Audit Portion

The audit process

• Client acceptance/continuance.
• Planning the audit.
• Performing the audit.
• Evaluating the results.
• Issuing the audit report.
1 Consider whether to accept appointment
Legal
Ethical
Practical
4 Carry out audit procedures and collect evidence
Tests of control
Substantive tests
−Tests of detail
−Analytical procedures
3 Audit planning
Gather information and obtain an

Understanding of the business

Establish materiality
Assess risks
Develop audit strategy and audit plan
6 Determine opinion and produce audit report

Requirement for an audit:

 Ethics

Guidance includes:
− Identifying threats to compliance
− Evaluating significance of threats
− Implementation of appropriate safeguards

Fundamental principles
Integrity
• Be straightforward and honest in all professional and business relationships.
Objectivity
• No bias, conflict of interests or undue influence by others should override professional or
business judgments.
Professional competence and due care
• Maintain professional knowledge and skill at the level required to ensure that a
client/employer receives competent professional services.
• Act diligently and in accordance with applicable technical and professional standards.
Confidentiality
• Keep information acquired through professional and business relationships confidential.
• Only disclose such information to third parties with specific authority.
• Do not use such information for personal advantage.
Professional behaviour
• Comply with relevant laws and regulations.
• Avoid action that would discredit the profession.
Threats
Self interest
Financial or other interest of the professional accountant or a close family member could
inappropriately influence judgement or behaviour.
Self-review
Less questioning of previous judgements made when made by yourself or your firm.
Advocacy
Promoting the client’s or employer’s position to the point that objectivity is compromised.
Familiarity
Long or close relationship with client or employer leads to excessive sympathy with their
interests, or being too accepting of their work.
Intimidation
Deterred from acting objectively by threats which are either actual or perceived.

Ethics

Management (only relevant to auditors)

The audit firm undertakes work that involves making judgements and taking decisions that
are properly the responsibility of management.
Safeguards
The safeguards used to reduce threats to an acceptable level can be grouped under two
main categories:
• Those created by legislation
• Those created in work environment

Created by legislation
These include:
• Education, training and experience requirements for entry into profession.
• CPD requirements.
• Professional or regulatory monitoring and disciplinary procedures.
• Complaints system.
Created in work environment
These include:
• Organisation’s ethics and conduct programme.
• Recruitment procedures, emphasising importance of high calibre, competent staff.
• Strong internal controls.
• Ethical behaviour stressed by leadership.
• Policies and procedures to implement and monitor quality of employee performance.
• Disciplinary process.

Confidentiality
Information received in confidence may only be disclosed in the following circumstances:
• Where disclosure is permitted by law and authorised by the client or employer
• Where disclosure is required by law
• Where there is a professional duty or right to disclose, when not prohibited by law

Conflict of interest
A firm may have two clients whose interests are in conflict provided that adequate
safeguards are in place which ensure the work performed for one client does not
disadvantage the other.
Safeguards
• Notify the affected parties of the conflict and obtain consent to act
• Separate engagement teams
• Physical separation of teams and evidence
• Clear guidelines for engagement team members regarding security and confidentiality
• Confidentiality agreements signed by employees
 Regular reviews of safeguards performed by someone senior outside the engagement
team
If the risks cannot be mitigated the firm should not act for both parties.
Corporate governance
Corporate governance is the means by which a company is operated and controlled.
The scandals over the last 25 years have highlighted the need to tackle various risks and
problems that can arise in an organisation.
• Domination by a single individual
• Lack of board involvement
• Poor internal control
• Lack of independent scrutiny
• Lack of contact with shareholders
• Short term focus
• Lack of transparency