Every company or overseas company to which this section applies (A) must ensure that, within 5 months after the balance date of A, financial statements that comply with generally accepted accounting practice are- 1. completed in relation to A and that balance date; and 2. dated and signed on behalf of A by 2 directors of A, or, if A has only 1 director, by that director.

Companies Act 1993 s201

Financial statements must be prepared. Every company or overseas company to which this section applies (A) must ensure that, within 5 months after the balance date of A, financial statements that comply with generally accepted accounting practice are: (a) completed in relation to A and that balance date; and (b) dated and signed on behalf of A by 2 directors of A, or, if A has only 1 director, by that director.

Forecasts

Forecasts are particularly prevalent in public sector entities which are required to report to taxpayers and ratepayers what they intend to do in the coming year, and at the end of the year report and comment on their actual performance compared to their forecast. Other entities that are looking to raise monies from the public, prepare forecast information to show the likely uses of the monies to be raised and how profitable their future activities are expected to be.

Companies Act 1993 s202

Group financial statements must be prepared (1) Every company or overseas company to which this section applies (A) that has, on the balance date of A, 1 or more subsidiaries must ensure that, within 5 months after that balance date, group financial statements that comply with generally accepted accounting practice are— (a) completed in relation to that group and that balance date; and (b) dated and signed on behalf of A by 2 directors of A, or, if A has only 1 director, by that director. (2) Group financial statements are not required under subsection (1) in relation to a balance date if,— (a) on the balance date, A is a subsidiary of a body corporate that is incorporated in New Zealand (B); and (b) group financial statements in relation to a group comprising B, A, and all other subsidiaries of B that comply with generally accepted accounting practice are completed in relation to that balance date under this Act or any other enactment.

Agency theory

In most large modern companies, the auditors are appointed by the directors. The audit benefits directors and company management by adding independent credibility to their reports to the owners of the company. The owners are more confident that their agents are acting in their best interests, and the owners are therefore prepared to continue to employ the directors and company management (as their agents).

Financial Markets Authority (FMA)

In the wake of several high-profile international corporate collapses such as Enron, WorldCom, HIH and Tyco, many countries, including New Zealand, have modified their legal structures for auditors and auditing standards. The passing of the Sarbanes-Oxley Act in the United States in 2002 was the catalyst for legislative modifications in other countries. The new regulatory landscape in New Zealand did not emerge until 2011. CAANZ is now part of a co-regulatory landscape, alongside the FMA and, since 1 July 2011, the XRB. The Financial Markets Authority regulates New Zealand's financial markets and oversees securities, financial reporting and company law as it applies to financial services and securities markets. It is a Crown entity that operates independently and uses a variety of regulatory tools to promote fair, efficient and transparent financial markets. https://fma.govt.nz/

Advantage of audits

Independent opinion provides users with confidence that the business is a going concern

Audit evidence

Information used by the auditor in arriving at the conclusions on which the auditor's opinion is based.

ISA (NZ) 200

International Standards of Auditing - Overall objectives of the independent auditor https://www.xrb.govt.nz/includes/download.aspx?ID=141035

Deep pocket theory

Investors who suffer loss are more likely to sue the auditors than directors because the auditors are more likely to be able to pay substantial damages and is causing auditors (or their insurance companies) to carry a disproportionate share of damages even if they were only a minor contributor to the cause of the loss.

Primary duty of auditors

Is to protect the interests of owners/shareholders (stewardship theory), they must be as free from the influence of the directors as possible. If a company proposes to remove or replace an auditor, the provisions of the Companies Act 1993 regarding the procedure to be followed are very important. The auditor may have acted in the interests of shareholders and third parties, but in so doing may have met with opposition from the directors. Where there is a difference of opinion with the directors, and the possibility of changes in a professional appointment, auditors have some protection under the provisions of the XRB's professional and ethical standard (PES) 1 clause 210.9-14.

Engagement second partner

Knowing when an engagement second partner is needed for the audit will either be dictated by the firm's procedures or require judgement of the engagement partner in the light of the circumstances of the entity being audited. The Office of the Auditor-General (OAG) in AG PES 3 requires engagement second partners to be assigned for: - all annual audits over 750 budgeted hours - all annual audits of issuers - all LTCCP audits (formerly long-term council community plans) where an engagement quality control partner was engaged for the annual audit - all other assurance engagements of issuers - all high-risks audits with less than 750 budgeted hours.

