PartA-Audit framework and regulation

PartA-Audit framework and regulation：Statutory audit and regulations-External audit，Concept of audit and other assurance engagements

PartA-Audit framework and regulation

• Concept of audit and other assurance engagements （鉴证）
  • Audit
    • adds credibility(增加报表可信程度）
  • External audits
    • assurance(保证） shareholders that financial statements are prepared in all material respects with applicable financial reporting framework
  • Objectives of external audit engagements
    • Independent Auditor with International Standards on Auditing to (rnhance the degree of confidence of intended users in financial statements)
  • Relevant concepts
    • Opinion-present fairly,in all material respects,( give true and fair view )financial perfprmance and cash flow
      • 子主题
  • Fair presentation- True and fair
    • True-books and records (记录）
    • Fair(公允）-no discrimination and bias (无偏见）
  • Materiality
    • Information is material if its omission or misstatement could influence economic decisions
    • How to measure materiality?
      • Quantity aspect 定量
        • PBIT， Total asset
      • Quality aspect 定性
        • disclosure
  • Reasonable assurance (合理保证）
    • high level of assurance but not a guarantee
    • misstatements can rise form fraud and error (舞弊）
  • Accountability,stewardship and agency
    • Accountability (问责制）
      • willingness to accept responsibility for one's action (对行为负责）
    • Stewardship (受托责任）
    • Agency（ 代理）
      • priciple
  • Assurance engagements (鉴证）
    • Definition: enhance the degree of confidence of intended users and other responsibility party on eceluation ,measurement of subject matter against criteria
    • Five elements -CREST (五要素）
      • Criteria 标准
        • evaluated and assessed against with
      • Report
        • Opinion
      • Evidence
        • sufficient and appropriate
      • Subject matter (主体）
        • required verifivation
      • Three-party relationship
        • intended users require
        • responsibility party
        • practitioner (Accountant)
    • Other examples of assurance engagements
      • 小圈之外 ，大圈之内----审阅 审计 鉴证
      • review the effectiveness of entity's internal control or computer systems (审阅）
      • review the threats to going concern
      • review entity's half year results
      • Level of Assurance(保证程度）
        • Reasonable
          • External audit (审计业务）
            • Ture and fair
              • Positive expression
            • Limitations -inherent limitation (固有的限制）
              • Sampling (抽样，not all items tested)
              • Subjectivity( 主观）
              • Evidence is persuasive not conclusive (说服性而非结论性）
              • Historic information （历史信息
        • Limited
          • Review engagements (审阅业务）
            • Nothing has come to our attention that financial sttements do not present fairly
              • Negative expression (消极陈述）
• Statutory audit and regulations-External audit
  • 法定审计 which companies are required to have an audit (哪些公司需要审计） Who can and cannot carry out an audit （谁可以执行审计，执业资格） Auditor appointment , regisignation, and removal The rights and duties of an auditor
  • Regulatory framework
    • National legislation (国家立法，国内高于国际）
    • National regulation and standard-seeting
    • International standard-setting
    • Professional bodies eg:ACCA
  • Objective of auditor
    • obtain resaonble assurance
    • express an opinion
    • ISAs
  • Appointement( 聘任）
    • Menbers (shareholders 股东）AGM=annual general meeting ,ordinary resolution 普通决意
    • Directors
  • Removal （轮换审计）
    • Notice resolution （通知）
    • representation (声明）
    • Speak at shareholders' meeting
    • send statement to regulatory authority (监管机构）
  • Resignation （辞职）
    • written notice
    • Speak at general meeting
    • Regulatory authority (通知监管机构）
  • Rights （权利）
    • book，accounts, and vouchers (PBC,provided by client)
    • Information or explanations
    • receive notice of General meeting
    • Right to attend any general meeting
    • written resolutions
  • Dties (义务）
    • primary duty-provide an apinion
    • local national law (符合0
  • International Standards on Auditing
    • IAASB (International Auditing and Assurance Standards Board)国际审计与鉴证理事会
      • Set high quality satndards (设定高标准准则 ISAs，ISAEs)
      • Facilitate convergence of international and national standards (促进国际与国内协调）
