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ACCT3014 Lecture01 s12013
ACCT3014 Lecture01 s12013
WELCOME
ACCT3014 - Auditing and Assurance
Semester 1, 2013 Unit of Study Coordinator: Angela Hecimovic
Course Requirements
Unit of Study Aims:
understand the audit function and why there is a demand for it establish the legal, professional and regulatory framework for audits in the Australian environment
familiarise students with audit techniques such as business risk analysis, internal control assessment, evidence collection and evaluation, and audit reporting-this is your audit journey!
review current developments in audit practice
NOTE: this is a very practical course. Rote learning is inappropriate. Need to apply skills to specific audit scenarios.
Calculators are not required !
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Course Resources
Prescribed texts: Modern Auditing and Assurance Services, 5th Edition by Philomena Leung, Paul Coram, Barry J. Cooper, Peter Richardson, May 2012: Wiley Recommended Resources:
Chartered Accountants Auditing & Assurance Handbook 2012 by ICAA (The Institute of Chartered Accountants in Australia), ISBN 978-0-7303-0419-7, January 2012: Wiley OR CPA Auditing, Assurance and Ethics Handbook 2012-02-05 by CPA Australia, ISBN 781442558090, January 2012: Pearson
Australian Auditing Standards (ASAs) can also be located directly from the AuASB website: http://www.auasb.gov.au/Standards-and-Guidance/Australian-Auditing-Standards-in-Clarityformat.aspx
Links to other references and resources may be placed on Blackboard as required, Announcements will be made to notify students.
Academic Staff
- Unit of Study Coordinator: Angela Hecimovic (Room 345)
- For staff emails and consulting times and locations refer to Staff Information folder on Blackboard
Assessments
Assessment Date
Saturday 20th April 2013 1pm-2.30pm Merewether Lecture Rooms 4&5 See BB for Further Details
Group Assignment
Final Examination
Joke: Why did the auditors cross the road? Because they looked in the file and that's what they did last year.
http://www.the-alternative-accountant.com/audit-jokes.html
- provides assurance that accounting information is relevant, reliable, comparable, understandable and conveys a true and fair view
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What is an Audit?
Service to provide reasonable (i.e. high level) assurance through issue of an opinion about an accountability matter (e.g. financial report).
The objective of an audit of a financial report is to enable the auditor to express an opinion as to whether the financial report is prepared, in all material aspects, in accordance with an applicable financial framework. (para. 11)......... Audit Objectives under ASA 200
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(a)
(b)
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Systematic process
Objectivity and integrity/independence Evaluating controls Testing these controls Obtaining and evaluating evidence Assertions about economic actions and events Degree of correspondence to established criteria
Communicating/reporting results
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Requirements of an Audit
Comply with ethical requirements (ASA 102 and APES 110) Conduct audit in accordance with ASAs Adopt attitude of professional scepticism (ASA 200 p 157) Exercise professional judgment (assumes expertise) Gather sufficient appropriate audit evidence to reduce audit risk to an acceptably low level To express an opinion of the financial report Obtain sufficient appropriate audit evidence Assess risks of material misstatement State whether the financial report is prepared in all material respects in accordance with an applicable financial reporting framework
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Managements Responsibilities?
Preparing and presenting the financial report in accordance with financial reporting framework (ASA 200.A2) This generally requires:
maintenance of adequate accounting records maintenance of adequate system of internal control selection and application of appropriate accounting policies development of accounting estimates
Effective use of Financial Statements requires that the educated reader understands the roles of management in preparing financial statements and the Auditors responsibility in terms of auditing them
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Information hypothesis
Insurance hypothesis
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Audit Demand
Annual audits required by Regulation: Companies, registered schemes & disclosing entities (excludes small proprietary companies) Commonwealth & state government departments, statutory authorities, government companies and business undertakings, municipalities Not-for-profit organisations Providers of Audits:
Independent auditors
Must be registered with ASIC to be able to perform audits on reporting entities Criteria set out in s.1280 Corporations Act
Educational qualifications Work experience Member of ICAA or CPA Australia
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National Institute of Accountants (NIA) now called IPA-Institute of Public Accountants (http://www.publicaccountants.org.au)
ASIC is responsible for the registration of auditors. The Companies Auditors and Liquidators Disciplinary Board (CALDB), established under the ASIC Act, is responsible for the discipline of auditors.
