Assurance

Chapter -1
Concept of and for Assurance.

Q. What is assurance?
An Assurance engagements is one in which a practitioner expresses a conclusion
designed to enhance the degree of confidence the intended users other than the
responsible party about the outcome of the evaluation or measurement of a subject matter
against criteria.

Key element of assurance engagements: /audit

 Three people or groups involve (Practitioner, Intended users, Responsible

party).
 A subject matter (Data, Systems, Behavior, process).
 Suitable criteria (Standards, code of practice).
 Sufficient evidence to support the assurance opinion.
 A written report in appropriate.

(Interactive Question 1, page no 6.)

Q. Type of assurance engagement.

The framework identify two type of assurance engagement-

 Reasonable level of assurance (high but not absolute level of
assurance).
 Limited level of assurance.

The key difference between the two Type of assurance engagement:

 The evidence obtained.

 The type of opinion given

Summary of Type of assurance:

Type Evidence sought Conclusion given/ opinion

given
Reasonable assurance Sufficient and appropriate. Positive.
Limited assurance Sufficient and appropriate.(lower Negative.
level)

Page 1 of 51
 Assurance

Q. What is audit?

 The objective of an audit of financial statements is to enable the auditor to

express an opinion whether the financial statements are prepared in all material
respects, in according with an applicable financial reporting framework.

The key criteria/element of an audit:

 Three party (The shareholder, Board director, audit firm).

 Subject matter (The financial statements).

 Relevance criteria (Low and accounting standards).

 Evidence criteria (Sufficient and appropriate).

 Written report in suitable form.(audit report).

Describe the terms "True and Fair".

True: - Information is factual and conforms to reality, not false.

Fair: - Information is free from discrimination and bias in compliance with expected standards
and rules.

Company Act 1994:

The company act 1994 requires that auditors must be a member of ICAB.

The ICAB is a recognized supervisory Autonomous Body under the Ministry of Commerce of
the Government of Bangladesh.

Q. Who are the ineligible for being a company auditor as Company Act?

As per company Act the following are ineligible for being a company auditor.
1. An officer or employee of the company.
2. A partner.
3. A person who is indebted to company exceeding TK.1000.
4. A person who is a director or member of a private company or a partner of a
firm ,which is the managing
agent of the company.
5. A person who is a director or holder of shares exceeding 5% of the subscribed

Page 2 of 51
 Assurance

capital.

BSA-200:OBJECT AND GENERAL P

Q. Why is assurance important /describes the benefit of assurance?

Benefit-
 The key benefit of assurance is –
1. Independent
2. Professional verification.
 Subsidiary benefit-
1. Add confident to other users.
2. Deterrent to error / fraud.
Assurance helps to users that high quality, reliable information exists, leading to effective
market that investors have in and trust.

Q. Why can Assurance never be absolute?/limitation.

Assurance can never be absolute because assurance provision has limitation.
Limitation of assurance include-
1. Subjective(Inherent limitation )
2. Sampled(Test basis)
3. Limitation of third parties.
4. Limitation of reporting.
5. Include estimate.
6. Limitation of system.

Q. What is Expectation Gap? How can we minimize the gap?

The expectation gap is defined as the difference between the apparent public perceptions
of the responsibilities of auditors on the one hand and the legal and professional reality
on the other.

Assurance providers need to close this gap as far possible by –

 Issuing an engagement letter spelling out the scope of the work.
 Regular reviewing the format and content of reports issued as a result of
assurance work.

Page 3 of 51
 Assurance

Chapter-2

Process of assurance obtaining an engagement.

Q. Describe the assurance engagement acceptance procedure.
 Ensure professionally qualified to act.
 Ensure existing resources adequate.
 Obtain reference.(make independent enquiries if directors not personally known).
 Communicates with present auditors.

*Auditors will often be invited to tender for audits.

Now do we get information about new client?

Sources of information about new clients:
 Enquiries of other sources (banker, solicitors)
 Review or document (annual report, credit rating).
 Previous auditor.
 Review of rules and standards.
(Work example page22, 23)

Interactive Question -1 –page-24

Q. Which matter must be considered after accepting nomination an

engagement?
When an audit firm accepts an engagement, it must carry out the following:
 Ensure that the outgoing auditors’ removal or resignation has been properly
conducted in accordance with national legislation.
 Ensure that the new auditors’ appointment is valid.
 Set up and submit of engagement to the directors of the company.

Q. Why do engagement letter is needed?

An engagement letter should be sent to all clients to clarify the terms of the
engagement.

Q. Why do need an engagement letter? /Describe the purpose of audit

engagement letter.

Purpose of an engagement letter is -

Page 4 of 51
 Assurance

 To define clearly the extent of the firm’s responsibilities and so minimize the
possibility of any misunderstanding between the client and firm.
 To provide written confirmation of the firm’s acceptance of the appointment.
Q. What matters are including in an audit engagement?
OR, describe the content of audit engagement,
Content of audit engagement Letter
 The objective of the audit of financial statement.
 Management’s responsibility.
 The scope of the audit,.
 Reporting form.
 Test nature and inherent limitation.
 Unrestricted access.

Q. Auditor may wish to include the following.

 Audit plan
 Fees
 Any restriction of auditor’s liability.
 Management written confirmation.
 Description of any letters and reports.

Q. Write the communication letter with previous auditor.

We can communicate the previous auditor by the following manner:

To
Retiring & Co.
Chartered Accountants

Ref: New client Co. Ltd.

We have please in informing you that we have been appointed as auditors of ‘‘New
Client Co. Ltd” for the year December 2009.Since you are the previous auditor of the
company, we would like to know from you if there is any professional reason as to why
we should not accept the appointment.

ARTISAN
Chartered Accountants.

Page 5 of 51
 Assurance

Interactive Question -2 – (page-29)

Chapter -3
Process of Assurance : Planning the assignment

Q. What is audit strategy?

The formulation of the general strategy for the audit which sets the scope, time and
direction of the audit and guides the development of the audit plan.

Audit plan:
An audit plan shows how the overall audit strategy implemented.
An audit plan is more detailed than the audit strategy and sets out the nature time and
extent of audit procedure to be performed by engagement team in order to obtain
sufficient appropriate audit evidence.

Q. Describe the structure approached to planning?

A structured approach to planning:
1. Ensuring that ethical requirements are.
2. Ensuring the terms of the engagement is understood.
3. Establishing the overall audit strategy.
4. Developing an audit plan.

Q. Mention the contents of audit strategy/elements

Key contents of an audit strategy.

