Syllabus Area A

AA-International stream 9/17/2019
AACOURSE
AA
INT
AA_KASHIF KAMRAN-FCCA
SYLLABUS AREA – A
AA
AUDIT FRAMEWORK AND

REGULATIONS
KASHIFKAMRAN-FCCA-
kashifkamran@gmail.com 1
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Syllabus area A- Inside
Assurance
OVERVIEW
AA
External audit
Corporate
governance
Code of
conduct
TOPIC
ASSURANCE
1 MODERATE
AA_KASHIF KAMRAN-FCCA 10
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Assurance
Overview
AA
Types
Elements
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External audit
Appoint Auditor Adds Credibility

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Measure Financial
performance Statements Prepare
Appoint
Shareholders Directors
Own Manage
Company
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Purpose of external audit
• “The purpose of an audit is to enhance the degree of

confidence of intended users in the financial statements. This is
achieved by the expression of an opinion by the auditor on
AA
whether the financial statements are prepared , in a material

respect, in accordance with applicable financial reporting
frameworks”
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Reasonable assurance engagement
 Reasonable assurance is a high level of assurance but not an

absolute level of assurance
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 Understanding terms ?
 High
 Absolute (Limitations)
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Review- moderate assurance engagement
 Review of financial statements is another assurance

service offered by the auditor under the ambit of
International standards on review engagements (ISREs)
AA
 The only difference between audit and review of financial

statements is the level of assurance.
 Review of financial statements is a moderate assurance
engagement.
 According to ISRE, a moderate assurance is less than
reasonable assurance.
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• Review of financial statements is a service offered to small

and medium size enterprises as an alternative to audit.
AA
• Internationally, in every country, different corporate

regulation exist which exempt certain classes of
companies from an external audit exercise.
• If a small company want to access a debt finance will it
be possible for the bank to disburse loan to the small
company on the financial statements prepared and
presented by the management ?
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 Perhaps, NO, the bank want some assurance on the

financial statements by someone independent of
management .
AA
 Thus the auditor, in such a situation, can help small

companies with a moderate assurance service.
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Analytical
AA
procedures
SCOPE
Inquiry
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• What are analytical procedures ?

• Evaluation of financial information either by:
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1. Comparison of current year financial statements with the

prior year financial statements
2. Trend analysis over a considerable span of time
3. Ratio analysis
4. Budgets
5. Industry trends and averages.
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• What is inquiry ?
• Inquiry of management is carried out by the auditor to find
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suitable answers for any fluctuations in financial statement data

over the prior period and to assess whether the answer is in line
with auditor professional skepticism.
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• The auditor at the end of a review engagement issues a review

report where by the auditor expresses moderate assurance over
the financial statement in the form of a following statements.
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• Review statement
• “We have conducted a review not an audit ………….”
• “Based upon our review, nothing has come to the our attention
that causes us to believe that the financial statements of ABC
Company as on December 31, 2013 do not give a true and fair
view.”
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 Checklist
 Review is governed by ISRE.
 Review of financial statements is a moderate assurance
AA
engagement
 It is a alternative of audit ( with lesser assurance) for
companies exempt from audit (e.g. the small companies)
 The scope of review engagement is primarily restricted to
analytical procedures and inquiry.
 The review report of the auditor to the intended user
contains a statement expressing the moderate assurance (
in the form of negative assurance)
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TOPIC
EXTERNAL AUDIT
2 MODERATE
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Regulatory Environment
National laws
OVERVIEW
AA
Professional
bodies
IFAC
Corporate
governance
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Role of national laws
• Every country has its own national laws which govern the
following areas relating to audit:
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1. Companies exempt from audit

2. Appointment of auditor
3. Removal of auditor
4. Rights of auditor
5. Duties of auditor
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Role of professional bodies
ROLE
AA
Recognized Recognized
qualifying bodies supervisory bodies
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Role of professional bodies
 Example: ACCA
1. Qualification
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2. Training
3. Membership
4. Experience
5. Membership
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Role of IFAC
Research
AA
Transparent debate
IFAC
Process of
Exposure for public
IAASB developing
comment
an ISA
Comment received
over exposure
Affirmative approval
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Role of corporate governance
• In the AA context, corporate governance focus point is

on audit committee, internal audit function and the
oversight of external auditor
AA
TOPIC
CORPORATE GOVERNANCE
3 HIGH
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Corporate governance
OVERVIEW
Generally accepted
AA
principles
Committees
Internal audit
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Generally accepted principles
Chairman
Segregation of
roles
Corporate governance
CEO
AA
Audit
structure
Remuneration
Committees
Nomination
Internal audit
Risk
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1. At least half the board should comprise of NEDs

