Define Independence and Objectivity as They Apply to an Auditor: Audit and Assurance Assignment, GCD,

2019/ 2020 Audit & Assurance Assignment Brief:

ETHICS

The objectivity of external auditors may be threatened or appear to be threatened in the following circumstances:

a) The audit firm is heavily financially dependent on one significant client;
b) The audit firm, its partners or staff have a financial interest in the audit client;
c) There are family relationships between the firm, its partners, staff and the audit client;
d) The audit firm provides non-audit services to the audit client;
e) The audit firm has been the external auditor of the client for the past 10 years.

Requirement:

1) Define independence and objectivity as they apply to an auditor

2) Discuss the importance of auditor independence in the auditor-client relationship

3) For each of the five circumstances (a) – (e) above, explain the type of threat it creates and analyze the possible consequences of such threats to the conduct and outcome of the audit

4) Recommend the steps to be taken by the audit firm to reduce the threat to the auditor’s objectivity for each of the above circumstances (a) – (d)

Intended Module Learning Outcomes

On successful completion of this module, the learner will be able to:

1. Evaluate the nature, purpose and scope of an audit and the legal, regulatory and ethical framework for auditing
2. Distinguish between the respective roles and responsibilities of directors and internal and external auditors
3. Demonstrate how the auditor obtains and accepts audit engagements and conducts a detailed investigation into an audit client to identify the risks of material misstatement (whether arising from fraud, error or other irregularities)
4. Describe the nature of internal control systems of relevance to the audit, including IT systems
5. Identify and apply the procedures required to evaluate control risk, including communication of the weaknesses, impacts, and professional recommendations to those charged with governance and management
6. Devise an overall audit strategy, identify and formulate the audit tests and evidence required to meet the objectives of audit assignments to comply with the International Standards on Auditing
7. Analyze how subsequent events review and going concern assessment informs the conclusions in the auditor’s report
8. Describe the key basic component elements of the Auditor’s Report, and identify and analyze matters that impact on the wording of audit reports, including those that affect the auditor’s opinion and those that do not affect the auditor’s opinion

Module Objectives

This module focuses on the legal and regulatory environment of the assurance engagement and the professional and ethical considerations for the assurance provider. It also seeks to provide the learner with the ability to identify, analyze, and conclude on an assurance engagement in the context of the best practice.

Module Curriculum

Audit Framework

• Objectives and general principles of external audit engagements
• Statutory audits, accountability, stewardship, and agency
• Limited and non-assurance engagements

The legal and regulatory environment and sources of authority for audit and assurance services

• Statutory regulations governing the appointment, rights, duties, removal, and resignation of auditors
• Authority of national and international standard-setting bodies
• International standard-setting process
• Provisions of International Codes on Corporate Governance (e.g. OECD) and their relevance to auditors
• Role and function of an Audit Committee

Laws and regulations

• Responsibilities of management and auditors in relation to compliance with laws and regulations
• Non-compliance with laws and regulations – Auditors considerations and plan of audit procedures required
• Respective responsibilities of management and auditors for fraud and error
• The current and future role of auditors in preventing, detecting, and reporting fraud and error.
• Recognition of necessity to withdraw from an engagement

Money laundering

• Scope of offenses that could be committed by the auditor and protection from liability
• Auditor compliance with Money Laundering regulations

Professional Liability

• Auditor negligence and the criteria for recognition of legal liability
• Limiting auditor liability and the effect on opinions, and the implications for the auditor and the profession
• Audit failures, expectation gap, bridging the expectation gap

Professional and Ethical considerations

• Code of Ethics for Professional Accountants
• Fundamental principles of behavior and the conceptual framework approach
• Threats to compliance with fundamental principles and available safeguards

Internal Audit

• Scope, functions, and limitations of internal audit, the nature, and extent of internal audit assignments
• Outsourced internal audit functions
• Differences between the role of internal audit and external audit

Practice Management

• Quality Control
• Purpose of quality control of audit and other assurance engagements
• Elements of an audit firm’s system of quality control

Advertising, publicity, obtaining professional work and fees

• Acceptability of advertisements and promotional material
• Establishing and negotiating fees, ethical and professional considerations

Professional Appointments

• Tendering for audit engagements
• Considerations and procedures for acceptance of new client/ Continuation with existing clients
• Scope and terms of an engagement
• Engagement letter

Planning, materiality, and assessing the risk of material misstatement

• Understanding the entity and its environment
• Assessment of Audit risk, Business risk, Control Risk, and Risk of material misstatement
• Analytical procedures and other risk assessment procedures
• Other planning considerations
• Concepts of materiality and performance materiality

Evidence

• Audit evidence to verify different elements of financial statements
• Sources, reliability, and techniques for obtaining audit evidence
• Nature, timing, and extent of audit procedures in given situations
• Tests of control and substantive procedures
• Working papers
• Related party transactions
• Management representations
• Reliance on third parties; Experts, Internal audit, Service organizations

Evaluation and review

• Review procedures, evaluation of findings
• Material misstatement/material inconsistencies –actions by the auditor
• Auditor responsibility for comparative figures, other information in the financial statements, subsequent events, and going concerned

Group audits

• Accepting appointment as principal auditor to a group
• The organization, planning, management, and administration of group audits
• Using the work of component auditors
• Letters of support (“Comfort letters”)
• Implications of qualified audit reports for one or more group members

Reporting

• Audit reports: Unqualified, Qualified, Unmodified, and Modified
• Reports to Management and those charged with Governance
• Other reports

Current issues and development

• Information technology
• Current legal, ethical, professional, and practice management matters affecting the profession.