1. Understanding the entity’s environment.
2. Understanding the accounting and internal control systems.
3. Risk and materiality.
4. Consequent nature, timing and extent of procedures.
5. Co-ordination, direction, supervision and review.
6. Other matters.

(Work example –page-42)

Understanding the entity:

As per BSA-315 the auditor should obtain and understanding of the entity and its
environment.

Page 6 of 51
 Assurance

Q. Why do need an understanding of entity’s environment?

To identify and assess the risks of material misstatement.

To design and perform further audit procedure.
To provide a name of reference for exercising audit judgment.

Q. What do you understand by entity?

Industry regulatory and other external factors.

Nature of the entity
Internal control
Measurement and review of entity’s financial statement.
Objective and strategies and relating business risk.

Q. How do we understand of an entity’s environment?

1. Inquires of management and other within the entity.

2. Analytical procedures.
3. Observation and inspection
4. Prior period knowledge.

Q. What matters are include in client profile?

Client profile:
 Shareholder-(Information regarding Shareholder)
 Director-(Name of director)
 Operating-(Type of operating)
 Customer-(Detail of customer)
 Supplier-(Number and Name of supplier)
 IT-(The accounting system is completely computerize)
 Financial performance(Company formed 20 years ago and has always
been profit)
 Future plan(Non new plan that we are aware of)

Q. What do you mean by” professional skepticism”?

Professional skepticism:

An attitude of professional skepticism means the auditor makes a critical assessment,

with a questioning mind.

Page 7 of 51
 Assurance

Professional skepticism does not mean that auditor should disbelieve everything that they
are told, however they must have a questioning attitude.

** Analytical procedures.

Q. What are analytical procedures?

Analytical procedures mean evaluation of financial information made by a study of

plausible relationships among both financial and financial data.

Q. What matters are included in the analytical procedures?

The BSA state that analytical procedures include-

The consideration of comparisons with-
 Comparable information for prior periods
 Anticipated results of the entity form budgets
 Similar industry information.

Consideration of relationship between:

 Such as the relationship of gross profit to sales
 Financial information and relevant non – financial information.

Formula-(page-50) working example- page-51. Interactive Question-3 pagewno-52.

** Materiality

Q. What do you mean by terms “Materiality”?

As per BSA Framework matter is material if its omission of misstatement would

reasonably influence the economic decisions of uses taken on the basis of the financial
statement.

Q. Describe the benefit of measurement of Materiality.

Materiality assessment will help the auditor to decide-
 How many and what items to examine.
 Whether to use sampling techniques

Page 8 of 51
 Assurance

 What level of error is likely to lead to an auditor to say the financial

statements do not give a true and fair view? (Measurement of the true and
fair view).

Q. What do you mean by`` Tolerable error’’?

Tolerable error.
The maximum error that an auditor is prepared to accept in a class of transaction or
balances in the financial statement.

Q. How can we determine materiality?

OR, describe the method of assessing of materiality?
Methods of assess of materiality.
Particulars Maturity level
Profit before tax 5%
Profit after tax 5-10%
Gross profit 0.5-1%
Revenue 0.5-1%
Total assets 1-2%
Net assets 2-5%

** Material has qualitative as well as quantitative aspect.

Q. When we should be considered materiality?

As per BSA 320materiality should be considered when-

 Determining the nature, timing and extent of audit procedure.
 Evaluating the effect of misstatements.

Q. Why do need review of materiality?

The level of materiality must be reviewed because-
 Draft accounts are altered (due to material error and so on).
 External factors many cause changes in risk estimates.

Interactive Question -24–(page-54)

**Continuous risk assessment:

Page 9 of 51
 Assurance

Q. Describe the element of audit risk.

Element of audit risk:
Audit risk has two elements-
 The risk that the financial statements contain a misstatement.
 The risk that auditors will fail to detect any material misstatement.
Q. What is audit risk? [N-D-11]
The risk for which the auditors given an inappropriate opinion on the financial statement,

Audit risk = Risk of Material Misstatement + Detection Risk

Inherent Risk Control risk

Q. What is Inherent Risk?

The susceptibility of an account balance or class of transactions to misstatement that
could be material individually or when aggregated with misstatements in other balance or
classes, assuming there were no related internal controls.

Q. What is Control Risk?

The risk material would not be detected prevented or corrected by the accounting and
internal control systems.

Q. What is Detection Risk?

The risk that the auditor’s procedures will not detect a misstatement that exists in an
account balance or class of transaction that could be material, either individually or when
aggregated with misstatements in other balance or classes.
BSA-200: Objective of an audit:
BSA-200 state that the auditor should

Interactive Question -5 (page-58)

Q. What are significant risks as per BSA 315, Mention some significant
risk?
Significant risk are complex of unusual transaction, i. e. those that may indicate fraud of
other special risk.
BSA 315 set out those following factors which indicate that a risk might be a significant
risk;
 Risk of fraud.
 The complexity of the transaction.
 IT is an unusual transaction.
 It is a signification transaction.

Page 10 of 51
 Assurance

Page-58, 4.3 Identifying and assessing the risk.

Interactive Question -6 (page-59)

Chapter-4
Process of assurance:
Evidence and Reporting.

**Audit Evidence.

Q. What is audit Evidence?

Audit evidence: All of the information used by the auditor in arriving at the conclusions
on which the audit opinion is based.

Q. How can we collection audit evidence? Describe the types of

collection of audit evidence?

There are two types –

1. Test of control:
Performed to obtain audit evidence about the effectiveness of controls in
preventing or Detecting and correcting material misstatements at the assertion
level.
2. Substantive procedure: Audit procedures performed to detect material
misstatements at the assertion level. They include-
 Test of detail of classes of transaction, account balance and disclosures.
 Substantive analytical procedures.

Q. Why do you collect sufficient appropriate audit evidence?

As per BSA 500.audit evidence require, auditors to obtain sufficient appropriate audit
evidence to be able to draw reasonable conclusion.

Q. What do you mean by the terms “Sufficiency” & Appropriateness”?

Sufficiency – is the measure of the quantity of audit evidence.
Appropriateness - is the measure of the quality of audit evidence.

Q. Describe the Quality of audit evidence.

Quality of evidence:

Page 11 of 51
 Assurance

1. External – Audit evidence from external sources is more reliable that obtained
from the entity’s records.
2. Auditor – Evidence obtained directly by auditors is more reliable that obtained
indirectly or by assumption.
3. Entity - Evidence obtained from the entity’s records is more reliable when
related control systems operate effectively.
4. Written – Evidence in the from of documents (paper or electronic) or written
representation are more reliable than oral representation.
5. Original - Original documents are more reliable than photocopies or
facsimiles.
Q. What do you mean by Financial Statement Assertion?