Fundamental principles

Knowledge - understanding the business/entity well Judgement - making decisions that are cost effective and efficient during the audit process Evidence - knowing and documenting what is sufficient and appropriate Scepticism - rigorous evaluation of financial statement assertions Quality control - supervising and evaluating the conclusions of team members, including experts Communication - reporting succinctly to the owners, governing body and management.

Engagement partner

Leadership in setting standards for the audit team. Ensures ethical and professional requirements of the relevant accounting body (Chartered Accountants Australia and New Zealand (CAANZ) or CPA Australia) are understood by the audit team. An engagement partner will ensure ethical alignment and not accept and/or continue with an engagement if it is likely to damage their personal reputation and/or damage the reputation of the auditor's professional accounting body.

LTCCP

Long Term Council Community Plans prepared by councils / local government entities to forecast for the next ten years. LTCCP assumptions are audited.

Regulated v un-regulated audits

Many audits of non-issuers will be conducted by issuer auditors who would expect to employ similar disciplines to those used for issuer audits People will perceive that issuer audits are now conducted to a higher quality because of the FMA oversight, and will expect that all audits are being carried out to the same standard Incompetent auditors should disappear and specialist auditors of regulated and non-regulated issuers should emerge Quality of audits will be maintained, provided auditors continue to commit to the basic principles that underpin the auditing function

Performance audits

Most performance audits are carried out under section 16 of the Public Audit Act 2001. A performance audit can examine - how effectively and efficiently a public entity is working - whether a public entity is complying with its statutory obligations; - any act or omission that might waste public resources; and - any act or omission that might show (or appear to show) a lack of probity or financial prudence by a public entity or one or more of its members, office holders, and employees.

Performance audit

Mostly carried out under section 16 of the Public Audit Act 2001. A performance audit can take about 12 months to complete and can examine: + how effectively and efciently a public entity is working; + whether a public entity is complying with its statutory obligations; +any act or omission that might waste public resources; and + any act or omission that might show (or appear to show) a lack of probity or financial prudence by a public entity or one or more of its members, office holders, and employees.

Glossary EG AU4

https://xrb.govt.nz/Site/Auditing_Assurance_Standards/Current_Standards/Explanatory_Guides.aspx

OAG

Office of the Auditor General for central government and local body/government (public) entities. The OAG also carries out audits of local body/government long-term plans (formerly long-term council community plans, or LTCCPs). These are equivalent to the forecasts and prospective information engagements embodied in XRB Accounting Standard FRS-42 Prospective financial statements. The important diference with FRS-42 audits in the private sector is that reasonable assurance is provided on these 10-year plans in the public sector. Auditors of most forecasts and projections in the private sector provide limited assurance under FRS-42.

Letter of engagement

Outlines the terms and conditions which must be in writing and be regularly reviewed and updated. Not necessary to provide a new letter each year however may be useful to do so. Letter includes: - scope of work and exclusions - summary of directors and auditors legal and professionalresponsibilities - highlight directors responsibility to prevent and detect fraud or errors - the work agreed to and methods to be applied - what is expected of the client - duties and responsibilities - timing of when audit will take place and accounts to be filed with authorities - showing the basis of fees will aid the speed of fee collection andhelp the client understand what services are not included - letters need to be signed and agreed

Performance v SSP Audit

Performance audit: Assesses the effectiveness, efficiency and economy of an activity in a single entity or multiple entities at a point in time or over a period of time, and then reports to the government and general public SSP audit: An opinion on the truth and fairness of the historical service performance of a single entity against the service performance objectives the entity had for the past year, and then reports to the responsible government Minister and any readers of the annual financial statements

Agreed-upon-procedures engagement

Provides small entities with an avenue to engage chartered accountants and other qualified accountants to conduct specific procedures that will benefit the entity. Such as: + reviewing the appropriateness of the internal controls + the robustness of monthly management reporting processes + specific projects which are financed by their bankers + whether new systems implemented met their objectives + compliance with tax and other legislation + cash flow projections with respect to their underlying assumptions + valuation processes adopted for key assets.

