ASWA NAJEEB

62021
P7
MID TERM

ANSWER 1

ANSWER 2
The money laundering cycle can be broken down into three distinct stages; however, it is
important to remember that money laundering is a single process. The stages of money
laundering include the:
 1. Placement Stage
2. Layering Stage
3. Integration Stage

1- Placement of Money
This is the first stage where the process starts with the physical placement of money in the financial
infrastructure, for instance, in a bank, casino, local or international shop or (currency exchange). It is
conducted by investment in financial and non-financial assets. In this stage, the criminal entities enter
the business ecosystem as a customer, investor or vendor. Placement is conducted through several
methods, a few are mentioned below.

 Smuggling Currency – Physical movement of currency or financial instrument such as bonds

across the border
 An Accomplice Bank – A banker that knowingly accepts deposits from smugglers and criminals
 Currency exchanges – Where there is liberalization of the foreign exchange market, there is
room for laundering money
 Securities broker – The securities brokers who would put investment into different tranches to
divide it to thwart any suspicions
 Blending funds – Criminals might open front companies to fool the authorities. Then, they start
mixing the dirty money with the clean one. It’s akin to hiding cash within cash
 Asset Purchases – The most obvious form of laundering money is to purchase big assets. Once
the transaction takes place, tracing back the source of income can be a challenge

2- Layering of Money
The second stage of money laundering is layering.

Layering is conducted to conceal the original source of funds. Businesses and financial institutions are
used in every layer of money laundering. Below are some common methods used for layering:
Converting dirty money into financial instruments Banker’s drafts and money orders are readily used for
this Buy and sell. In this case, the criminal buys a large asset with illegal money then sells it, locally or
internationally. After this buy-sell cycle, tracing the asset back to the criminal’s source of income
becomes difficult. Buying and selling real-estate assets, financial assets, etc.

3- Integration of Money
This is the phase where laundered money is brought into the economy, usually through the banking
system. It is different from layering because here usually an informant tells the law enforcement
agencies about it; Property Dealing – Buying property from illegal money is a common form of
laundering money. Usually, this is done through a shell company.

Shell Companies and Fake Loans – The culprits create a fake company and then give a loan to
themselves. This loan amount is the laundered money Foreign Banks as Accomplices – If a foreign bank
is an accomplice in laundering money it would be difficult for law enforcement to investigate and act
since such banks are protected by international laws. Bogus invoices from import/export – Money
launderers also use import and export as a way to enter black money into the system. They would
exaggerate a bill to justify the payment by creating fake invoices or inflating the value of funds received
from exports.

ANSWER: 6
Responsibilities of Auditors
1. Comply with applicable audit requirements

2. Verify the effectiveness of corrective actions taken as a result of the audit

3. Prepare an Audit report

4. Retain and safeguard documents pertaining to the audit

5. Document the observations

6. Communicate and clarify audit requirement

7. Report the audit results

Responsibilities of Auditors and Management

The exact responsibilities of a Manager depend on the type of businesses the manager is working

1. Plans and strategies

2. Decisions

3. The flow of information

4. Staffing

5. Interpersonal communication

6. Daily operation

7. Set Goals
ANSWER: 5
The Statements of Financial Position, Statement of Comprehensive Income, Statement of Changes in
Equity, Statement of Cash Flows, notes and other statements and explanatory material which are
identified as being part of the financial statements.

ANSWER: 4
1 Self-review threat
These occur when the auditor has also prepared some of the accounting for the fund.

Ghandar says the vast majority of independence breaches are related to self-review threats. In large
firms, this threat can be addressed by separating the accounting and auditing work between two distinct
teams or partners that operate independently of each other. 

2. Self-interest threat
This threat emerges when, for example, an auditor has only one client or one client represents a
significant proportion of their business.

"Their independence is threatened because they'll be less likely to want to issue a qualified audit
opinion or something that will cause an issue for the client because they're worried about losing the
client," says Ghandar.

3. Multiple referrals threat

This arises when an auditor receives a large number of referrals from the one client, which can also be
characterised as a self-interest threat.

"Issuing a qualified report could impact on that referral relationship and in turn impact on their
business."

4. Ex-staff and partners threat

This happens when a staff member or partner leaves to start their own business and performs audits for
their former employer.

"Just having those roles   accounting and audit   in separate practices doesn't necessarily mean it's
independent,” notes Gander.

5. Advising threat
This threat occurs when an SMSF auditor also provides financial advice for the client.

"Our position is that it's very difficult to have an independent audit if the firm is also providing financial
advice, so we recommend to stay well clear of that."

6. Relationships threat
Relationship threats are broad and generally cover anything that involves the auditor knowing the SMSF
trustees, members, or accountant on a personal level.

ANSWER: 3
1. Public interest
2. Protects member interest
3. Authorized by laws
4. Non governmental bodies