Financial Statement Assertion:

The re-presentations by management, explicit or otherwise, are the embodied in the
financial statement.
Q. What Assertion used by the auditors?
Assertion used by the auditors:

1. Assertion about class of transactions (Occurrence Completeness, Accuracy, Cut-

off, Classification).
2. Assertion about account balance at the period end (Existence, Right and
Obligation, Completeness, Valuation and Allocation).
3. Assertion about presentation and disclosure (Occurrence Right and Obligation,
Completeness, Classification and Understandability, Accuracy and Valuation).

Q. When you use test of control?

We use lest of control when-

 The auditor believes controls are operating effectively.
 It is possible to obtain sufficient appropriate audit evidence from substantive
procedure.

Q. How do you perform test of control?

We may use the following procedures to perform test of control:
1. Inquiry.
2. Inspection
3. Re-performance.
Q. When substantive procedures are performed must?
The auditor must always carry out substantive procedures on all material items,
In-addition-

Page 12 of 51
 Assurance

 Agreeing the financial statement to the underling accounting record.

 Examining material journal.
 Examining other adjustments made in preparing the financial statements.

Q. What is the different between the Review report and the Audit
opinion?
Review report opinion gives limited assurance at moderate level with a negative
language. While Audit report opinion given reasonable assurance at high level with
positive language.

Unqualified Review Report Opinion:

Based on our review nothing has come to our attention that causes us to believe that
accompanying financial statements do not give a true and fair view (or are not presented
fairly, in all material respects) in accordance with international accounting standards
Reasonable assurance opinion:
In our opinion, the financial statements presents fairly in all material respects the
financial position of ABC Co. as at December 31, 2009, and its financial performance
and its cash flows for the year then ended in accordance with BFRS’s
Foloment of audit Report as BSA 700:

1. Title.
2. Addressee.
3. Introductory paragraph.
4. A statement of management’s responsibility for the financial statement.
5. A statement of auditor’s responsibility.
6. Scope paragraph.
7. Opinion paragraph.
8. Date of the report.
9. Auditor’s address.
10. Auditor’s signature.

Chapter-5
Introduction to internal control.

1. What is internal control?

Internal control is the process design to mitigate risks to the business and ensure that the
business operates effectively and efficiently.

2. What are the objectives of company?

Company’s Objective:
A Company has various objectives –

Page 13 of 51
 Assurance

 To ensure its financial position reported to shareholder.

 To ensure that it operates effectively and efficiently.
 To ensure that it complies with relevant law and regulation.

3. What do a Company’s directors do to meet company’s objective?

 Identify risks to those objectives not fulfilled
 Implement internal control to mitigate this risk

4. Why need internal control?

Reason for internal controls
 Minimizing the company’s business risks
 Ensuring the continuing effective functioning of the company.
 Ensuring the Company compiles with relevant laws and regulations.

5. What is the Limitation of internal controls?

Internal controls have some limitations-
 Expensive
 Human element
 Unusual transaction

6. Describe the components of internal control.

Describe the components of internal control.
Internal control comprises five components-
 The control environment
 Business risk and the entity’s risk assessment process.
 The information system relevant to financial reporting objective
 Control activities
 Monitoring of controls.

7. What is control environment?

The control environment:
The control environment is the component of the internal control system, influenced by
management.

8. What is audit committee?

Audit committee:
A subsection of the board of director, who has a particular interest in the finance, and
accounting activities of the company.

* The audit committee is comprised of non-executive director.

Page 14 of 51
 Assurance

9. What is Business risk?

Business risks the risk inherent to the company in its operation. It is risk at all levels of
the business.

10. Describe the Entity’s risk assessment process?

The risk assessment process is the process by which the company determines what
control policies and procedure to implement.

Identify Estimate the Assess the Decide upon action, (Internal

Relevant impact of the likelihood of control, insurances, and changes in
Business Risk risk occurrence. operation) to manage them.

11. What are Control activities?

Control activities are the heart of the internal control systems comprising policies and
procedures which may present or correct errors.

12. Describe the type of control activities.

Type of control activities:

Type Example
Authorization  Approval and control of documents
 Reconciliation
Performance review  Comparing internal data with
external source of information.
 Checking the arithmetical accuracy
Information processing
of records
 Comparing the results of cash
Physical control security and inventory counts with
accounting record
 Segregation of function
 The various steps in caring out the
transaction.
Segregation of duties  The caring out of various
accounting operations

Page 15 of 51
 Assurance

13. What is Application Controls?

Application controls are manual or automated procedures that apply to the processing of
individual application to ensure that transactions occurred, are authorized and are
completely and accurately recorded and processed.

14. Examples of application controls.

 Controls over input (completeness)
 Controls over input (accuracy)
 Controls over input (authorization)
 Controls over input (processing)
 Controls over (master files and standing data).

15. What is general control?

General controls are and policies and procedures that relate to many applications and
support the effective function of application control by the helping proper operation of
information systems.
Example of general controls:
 Development of computer application.
 Prevention or detection of unauthorized changes to program
 Testing and documentation of program changes
 Controls to prevent wrong programs or files being used
 Controls to prevent unauthorized amendments to data files.
 Controls to ensure to continuity of operation.

16. Why do need monitoring of controls?

An entity should review its overall control system to ensure that it still meets its
objectives.

Information about controls

17. What are the sources of obtaining information regarding internal

control?
Auditors will obtain information regarding internal controls from a verity of sources,
including-
o Company internal control manuals
o Observing controls in operation.

Page 16 of 51
 Assurance

18. Describe the procedure of recording internal control.

Record of internal control:
 Auditor’s will record information about internal control in a variety of ways in
their file including.
 Narrative note (shot note on simple systems, Background information).
 Question carries / Check lists.
 Diagrams (flowcharts, organization chart, family trees).

Chapter-06
Revenue System

Q. What is difference between key risk and key controls?

Step Key risk Key control

Key risks include accepting
customers who are a poor
credit risk and not fulfilling
orders
Ordering
Key control include
authorization credit terms to
customers and ensuring order
are matched with production
orders and dispatch notes

Key risk is dispatching goods A control to mitigate that risk

to customer but not invoicing is matching dispatch notes to
Dispatch and Invoicing for them invoices

A key risk is failure to record Controls include various

sale so that payment is not methods of prompting
prompted payment, such as
Recording statements sent out to
customers

Page 17 of 51
 Assurance

A risk is that cash is Key control is segregation of

misappropriate before duties
recording and or banking

Cash Collection

Risk and Test of control by Auditor:

step Risk Test of Control by Auditor.