2. Segregation of duties between Chairman and CEO
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3. Directors remuneration should include performance

related bonus
4. Audit committee should only comprise of NEDs
5. There should be a retirement by rotation of directors
once every three years.
6. Audit committee should recommend the appointment,
removal and remuneration of external auditor
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 Listed companies should have an IA dept. / or assess the

need to have one annually
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 Remuneration committee should decided the

remuneration of executive directors.
 Remuneration committee should also comprise of NEDs.
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Audit committees
Overview
Composition
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Objectives
Functions
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Composition
Composition
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Minimum 3 NEDs
At least 1 with
financial experience
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Objectives
Objectives
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Increase
public Monitoring
confidence
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Functions
Financial
statements
Functions
Internal
AA
controls
Internal audit
External audit
Whistle blowing
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TOPIC
IESBA CODE OF ETHICS

5 HIGH
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IESBA Code of ethics
AA
Integrity Professional Professional Objectivity Confidentiality

competence behavior
and due care
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Confidentiality
Types
AA
Obligatory
Voluntary
Disclosures
disclosures
[by laws and
[in public interest]
regulations]
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THREATS TO OBJECTIVITY
Self interest
AA
Self review
Advocacy
Familiarity
Intimidation
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Gifts and Hospitality (Self Interest)
 The employees of LV FONES are entitled to 10 percent

discount on purchase of mobile phones. The audit has
been offered the same level of staff discount.
AA
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SELF INTEREST
 Examples:
 Own shares
AA
 Dependency on client
 Gifts and hospitality ( perceived as bribe to keep quite )
 Contingent fees
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SELF REVIEW
 When an auditor has to review the work previously

performed
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 Examples:
 External auditor prepare financial statements and audit
them
 External auditor is also involved in the internal audit of
the client
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ADVOCACY
 When an auditor is asked to promote client

business interest
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 Examples:
 Representing in a court
 Promotion of shares for listing on stock exchange
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FIMILARITY
 Sympathetic or trust client due to any relationship

with them
AA
 Examples:
 Family relationships or a close friendship
 Long association with client
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INTIMIDATION
 Client may bully or harass the auditor in giving a

preferential report
AA
 Examples:
 Outstanding fee could be used as a technique to bully
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Conflict of interest
 Conflict of interest and confidentiality are related

issues
 Where a conflict of interest arises, one of the key
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issue is whether it will be possible to keep

information confidential
 ACCA codes states that:
 “ there is nothing improper in a firm having TWO
client whose interest are in conflict provided
adequate safeguards are in place”
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Possible safeguards – conflict of interest
1. Notifying affected parties

2. Using separate engagement team
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3. Clear guidelines to members of engagement teams on

security of information
4. Confidentiality agreement signed by team members
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AA-International stream 9/17/2019

AUDIT FRAMEWORK AND

Appoint Auditor Adds Credibility

• “The purpose of an audit is to enhance the degree of

whether the financial statements are prepared , in a material

 Reasonable assurance is a high level of assurance but not an

 Review of financial statements is another assurance

 The only difference between audit and review of financial

• Review of financial statements is a service offered to small

• Internationally, in every country, different corporate

 Perhaps, NO, the bank want some assurance on the

 Thus the auditor, in such a situation, can help small

• What are analytical procedures ?

1. Comparison of current year financial statements with the

suitable answers for any fluctuations in financial statement data

• The auditor at the end of a review engagement issues a review

1. Companies exempt from audit

• In the AA context, corporate governance focus point is

1. At least half the board should comprise of NEDs

3. Directors remuneration should include performance

 Listed companies should have an IA dept. / or assess the

 Remuneration committee should decided the

IESBA CODE OF ETHICS

Integrity Professional Professional Objectivity Confidentiality

 The employees of LV FONES are entitled to 10 percent

 When an auditor has to review the work previously

 When an auditor is asked to promote client

 Sympathetic or trust client due to any relationship

 Client may bully or harass the auditor in giving a

 Conflict of interest and confidentiality are related

issue is whether it will be possible to keep

1. Notifying affected parties

3. Clear guidelines to members of engagement teams on

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