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Companies Auditors and Liquidators Disciplinary Board (CALDB) Established under ASIC Act Hears breaches under Corporations Act of auditors and liquidators
http://www.auasb.gov.au/Home.aspx
Financial Reporting Council (FRC) Develops high quality audit & assurance standards Force of law ASAs under s336 Corp Act 2001 Treasurer appoints Chair of AUASB & FRC appoints other members of AUASB (13)
Auditing and Assurance Standards Board (AUASB) Develops high quality audit & assurance standards Force of law ASAs under s336 Corp Act 2001 Treasurer appoints Chair of AUASB & FRC appoints other members of AUASB
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Auditor Independence
Independence is a very key characteristic of an audit or assurance service provider. For auditor to add credibility to financial report or other subject matter, needs to remain independent. Independence is fundamental to compliance with fundamental principles of integrity and objectivity. There are both ethical (APES 110) and legal (Corporations Act) rules.
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- Independence in Appearance
The avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a Firms, or a member of the Assurance Teams, integrity, objectivity or professional scepticism had been compromised.
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- A direct financial interest or material indirect financial interest - A loan or guarantee - Undue dependence on total fees
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- A former partner, a director or officer of the assurance client or an employee in a position to exert direct and significant influence
- Long association - Acceptance of gifts or hospitality
- Educational, training and experience requirements for entry into the profession
- Continuing education
- Professional standards and monitoring and disciplinary processes
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Subdivision A of Division 3 of Part 2M.4 of the Act (ss. 324CA-324CD) assesses general independence based on whether a conflict of interest situation exists in relation to an audited body, and whether the auditor/audit firm:
- knew the situation existed - did not, as soon as possible after becoming aware of the situation, take all reasonable steps to ensure the situation ceased to exist.
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- officer or audit-critical employee: the individual auditor, or a professional member of the audit team, is related to the audited body by being an officer or audit-critical employee of the audited body - former officer or audit-critical employee: the individual auditor, or a professional member of the audit team, is related to the audited body by having been an officer or audit-critical employee of the audited body within the last 12 months before the financial year being audited
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- if an individual has played a significant role in the audit for five successive financial years - if an individual has played a significant role in the audit for five out of seven successive financial years
A person plays a significant role in the audit generally if the person is a lead or review auditor for the audit
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Frank Fong who just completed his chartered accountant examinations, is given for the first time a lead role in the audit of a small chemical company. Frank is excited but concerned that he does not know much about chemical products. He is puzzled about the nature of some of the accounts prepared by the client. Furthermore he does not dare ask the companys controller Thomas Kahn, who is known to be rude to auditors. Imagine YOU ARE Franks supervisor, and notice that Frank is uneasy when you enquire about the audit progress. Required: Explain to Frank the importance of Professionalism, using the APES 110 Code of Ethics, in particular referring to guidance on competence.
What would you suggest to Frank? Read the Relevant APES 110 Handout
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The accounting professional bodies have implemented a built-in regulatory code to compel ethical behaviour on the part of its members. The profession would see this regulatory code as a key way of differentiating itself from other organisations. Through its ethical code, the professions commitment to social welfare becomes a matter of public interest, thereby helping to ensure the continued confidence of society.
Frank should be advised that the exercise of due care and diligence is part of the duty of auditors. Where there are doubts relating to the tasks, he should raise it with his seniors and seek independent advice if necessary. He should be advised that it is not uncommon for auditors to consult others. Section 130 of the Code of Ethics for Professional Accountants (APES110) refers to the requirement to maintain adequate professional knowledge and technical skills regarding professional competence. Frank should be properly trained and properly supervised more closely in this case.
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Corporate Governance
- What is Corporate Governance and who is primarily responsible for it?
ASX Corporate Governance Councils Principles of good corporate governance and best practice recommendations: Corporate governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimised Commissioner Owen after HIH Corporate Collapse distinguished between the adoption of a model of corporate governance and its practice in the following terms: There is a danger [corporate governance] will be recited as a mantra, without regard to its real import. If that happens, the tendency will be for those who pay regard to it to develop a tick in the box mentality
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Corporate Governance
ASX Principle 4 Safeguard integrity in financial reporting
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Jane Howard, head of professional liability at Wragge & Co, a UK-headquartered law firm, agreed that the legal climate for accountants had been relatively benign. The Big Four are so well risk-managed, she said, adding that English law was really quite protective of auditors.
Having the law on your side never hurts.
http://goingconcern.com/post/big-4-firms-performing-quite-well-self-preservation-department
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