 Check that reference are
 Customers can not being obtained for all new
pay. customer
 Orders may not be  The receivable ledger have
fulfilled. been authorized by senior
staff
Ordering
 Check that orders are only
accepted from customers
who are within their credit
terms and credit limit.

 Verify detail of trade sales

 Goods are dispatched of goods dispatch notes with
but not invoiced. sales invoices checking
 Goods are dispatched  Verify details of trade sales
but not recorded with entries in inventory
Dispatched & Invoicing
records
 Verify non routine sales
 Verify credit note

 Check entries with invoices

 Invoices are not  Check additions and cross
recorded casts
Recording  Invoices are processed  Check posting to receivable
to wrong account ledger & control account
 Check posting to R/A ledger

 Money received but  Check collection

not recorded  Cash receipts cash book
Cash receipt  Money received but  Cash, Sales, Branch taking.
not banked

Page 18 of 51
 Assurance

Control and Objective of Control:

Step Control Control Objective

 Segregation of duties
 Authorization of credit  Encouraged to pay
term to customer who promptly
Ordering have no credit problems.  Recorded correctly.
 Current prices quoted to
customer

 Authorization of dispatch  All dispatches of

of goods goods are recorded
 Recording of all goods  Correctly invoiced
outwards on a dispatch  Credit notes are given
Dispatched and note for valid reasons.
invoicing  Agreement of dispatch
note to customer orders
and invoice.

 Segregation of duties  All invoiced are

 Matching of cash receipts recorded correctly in
with invoice nominal ledger.
 Preparation of trade  Invoice shall be
receivable statement recorded in correct
Recording  Reconciliation of account.
receivable ledger &
control account

 Segregation of duties  All monies received

 Recording of receipts are receded
 Banking  All monies received
Cash collection  Safeguarding of cash and are banked
bank account

Page 19 of 51
 Assurance

Chapter-7
Purchases System
Key risk and key control:

Step Key Risk Key Control

Key risk that purchases
might be made for personal
Ordering
use or not made on the most
advantageous.
Risks are, of accepting
Goods inward and recoding goods not recorded or for
invoice accepting invoices for poor
quality goods.
Payment might be made to
Payment
the wrong person.
Weakness:
Identify weakness in a system is a key exam technique.
Risk and Test of Control by Auditor:
Step Risks
Purchase may be made for
personal use
Ordering Goods and service might
not be obtained on the most
advantageous terms
Goods may be accepted
that have not been ordered
Invoice may not be
Goods in ward and recorded
recoding invoice may not record credit notes
Payment False invoices are paid in
error
Payment is not correctly
A key control is authorization.
Controls include matching goods
received with order.
Payment should be authorized
Test of control by Auditor
Review list of suppliers
Check sequence of
renumbered order forms
Check orders are supported
by a purchase requisition
Check invoices for goods
Match received goods with
order
Examination control
account for unusual entries
Check postings of entries to
payable ledger
Check payment cash book.
(Authorization)

Page 20 of 51
 Assurance

recorded check payment cash book

Payment are not recorded (Recording )
in the right period Check bank reconciliation.
Invoices are paid to soon

Control and Control Objectives:

Step Control Control Objective

 Segregation of  Actual authorization
duties  Goods and services actually
 Central policy to required by the company
choice of suppliers  Orders are made at
Ordering
 Authorization of competition price
order form
 Monitoring of
supplier terms
 Accurately recorded
 Examination of  All credit notes are recording
goods inwards in payable ledger & control
 Recording arrival ledger.
and acceptance of  All entries in the payable
Goods inward and recorded goods ledger are made to the correct
of invoice  Comparison of payable ledger account
goods received note  Liabilities are recognized for
with purchase order all goods and services that
 Segregation of have been reserved.
duties

 Cheque and bank  All expenditure is authorized

transfer requisitions  Payment are not made twice
 Authority to sign for the same liability
cheque  All expenditure is for goods
Payment
 Limit of payment that are received
 Authorization of
expenditure

Page 21 of 51
 Assurance

Chapter -8
Employee Cost.

Key risk and key control:

Step Key risk Key control
Calculating wages and Payment is made too much. A key control is authorization.
salaries.
Recording of wages and Not recording wages and The payroll should be prepared,
salaries & Deduction. therefore making incorrect cheeks and authorized.
payment.
Payment There is a risk that payment is Authorization should prevent this.
made incorrect.
Weakness:
Being able to identify weakness is an important exam technique.
Risk and Test of Control by Auditor:
Step Risks Test of Control by Auditor
 May pay employees  Cheek that salary and wages
too much money. summary is approved.
 May pay employees  Obtain evidence that staff only start
who have not been at being paid when they join the
Calculating wage &
work. company and are removed from the
Salary
 May pay employees payroll when they leave the
who have left. company.
 Cheek calculation of gross and net
payment.
 All elements might  The total of salaries should be
not be recorded reconciled with the previous weak/
correctly. month/or standard.
Recording of wages
 Amount paid to  Addition and cross-cost of summary.
and salary &
employees might not  Posting of summary to nominal
Deduction.
be reflected in the ledger.
cash books.  Total of net pay column to cash
book.
Payment  Arrange to attend the pay out of
wages.

Page 22 of 51
 Assurance

 Employees are not  Examine receipts given by the

paid. employee.
 Non-employees are  Examine paid cheques or a certified
paid. copy of bank list for employee paid
by cheque or bank transfer.

Control and Control Objective:

Step Control Control Objective
o Segregation of duties. o Only paid for work that
o Maintenance of they have done.
personnel records & o Gross pay has been
Calculating Wage & cheek regularly. calculate correctly and
Salary o Authorization. authorized.
o Recording of changes in o Net pay has been
personnel and pay rates. calculated correctly.

o Basis of compilation of o Gross, net pay and

payroll.
o Arrangements for the
preparation, checking
Recording of Wages and and approval of payroll.
Salary & Deduction. o Reconciliation of total
pay and deductions
between one pay day
and the next.
deduction are recorded
correctly.
o Wage and salaries paid are
recorded correctly in the
bank and cash records.
o The all deductions have
been calculated & paid
right authority correctly.

o Segregation of duties. o Segregation of duties

o Authorization. o Authorization.
o Preparation and o Preparation and
authorization of bank authorization of bank
transferred list. transfer list.
o Reconciliation of wages o Comparison of cheques
Payment
& salaries. and bank transfer with
o Comparison with bank payroll.
and payroll. o Maintenance and
reconciliation of wages and
salaries control account.

Page 23 of 51
 Assurance

Chapter-9
Internal Audit

Internal Audit:

Q.1 what is Internal Audit?

