ACCT3101 L3

How long can an auditor remain with a client before rotating?

Corps act allows for a maximum of 5 years with a listed company before rotating APES allows key audit partner rotation every 7 with 2 year lag afterwards.

Having the same annual audit performed by the same audit team, except for assistants, for five years in a row.

Issue: Long association creates familiarity threat and self-interest threat Audit team may become complacent due to familiarity between audit team members and client personnel may also cause auditor to be too sympathetic, thus affecting objectivity. APES110.290 Long association of personnel - key audit partner rotation every 7 years with 2 year lag afterwards - 1 extra year may be allowed with safeguards eg. additional quality reviews Corps act requires lead audit partner rotation every 5 years FOR LISTED ENTITIES

Does having bookkeeping services for a client performed by the same person who does the audit affect Ind in A and Ind in F?

Issue: Provision of non-audit services to audit client. Creates self-interest/intimidation as if non-audit fees are substantial modified opinion may result in loss of client Creates self-review threat as auditor is auditing own work and unlikely to be objective. Objectivity, Ind in A/F may be affected because APES 110 forbids auditors taking on mgmt responsibilities ie significant judgments and decisions regarding preparation of financial statements However, if client is not a public interest entity then 1) can help with tasks that are of routine and mechanical nature 2) non-audit team personal can provide accounting/book-keeping only in emergency situations when it's not practical for the client to make other arrangements Corps act requires audit client's director's report to disclose 1) provision of non-audit services by auditor and the fees. 2) whether auditor independence has been affected

Does ownership of shares in a client affect indep in app and indep in fact?

Issue: direct financial interest creates self-interest threat to objectivity reason: share price declines because of modified opinion = affect auditor's wealth Indep of fact affected as auditor may permit misstatements to enhance personal wealth indep of app affected as users may perceive auditor would allow misstatements APES110 and Corps Act do not allow material share holding Safeguards: auditor should reduce shareholding to immaterial level or replace audit team

Is provision of non-audit services banned by Corps act?

No - but provision of non-audit services by the auditor and the fees along with whether the auditor's independence has been affected must be disclosed

APES110.120 imposes what obligation on members?

Objectivity - Obligation to not compromise professional or business judgment because of bias, conflict of interest or the undue influence of others

APES110.290.102 Existence and significance of self-interest threat depends on

a) The person holding the financial interest b) is the interest direct or indirect? c) the materiality of interest eg. A audit partner holding 200 shares in a client is not likely to be considered material therefore no self-interest threat

APES110.140.7 Disclosure of information outside the firm is appropriate when

a) permitted by law and is authorised by the client b) disclosure is required by law eg. evidence in legal proceedings or infringements c) there is a professional duty/right to disclose eg. to comply with quality review, to protect professional interests of a member in legal proceedings

Give 5 examples of specific threats to independence:

1) Financial interests 2) employment, business, personal relationships 3) non-assurance/non-audit fees 4) fees 5) gifts and hospitality

Three step approach to ethics/independence problems

1) Identify the issue (eg. self-interest threat) 2) Cite and apply relevant rules/regulations 3) Form recommendations/conclusions (eg. suggested safeguards or course of action)

5 Fundamental principles of APES110 are:

1) Integrity 2) objectivity 3) professional competence and due care 4) confidentiality 5) professional behaviour

If an audit firm recognises they are not competent enough to perform an audit what 4 options can they do? Which APES110 fundamental is at risk?

1) Withdraw from audit 2) obtain expertise through education and training 3) employ someone who has the expertise 4) work on a consulting basis with another firm - APES110 - Professional competence and due care

What is ASA220 concerned with?

1) acceptance and continuance of client relationships 2) assignment of the engagement team

APES110 5 Threats to independence are: SiSrAFI

1) self-interest 2) self-review 3) advocacy 4) familiarity 5) intimidation

APES110 professional care and competence requires a member:

1) to only undertake significant tasks for which they have, or can obtain, sufficient specific training or experience. 2) shall not intentionally mislead an employer as to the level of expertise or experience possessed

Is providing management services for a client performed by individuals in a department that is separate from the audit department allowed?

APES110.290 allows some non-audit services but the significance of threats and safeguards depend on: 1) the nature and extent of the services provided 2) the type of audit client

Are audit teams able to provide accounting and booking services to public entities?

APES110.290 forbids auditors from providing these services as self-review threat is too significant. However, non-audit team personnel may perform such services if they are collectively immaterial to the FS Corp Act requires audit client's director's report disclosing provision of non-audit services by the auditor and the fees plus whether or not auditor independence has been affected.

APES110 confidentiality is breached when

information gained from professional/business relationships are disclosed outside the firm without authority or legal duty to do so

Having management select the audit firm

issue: appointment and removal of auditors self-interest and intimidation threats - as mgmt has power to hire and fire the auditor, auditor may be unwilling to disagree with management for fear of being terminated. Corps act protections: 1) shareholder approval is required 2) auditor's right to attend shareholders' meetings 3) ASIC re. auditor removal/resignation

APES110.130 relates to

professional competence and due care

intimidation threat

threat that a member will be deterred form acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the member

Advocacy threat

threat that a member will promote a client's or employer's position to the point that the member's objectivity is compromised

familiarity threat

threat that due to a long or close relationship with a client or employer a member will be too sympathetic to their interests or too accepting of their work

Does APES110 and Corps Act allow shareholding in clients?

APES110 and the Corps act do not allow MATERIAL shareholding in clients

Why is auditor independence important?

External users of FS expect unbiased viewpoint to attestation to the truth and fairness of FStatments. Audit useless if biased.

Audit expectations gap

Gap between auditor's stated objectives and users' perceptions as to role of an audit eg. belief that an unqualified audit guarantees accuracy of financial report, there is no fraud/error

What is the difference between independence in appearance and independence in fact?

Independence in appearance is how independent the auditor appears to outsiders eg users of financial statements Independence in fact is whether the auditor has maintained an attitude of independence throughout the engagement. eg. Maintain an appearance of independence but hold shares in a company = idep of app but not indep of fact

Define Self-interest threat

Threat that financial or other interest will inappropriately influence member's judgment/behaviour

Define self-review threat

Threat that member will not appropriately evaluate the results of a previous judgment made/service performed by the member, or by another individual w/in member's firm, on which member will rely when forming judgment