ISA (NZ) 220 Quality Control for an Audit of Financial Statements

Quality control systems, policies and procedures are the responsibility of the audit firm. Under Professional and Ethical Standard 3 (Amended) The firm has an obligation to establish and maintain a system of quality control to provide it with reasonable assurance that: (a) The firm and its personnel comply with professional standards and applicable legal and regulatory requirements; and (b) The reports issued by the firm or engagement partners are appropriate in the circumstances The standard provided guidance to auditors on the minimum scope and standard of work expected of them and helps protects the profession and auditors, with an internationally accepted and defendable basis for conducting an audit of financial statements.

Insurance theory

Regards auditors as a form of protection for the investors in the entity. In the event of an entity collapse, shareholders and other investors will be able to look to the auditor for recompense.

The Auditor Regulation Act 2011

Requires all auditors of issuers to comply with the auditing and assurance standards issued by the XRB (including professional and ethical standards for assurance practitioners) from 1 July 2012 (or such earlier date as shall be determined by Order in Council). Professional bodies - for example, the New Zealand Institute of Chartered Accountants (NZICA), may require their members who are assurance practitioners to comply with the auditing and assurance standards issued by the XRB (including professional and ethical standards for assurance practitioners). Other assurance practitioners may voluntarily comply with the auditing and assurance standards issued by the XRB (including professional and ethical standards for assurance practitioners).

Public Finance Act 1989 s 34

Responsibilities of chief executives: financial management of departmental matters. 1. The chief executive of a department- - (a) is responsible to the responsible Minister for the financial management, financial performance, and financial sustainability of the department; and - (b) must comply with any lawful financial actions required by the Minister or the responsible Minister. 2. The chief executive of a department that administers an appropriation- - (a) is responsible to the appropriation Minister for what is achieved with departmental expenses and departmental capital expenditure under that appropriation; and - (b) is responsible for advising the appropriation Minister on the efficiency and effectiveness of any departmental expenses or departmental capital expenditure under that appropriation.

Public Finance Act 1989 s 36

Responsibilities of chief executives: reporting. 1.The chief executive of a department is responsible to the responsible Minister for ensuring that the department complies with the reporting requirements imposed on the department by or under this or any other Act. 2. The chief executive of a departmental agency is responsible, to the Minister for the time being responsible for the performance of the departmental agency, for ensuring that the departmental agency complies with the reporting requirements imposed on the departmental agency by or under this or any other Act.

Roles and responsibilities of governing body

Responsibility to see that internal controls are maintained that assure the governing body that reliable financial statements can be produced whenever required Responsibility for all information disclosed in the financial statements Responsibility for ensuring the financial statements have been prepared in accordance with financial reporting standards

Performance audit process

Scoping Planning Fieldwork Summary of findings Draft report Public release of report http://www.oag.govt.nz/our-work/about-auditing/performance-audits

Financial Markets Conduct Act 2013 (FMC)

The FMA's functions under this Act are as follows: 1. to issue licences to overseas auditors and to authorise the registration of overseas audit firms: 2. to prescribe licensing, registration, and other matters under subpart 3 of Part 2: 3. to grant accreditation to persons under subpart 5 of Part 2: 4. to monitor the audit regulatory systems of accredited bodies, report on the adequacy and effectiveness of those systems, and take action in respect of those systems that are inadequate or ineffective: 5. to conduct quality reviews and investigations under subparts 6 and 7 of Part 2: 6. to take over and perform regulatory functions under subpart 8 of Part 2: 7. to perform or exercise any other functions, powers, and duties conferred or imposed on it by or under this Act. http://www.legislation.govt.nz/act/public/2013/0069/latest/DLM4090588.html?search=sw_096be8ed811fad41_fma_25_se&p=1&sr=1

Institute of Internal Auditors (IIA)

The internal auditor's code of ethics and standards are very similar to the code of ethics and ISA for external auditors. Key difference regarding independence: see sections 1100 and 1130 of the Attribute Standards.