Internal Audit is an appraisal or monitoring activity established within as service to the
entity.

Q.2 what is distinction between internal and external audit?

Following are the distinction between internal and external audit –

Points Internal audit External audit

Reason Add value and improve an To express an opinions
organization operation.
Reporting to Report to Boar of Director. Report to shareholders.
Relating to To operation Financial statements.
Relationship with the Employee of company They are independent.
company

2. Key role of internal control:

Role of internal audit regarding risk management:
The internal audit department has two fold roles in relation to risk management-

Monitoring the company’s overall risk management policy to ensure it operate

effectively.
Monitor the strategies implemented to ensure that they continue to operate
effectively.

Activates of Internal Audit:

 Monitoring internal control

 Examine financial and operational information

Page 24 of 51
 Assurance

 Review of compliance with law, regulations and other external requirement.

 Review of economy, efficiency and effectiveness of operations
 Special investigations

The work that internal auditors carry out in controls can be termed operational audits.

Operational audit:

Audits of the operational processes of organization, they are also known as management
or efficiency audits.
Primary objective of operational audit:

* The monitoring of management’s performance

* Ensuring company policy is adhered to.

Q. What is Aspects of an operational assignment?

There are two operational assignments-

 Ensure policies are adequate (Reading, Discuss)

 Ensure policies work effectively.

Chapter - 10
Documentation
Q. What is documentation?
Audit documentation (working paper) is the record of procedures performed relevant
evidence obtained and conclusions reached. It should be written.
Q. Why do need documentation?
Assurance providers record their work-
 To assist the audit team to plan and perform the audit
 To assist relevant members of the team
 Retain a record of matters future audits.
 Enable the audit tem to be accountable for its work.

* Working papers should be sufficiently complete and detailed to provide an overall

understanding of the engagement.
Q. Which maters are affected to the form and content of working
paper?

Page 25 of 51
 Assurance

The form and content of working papers are affected by the following matters
 The nature of the audit
 The identified risks of material misstatements
 The need to document a conclusion
 The audit methodology and tools used.
 The significant of the audit evidence.

Q. What documents are contained in the audit file?

Contain of an audits file:
 Agreements and minutes
 Extracts from the entity’s internal control manual
 Audit plan and change thereto
 Analysis of transaction and balances
 Detail of audit procedure
 Copies of communication with other auditors
 Letter of management representation
 Copies of the financial statements and audits report
 Notes of discussions about significant maters with management and
other.
Q. Describe the Content of working paper.
Content of working paper:
 The name of the client
 The balance sheet date
 The file reference
 The name of the parson who prepared the work
 The date working paper was prepared
 The subject of working paper
 The objective of work done
 Analysis of errors
 The conclusions drawn
 The sources of information

Q. Why do need to develop automated working paper?

Automated working paper packages have been developed which can make the
documenting of audit work much easier. Such program aid preparation of working paper
lead schedule & trail balance and the financial statements. These are automatically cross
referenced, adjusted and balance by the computer.

Page 26 of 51
 Assurance

Q. What is the advantage of automated working paper?

Advantage of automated working paper:
 The risk of errors is reduced.
 The working papers will neater and easier to review
 Audit working papers can be email or faxed for review

Q. What working papers are contained in the Permanent File?

Working paper of Permanent audit file (PAF):

 Engagement letter
 New client questionnaire
 The memorandum and articles of association
 Details of the history of the client’s business
 Board minutes of continuing relevance
 Previous year’s singed account, analytical procedures and
management letter
 Accounting systems notes, previous year questionnaires.

Q. What Working papers are contained in the Current Audit file (CAF):
Working paper of current Audit file (CAF):
 Financial statement
 Accounts Cheek list
 Management accounts details
 Reconciliation of management accounts and Financial statement
 A Summary of unadjusted errors
 Review notes
 Audit planning memorandum
 Letter of representation
 Notes of board minutes
 Communication with third party
 Audit plan
 Risk assessments
 Management letter
 Sampling plans

* Safe custody and retention of documentation:

 Auditing standard: require auditors keep all audit working papers for a
reasonable period

Page 27 of 51
 Assurance

 The companies Act 1994:The books of accounts of every company relating to a

period of not less than 12 years immediately preceding the current year together
with vouchers relevant to any entry in such books of account shall be preserved in
good order”

Q. Why do you keep document?

Documents must be kept secure during this period due to confidential requirement.

Ownership and right of access to documentation:

 Working papers belong to the assurance providers

 Assurance providers must keep working papers confidential
 Assurance provider should obtain client permission before showing working
papers to third parties
 Assurance firms should have document retention policy

Chapter-11
Evidence and Sampling

Q. Describe the quality of evidence as per BSA 500.

As per BSA-500, Evidence must be-
 Sufficient, (the measure of the quantity of audit evidence)
 Appropriate, (the measure of the quality of reliability of the audit evident)
Quality of evidence:
1. External- (evidence from external source is more reliable than that obtain
from the entity’s records)
2. Auditor- (evidence obtained directly by assurance providers is more reliable
than that obtained indirectly of by inference)
3. Entity-(evidence obtained from the entity’s records is more reliable when
related control systems operate effectively)
4. Written- (evidence in the form of documents or written representations are
more reliable than oral representation)
5. Original-(Original documents are more reliable than photo copies or
facsimiles)

Q. How can we collect Evidence?

Evidence is obtained in from of-
 Test of Control and
 Substantive procedures

Page 28 of 51
 Assurance

Q. Describe the procedure to obtain of evidence.

Procedure to obtained evidence:
1. Inspection of tangible asset
2. Inspection of documentation
3. Observation
4. Inquiry
5. Confirmation
6. Recalculation
7. Re-performance
8. Analytical procedure
Computer Assisted Audit Techniques (CAAT):
Describe the types of CAAT
Types of CAAT:
1. Test data
2. Audit software
Q. Describe the stages in the use of test data.
The stages in the use of test data-
 Note control in client system
 Decide upon test data (Dummy data, real data)
 Run the test data
 Compare results with those expected
 Conclude weather controls are operating properly
Q. What can do audit software?
 Extract a sample according to specified criteria. (Random, over a
certain amount, below certain amount)
 Calculate ration and select those outside set criteria.
 Prepare report.
 Follow items through a system and flag where are posted.
Q. What factors shall be considered using analytical procedure?
There are a number of factors that the auditor should consider when using analytical
procedures as substantive procedure:

 Objective of the analytical procedures

 Suitability of analytical procedures
 Reliability of analytical procedures
Q. What are Suitability factors of analytical Procedures?
Suitability factor of analytical Procedures-

Page 29 of 51
 Assurance

 Materiality of the items involved and the assessment of inherent and

control risk
 Other audit procedures directed towards the same financial statement
assertion.
Q. What are Reliability factors of analytical procedure?
Reliability factors of analytical procedure-
 The degree to which information can be analyzed
 The availability of information
 The accuracy
 The source of the information
Q. What are the possible sources of information about the client?
Possible source of information about the client:
 Interim financial information
 Budgets
 Management accounts
 Non financial information
 Bank and Cash record
 Sales tax return
 Board minutes
 Discussion

** Directional Testing

Q. Describe the categories of substantive procedure.

Broadly speaking substantive procedures can be said of fall into two categories
 Tests to discover errors (resulting in over/under statement)
 Tests to discover omissions (relating in under statement)
Q. What methods you can apply of audit of accounting estimate?
Method of audit of accounting estimates:
 Test the process that management used to estimate the figure
 Use an independent estimate
 Review subsequent events

Selecting items to test:

Audit does need often be obtained from a sample of a population, rather then
testing every item within it.
Q. Why does need audit sampling?
Audit sampling involves the application of audit procedure to less than 100% of
the items within account balance or class of transaction.

Page 30 of 51
 Assurance

Q. what is population?
Population is the entire set of data from which a sample is selected and about
which an auditor wishes to draw conclusions.
Q. Describe the sampling type/ Method of sampling.
Sampling type/ Method of sampling:
According to BSA sampling distinguishes between two categories:
Statistically based sampling (Random selecting)
Non-statistically method (subjective approach)

Other Method:
a. High value or key items
b. All items over a certain amounts
c. Items to test procedure.

Design of the sample:

When designing the sample the BSA requires that the auditor to consider-
 The objective of the audit procedure
 The attributes of the population from which the sample will be drawn.

Q. What is Error?
Error means either control deviation when performing test of control or misstatement.
When performing substantive procedure.

Q. What is expected error?

Expected error is the error that the auditor expects to the present in the population.

Q. Describe the sample Units.

Sample units are the individual items constituting a population, such as-
 Cheques listed on deposit slips.
 Sales invoice.
 Receivable balance.
 A monetary.
Sample risk – arises from the possibility that the auditor’s conclusion.
Q. What is non –sample risk?
Non-sample risk- arises from factors that cause the auditor to reach an erroneous
conclusion for any reason not related to size of the sample.

Q. Which factors are influenced on sample size?

Page 31 of 51
 Assurance

I. Test of control controls factors.

II. Test of detail factors (chart, page no-198)

Q. What is Tolerable error?

Tolerable error is the maximum error in the population that the auditor would be willing
to accept.

Q. Describe the some sample selection method.

There are number of sample selection methods such as-
i. Random selection.
ii. Systematic selection (constant interval between selections)
iii. Haphazard selections (alternative between selections)
iv. Sequence or block selection.
v. Monetary unit sampling (MUS) (base on money)

DRAWING CONCLUSIONS FROM SAMPLING:

 The purpose of sampling a set of items was to enable the assurance
providers to project the conclusion to the whole population.
 Assurance providers must consider the nature of the error and whether
it fair to project that error.
 If the projected error exceeds tolerable error then sampling risk must
be reassessed and further audit procedures must be consider.
Q. what is anomalous error?
Anomalous error means an error that arises from an isolated event.

Q. What matter you consider to draw a conclusion?

To draw a conclusion from a sample, auditors must distinguish between true errors and
other errors.

Chapter-12
Management Representations

Q. What is Management representation?

Ans: Management Representations state that an auditor should appropriate
representations from management.

Page 32 of 51
 Assurance

Q. What is management?
Ans: Management comprises officers (Directors and company secretary) and others who
perform senior Managerial function.

Q. Are the elements of management representation letter?

Ans: Elements of management representation letter:

 Acknowledge its responsibility for the preparation and fair presentation of

financial statement.

 Acknowledges its responsibility for the design and implementation of internal

control.

Q. What is Management Representation letter audit evidence?

Ans: Management representation letter will be appropriate evidence in respect of
material matters in relation to when other sufficient appropriate audit evidence cannot
reasonably be expected to exist.

Q. When Management Representation letter may be the only audit

evidence?
Ans: Management Representation letter may be the only audit evidence available,
when-

 The facts are a matter of management intention.

 The matter is judgmental or an opinion.

Q. Describe the quality of management representation?

Ans: Management should be-

 Corroborated.

 Evaluated.

If management representations so not agree with other evidence this should be

investigation and the implications considered.

Page 33 of 51
 Assurance

Chapter -13
Substantive Procedure
Q.1 Tangible Non- Current Assets:

S.L Risk Key Testing Area

1. The Company not actually owning the Confirm of ownership.
assets.
2. The assets not actually existing. Inspection of non-current assets.
3. The assets being undervalued. Valuation of preferable by third party.
4. The assets being overvalued by Adequacy of depreciation Rate.
undercharging depreciation.
Source of information:

 Non- current assets register.

 Purchase invoice

 Title deed for property.

 Valuation carried out by employee or third party values.

 Physical inspection.

 Depreciation record.

(Working example: page 225)

Q. Intangible Non- Current Assets:

S. Risk Key Testing Area

L
1. Expense being capitalized as non-current Confirmation that assets are existed.
assets inappropriately.
2. Intangible assets being carried at the Confirmation of appropriate valuation.
wrong cost or valuation.

Page 34 of 51
 Assurance

Source document about Intangible assets:

 Purchase invoice or documentation.

 Specialist valuation.

 Knowledge of Accounting Standard regarding constitution of Intangible assets.

 Client calculation and schedules.

** Inventory

SL Risk Key Testing Area

1. Inventory that does not exists being include Attending an inventory count.
in the financial statement.
2. Wrong valuation of Inventory being show in Value of lower cost or net realizable
the financial statement. value.
3. Inventory that actually belongs to third Confirm of ownership.
parties seeing included in the financial
statements.

Source document about Inventory:

 Inventory counting.

 Purchase invoice of inventory.

 Work in progress records for inventory.

 Price list of inventory

Describe the procedure of inventory count:

Following the procedure the inventory count:

 Organization of count

 Counting

 Record

Q. When can Net Realization Value be less than cost?

Ans: Management should compare cost and NVR for each items of Inventory. Net
Realization Value is likely to be less than cost when, there has been-

Page 35 of 51
 Assurance

 an increase in costs or a Tall in selling price

 Obsolescence of product.

 A marketing decision.

** Receivable
S. L Risk Key Testing Area
1. Debt being uncollectible Confirming debt owned by customer.
2. Customer Debt being contested by Confirming debt is still to be collected.