Common factors in business failures

The outside directors had little or no involvement in the company's business other than through attendance at board meetings CEO controlled the board's agenda, its discussions, and its decisions resulting in the board not taking appropriate responsibility for its actions, particularly concerning significant investments The controls in the company were weak Audit committee meetings inadequate in scope and time for the size of entity Audit committee members did not have the requisite expertise to properly interrogate management or the auditors

Integrity (PES 1)

The principle of integrity imposes an obligation on all assurance practitioners to be straightforward and honest in all professional and business relationships. Integrity also implies fair dealing and truthfulness. 110.2 An assurance practitioner shall not knowingly be associated with reports, returns, communications or other information where the assurance practitioner believes that the information: (a) Contains a materially false or misleading statement; (b) Contains statements or information furnished recklessly; or (c) Omits or obscures information required to be included where such omission or obscurity would be misleading. When an assurance practitioner becomes aware that the assurance practitioner has been associated with such information, the assurance practitioner shall take steps to be disassociated from that information. 110.3 An assurance practitioner will be deemed not to be in breach of paragraph 110.2 if the assurance practitioner provides a modified report in respect of a matter contained in paragraph 110.2.

Internal audit

The provision of advice to entity owners as employers and to employees of the entity as to how operations could be conducted more effectively and how employees could better carry out their control processes Internal auditors code of ethics and standards https://na.theiia.org/standards-guidance/Public%20Documents/IPPF%202013%20English.pdf Internal auditors who perform operational and value-for-money audits may need to be qualified in other disciplines, such as engineering, marketing or human resource management. In many large internal audit departments the majority of staff are qualified in non-accounting areas.

Signalling theory

This is similar to agency theory. It supposes that, when an entity has its financial statements audited, it is a signal to the market that the directors and managers are confident in the results. Potential lenders and investors also receive the 'signal' of a reduced risk when considering their potential rate of return.

Stewardship Theory

This is the traditional view that, because owners (shareholders) do not have direct control of the entity, they need an audit to monitor the performance of directors and management. An audit helps to ensure that the financial statements accurately report on the directors' management of the company. This helps the owners check that the directors and managers (the stewards) have acted in the best interests of the shareholders.

Professional competence

To maintain professional knowledge and skill at the level required to ensure that clients receive competent assurance service. The maintenance of professional competence requires a continuing awareness and an understanding of relevant technical, professional and business developments. The skills of the audit manager and audit staff were lacking when it came to understanding the Portrad business or the electronics business. The senior had twice failed his professional accounting qualification exams.

Objectivity

To not allow bias, conflict of interest or undue influence of others to override professional or business judgements. An assurance practitioner shall not perform an assurance engagement if a circumstance or relationship biases or unduly influences the assurance practitioner's professional judgement with respect to that service. Auditor should not rely on certain individuals such as a finance manager or shareholders for information especially if they stand to benefit in any way.

Advantage / disadvantage of SSP

Would allow the business to target activities for the coming year and how they would be measured, get buy-in from members for those activities and have an independent opinion at the end of the year on the success or otherwise of the activities Would provide useful information for planning future activities Disadvantages - Could be costly to implement - There may not be sufficient and/or appropriate people or resources in the business to devise an appropriate SSP

Reasonable assurance engagement

is a reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement as the basis for a positive form of expression of the assurance provider's opinion.

Auditor incompetence

is the main reason for audit failures. The competence of auditors is linked to their knowledge of the industry in which the audited entity operates. Most auditors attempt to provide an unbiased, independent opinion. An audit is worthless to those relying on financial statements if the auditor is incompetent and/or does not act independently of the entity they are auditing.

Limited assurance engagement

a limited assurance engagement is compliance reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement, but where that risk is greater than that for a reasonable assurance engagement, as the basis for a negative form of expression of the assurance provider's opinion. A review engagement is a limited assurance engagement.

Sufficiency of audit evidence

is the measure of the quantity of audit evidence. The quantity of the audit evidence needed is affected by the auditor's assessment of the risks of material misstatement and also by the quality of such audit evidence.

Auditing Standards

http://oag.govt.nz/2014/auditing-standards

Public Finance Act 1989

http://www.legislation.govt.nz/act/public/1989/0044/latest/DLM160809.html

Financial Markets Conduct Act 2013

http://www.legislation.govt.nz/act/public/2013/0069/latest/DLM4090578.html?search=ts_act%40bill%40regulation%40deemedreg_financial+markets+conduct+act_resel_25_a&p=1

Principal beneficiaries

of a financial statement audit are the owners of the entity. It is the owners who engage and pay for the audit.

External financial and non-financial statement audits

provides reasonable insight on the performance of private companies and public sector entities.

Appropriateness of audit evidence

the measure of the quality of audit evidence; that is, its relevance and its reliability in providing support for the conclusions on which the auditor's opinion is based.