Source document:

 Receivable ledger information.

 Confirmation from customer

 Cash payments received after the year end.

 Sale day bank.

Confirmation from customer:

 Direct confirmation is covered by BSA 505- External confirmation

 If the client refuses permission for the assurance providers to obtain evidence in this
way. The assurance providers should consider it a limitation in the scope of the audit
unless this is reasonable.

Method of under taking confirmation:

There are two methods-

 Positive Method. The customer is requested to give the balance or to confirm the
accuracy of the balance shown

 Negative Method. The customer is requested to reply only of the amount states is
disputed.

The letter of auditor paper, signed by the client.

Page 36 of 51
 Assurance

Q. Describe the reasons for disagreements between client and customer.

Reasons for disagreements with client:

 Cut – off problems exists

 The customers may have set the monies before the year end.

 Monies received may have posted to the wrong account or cash in transit account.

 Customer who also suppliers may net off balance.

 Teeming and lading.

Q. What are the alternative procedures of confirming receivable balance?

Alternative procedure of confirming receivable balance:

 Check receipt of cash after date.

 Verify valid purchase order.

 Examine the account,

 Obtain explanations for invoice remaining unpaid after subsequent ones have been
paid.

 Test company’s control over the issue of credit note and the write-off bad debts.

Q. Describe Special attendance for confirmation to customer balance.

Describe Special attendance for confirmation to customer balance.

 Old unpaid account.

 Account written off during the period.

 Account with credit balance.

 Account settled by …………… sum payments

**Bank:
S.L Risk Key Testing Area
1. Not all balances owned by the client Confirming bank balances with the bank.

Page 37 of 51
 Assurance

being disclosed.
2. Reconciliation being misstated Confirming reconciling differences calculation
by the client is reasonable.
3. Material cash floats being omitted or Confirming any material cash balances held at
misstated. the client are correctly stated.

Source of information about Bank:

 Cash book

 Confirmation from the bank

 Bank statements

 Bank reconciliation carried by the client.

Q. Why need directly confirmation with bank?

 Testing of bank balance will need to cover completeness, existence, right and
obligation and valuation.

 It may also be advisable to request information about nil balance on accounts, and
accounts which were closed in the twelve month prior to the chosen conformation
date.

Q. Describe the other confirmation from bank.

Other confirmation from bank:

 Maturity and interest term.

 Lines of credit.

 Confirmation liabilities

 About safe custody.

Q. Procedure of bank confirmation.

 The bank will require explicit written authority from their client.

 The assurance provider’s request must refer to the client letter.

Page 38 of 51
 Assurance

 Letter of authority signed by all partners will be necessary (in the case of joint
account).

 The request should reach the branch manager at least two weeks in advance of the
client year’s end.

 The assurance providers should cheek that the bank response cover all the
information.

**Bank Reconciliation:
Q. Why window dressing is made regarding reconcile?
Windows dressing in this context is usually manifested as an attempt to overstate the
liquidity of the company-

 Enhancing the balance (for liquidity)

 Decreasing the balance (for healthy current ratio)

**CASH COUNT:
The following matter apply to the cash count-

 All cash/patty cash books should be written up to date on ink.

 All balance must be count at the same time.

 At no time should the assurance provider’s be left alone with the cash a negotiable
security.

 All cash counted must be recorded on working papers subsequently filed on the CAF.

** PAYABLES:
S.L Major Risk Key Testing Area
1. The entity understanding its liabilities in Ensue that all liabilities are included in the
the financial statement. financial statement.
2. Non-existing liabilities being declared. Confirming that all liabilities are bona fide

Page 39 of 51
 Assurance

owed by company.

Source of information about Payable:

 Payable ledger records.

 Confirmation from suppliers.

**SUPPLIER STATEMENT.
 The most important test when considering trade payable is comparison of supplier’s
statements with payable ledger balance.

Q. WHEN SUPPLIERS/TRADER CONFIRMATION IS REQUIRED?

Supplier’s confirmation is required when-

 Supplier statements are unavailable or incomplete.

 Weakness in internal control.

 The accounts appear to be irregular or abnormal.

** LONG – TERM LIABILITIES.

We are concerned here with long – term liabilities comprising, loan stock and other
loans payable at a date more than one year after the year end.

Source document regarding Long- term Liabilities:

 Schedule of loans/prior year audit file.

 Register of long-term.

 Loan agreements.

 Bank letter and direct confirmation.

 Cash book.

 Client schedules and calculations.

Page 40 of 51
 Assurance

Q. What are the major risks of misstatement of long terms liabilities?

Major risk of misstatement of long terms liabilities are-

 All long terms liabilities have not been disclosed.

 Interest payable has not been calculated correctly.

 Disclose is not corrected.

Check/plan regarding long-term loan:

 Prepare schedule of loan

 Compare opening balance

 Compare balances to the nominal ledger.

 Check name of lenders.

 Trace additions.

 Verify borrowing limits.

 Examine signed Board minutes about new loan.

 Obtain direct confirmation from lender.

** Items of income statements:

Key area when testing income statement items is completeness.

Page 41 of 51
 Assurance

CHAPTER-14
Code of Professional Ethics.
Q. Why in the profession required ethics?
Accountants required an ethical code because they hold position of trust and people
rely on them and their expertise.

Q. Where professional accountant work?

Accountants work in the public interest, which extends beyond clients to people
associated with those clients and the general people.

Q. What is the responsibility of a professional accountant?

Professional accountants have a responsibility-

 To consider the public interest and

 To maintain the reputation of the accounting profession.

Describe the source of ethical guidance

 ICAB Code of ethics is influenced by the guidance of IFAC (International Federation

of Accountants.

 ICAB is a member of IFAC.

 IFAC issues International Standards on Auditing (ISA).

Q. What is the Rule and principles of IFAC code?

A principle based system-

 Allows flexibility

 Allows broad interpretation.

 Encourage evaluation.

Page 42 of 51
 Assurance

 Allows for individual situations.

 Can contain rules.

 IFAC Code:

Q. What are the Fundamental principles of IFAC Code?

Followings are the fundamental principles of IFAC code-

 Integrity

 Objectivity

 Professional competence and due care.

 Confidentiality

 Professional behavior.

Q. What do you mean by the terms “Independence of mind”?

Independence of mind-

The state of mind that permits the expression of a conclusion without being affected by
professional judgment, allowing an individual to act with integrity and exercise
objectivity and professional skepticism.

Q. What do you mean by the terms “Independence in appearance”?

Independence in appearance:

The avoidance of facts and circumstance that are so significant that a reasonable and
informed this party, having knowledge of all relevant information, including safeguards
applied, would reasonably conclude a firm’s or a member of a assurance team’s
integrity, objectivity or professional skeptic….. Had been compromised.

**Threats and Safeguards

Q. Describe the threats as per IFAC Code?
There are five general source of threat identified by code, other source identify sixth
threats

Page 43 of 51
 Assurance

(Management Threats)

 Self interest threat (having a financial interest in the client)

 Self review threat (auditing financial statement prepared by firm)

 Advocacy threat(promoting the client’s position by dealing in its shares )

 Intimidation threat(threats of replacement due to disagreement)

 Familiarity threat(an audit team member having family at the client)

 Management threat(doing work that should be carried out by management )

**Safeguards Categories
 Safeguards created by the profession, legislation or regulation.

 Safeguards within the work environment.

Safeguards created by the profession, legislation or regulation:

By the following way we can create safeguard by the profession, legislation or

regulation-

 Educational training and experience requirements for entry in the profession.

 Continuing professional development requirements. (CPD)

 Corporate governance regulations.

 Professional standard.

 Professional or regulatory monitoring and disciplinary procedure.

Safeguards within the work environment:

By the following way we can create safeguard in the work environment-

 Involving an additional professional accountant to review the work done or

otherwise advise as necessary.

 Consulting an independent third party.

 Rotating senior personnel.

Page 44 of 51
 Assurance

 Involving another firm to perform or re-perform part of the engagement.

**ICAB Code
* The ICAB Code is relevant to professional accountants in all of their professional and
business activities.

* ICAB incorporates the IFAC code of ethics, but also contains additional rules deemed
appropriate by ICAB.

* The ICAB Code is compulsory for members in their professional lives and where
actions in their personal lives would discredit the profession. It implements the IFAC
Code.

CHAPTER--15
Integrity, Objectivity, and Independence.

Q. What is Integrity?
This means that an accountant must be straightforward and honest. It implies fair
dealing and truthfulness.

Q. What is objectivity?
This is state of mind excludes bias, prejudice and compromise and that gives fair and
impartial consideration to all matters that are relevant to the task in hand, disregarding
those are not.

Q. What is Independence?
Independence related to and underpins objectivity. It is freedom from situations and
relationships that make it probable that a reasonable and informed third party would
conclude that objectivity either is impaired or could be impaired.

Q. Why do independence and objectivity mater so much?

Independence and objectivity matter because of-

 The expectation of those directly affected, particularly the members of the company

Page 45 of 51
 Assurance

 The public interest

Q. What can the auditor do to preserve objectivity?

The auditor may withdraw from any engagement where there is the slightest threat to
objectivity.

# Threat and Safeguards:

# Self interest threat:

 Financial interest:

Financial interest exists where an assurance firm has a financial interest in a client’s
affair

 Direct financial interest

 Indirect financial interest

 Immediate family.

 Assurance team

The parties listed below are not allow to own a direct financial interest or an indirect
material interest in a client-

 Assurance firm

 Partner

 Immediate family member of such a partner.

Safeguards against self interest threat:

The following safeguards are created to avoid self interest threat-

 Disposing of the interest

 Removing the individual from the team if required.

 Using an independent partner to review work carried out.

 Close business relationship.

Page 46 of 51
 Assurance

 Employment with assurance client

 Partner on client board.

 Family and person relationship.

 Gifts and hospitality.

 Loans and guarantees.

 Overdue fees.

 Percentage or contingent fees.

 High percentage of fees.

 Low balling.

**Self review threat:

 Service with an assurance client.

 Preparing accounting record or financial statement.

 Valuation service.

 Taxation service.

 Internal audit services.

 Corporate finance service.

 Information technology service.

 Litigation support service.

**Advocacy Threat:

 Corporate finance.

 Legal service.

 Contingent fees.

Page 47 of 51
 Assurance

**Familiarity Threats:

 Long association of senior personnel with assurance client.

 Recruitment.

 Employment with assurance client.

 Recent service with assurance client.

 Where there are family and personnel relationship between client/firm.

**Intimidation Threats:
There are also examples of self interest threat because intimidation may only arise
significantly when the assurance firm has something to lose-

 Litigation.

 Close business relationship.

 Assurance staff members move to employment with client.

 Family and personal relationship.

Q. What treat May he existed to accept new client?

The following threat may arise in accepting new client:

 Illegal activities of the client.

 Apparent dishonesty of the client.

 Questionable accounting practices of the client.

( Interactive Que: 2 page-280)

Page 48 of 51
 Assurance

Q. Which matters professional accountants consider when he resolves

ethical conflicts?
Framework of the ICBA code state that the professional accountant should consider-

 The relevant facts.

 The relevant parties.

 The ethical issues involved.

 The fundamental principles related to the matter in question.

 Established internal procedure.

 Alternative courses of action.

Q. Which is better to resolve conflict?

It is generally better to resolve conflicts “in house” than to refer to external bodies,
although they option is always available and ICAB has an ethical helpline.

( Interactive Que: 3 page-281)

**Conflict of interest for the accountant:

Describe the threat /pressure for an accountant.

Threat/pressure for an accountant:

 Act contrary (against, opposite) to law or regulation.

 Act contrary to technical or professional standards.

 Facilitate unethical or illegal earnings management strategic.

 Lie to or mislead auditors or regulators.

Page 49 of 51
 Assurance

Safeguards for mitigate conflict of interest:

 Obtain advice from within the employer an independent professional advisor or the
ICAB.

 Using a formal dispute resolution process at work.

 Seeking legal advice.

( Interactive Que: 4 page-282)

Chapter -16
Confidentiality

Q. Why need confidentiality?

Confidentiality is important as it is a key factor in the trust between client and
accountant.

**Safeguard against Confidentiality

Q. What safeguard you may use to maintain confidentiality?
Assurance providers should take basic security precautions to prevent accidental
disclosure of information, such as-

 Not leaving assurance files unattended

 Not leaving assurance files in cars.

 Not working in the client files on unprotected computers.

 Not talking about assurance clients to parties outside the assurance firm.

 Not talking about assurance work in a public place.

Page 50 of 51
 Assurance

**Disclosure of confidential information

Q. When client information can be disclosed?

There are occasions when it is appropriate to make disclosures of client information-

 Which client permission

 When required to by law (for example when laundering is suspected).

 In accordance with auditing standards such as BSA 250

 To protect a member’s interests.

 In the public interest.

 When compiled by process of law.

*** Assurance providers should generally seek legal advice when making disclosures to
ensure that they are made appropriately.

(Interactive Que: ….. page 294)

Page 51 of 51