      • Public confidence (公信力）
    • ISA Status 地位
      • issued by IAASB, procvide guidance
      • Historic financial information
      • Basic priciple and essential procedures
    • ISA and national standards (国际和国内）
      • no legal standing
      • Local regualtion will apply
• Coporate governance
  • Concept
    • system or means by company directed and controlled
    • describe framework of rules and practices,directors ensure accountability,fairness, and transparency(透明）
  • Objective
    • according to UK Corporate Govenance Code (根据法案）
    • facilitate effective ,entrepreneurial,and prudent management, long-term sucess (有效，谨慎，长期）
    • board of directors should be run and sructured, internal control relationship weith external control
  • Principle (原则)
    • Organisation for Economic Co-operation and Development (OECD) Six OECD principle: coporate governance framework rights of shareholders Disclosure and transparency responsibility of board UK Corporate Governance Code reflects OECD principle
    • Appointing non-executive directors (NEDs) to the board 监管
    • Chaieman leads the board
    • Independent (no one or small group dominate decision making)
    • formal,rigorous and transparent procedure( 透明）
    • Experience and Knowledge, length of service of the board
    • internal and external audit
    • balanced (权利平衡）
    • No director should be involved in deciding their own remuneration outcome
  • Practise (做法）
    • Chairman (NED) and cheif executive officer (CEO,ED)执行董事 different people
    • Half members of board should be NEDs
    • Appointing NEDs to audit committee, remuneration committee, nomination committee (all members in audit committee should be INEDs，独立independent non-executive directors)
      • 独立内审中要有experience
    • internal audit (内审）
    • directors not exceeding 3 years
    • induction training (培训）
  • Audit Committee (审计委员会）
    • independent,non-executive directors at least 3 menbers , 2 for samll compaies At least one menber has financial experience 财务经验 Industry experience 行业经验 independent of operational management 独立于管理 独立性更强，监督性更强
    • Responsibilities
      • 对外
        • 监督non-audit services by external audit (非审计服务，外部审计师--对外）tax advisory
        • monitor independence （监督外部审计师独立性）
        • approve remuneration of external auditor (外部审计师的薪资）
        • appointment， reappointmet, removal
      • 对内
        • monitor financial statements
        • review internal control
        • monitor effectiveness of internal audit department
        • consider annually whether need intenal audit dunction ( 考虑是否需要内审）
        • privacy and whistle blowers (安排线人，保护线人）safeguarding
    • Advantage (benefits)
      • Increased confidence in credibility (可信度）
      • Core business (可以save time )
      • Impartial body (公平）
      • report issue
      • Independent point
    • Disadvantages （limitations）
      • Difficult to select necessary competence (很难选）
      • Increasing costs
    • Internal control and risk management
      • The board is responsible for internal control and risk management
      • Director's responsiblilities in risk
        • design/ implementation/mantain设计实施
      • Auditor's responsibilities in risk
        • audit/review/assess 评估评价 审核
    • Those charged with governance(TCWG)公司治理层
      • mgt （TCWG 战略方向 MGT 日常
      • overseeing the strategic direction （战略）
      • management -operation (日常）
      • Communication
        • understand 了解 develop a constructive working relationship (合作关系）
        • obtain information
        • fullfill their responsibility
      • Matters tobe communicate
        • auditor's responsibility
        • scope and timing
        • significant findings
        • independence
  • Question
• Professional Ethics （职业道德）
  • The fundametal principle (基本道德准则）ICPOP
    • Integrity( 正直，诚信）
      • straightforward and honest
    • Confidentiality (保密原则）
      • not to disclose, obtain permission
      • contracts
      • With customer's consents （有许可）
      • Without permissions （没有许可）
        • Obligatory disclousure (法定责任）
          • money laundering,terrorism (恐怖主义），drug trafficking
          • disclosure,process of law,court order or summons (召唤）
        • Voluntary disclosure （自愿披露）
          • Public interest (公众利益）-fradulent activities
          • Protect a member's interest (股东利益）
          • Authorized by statue/law
          • Non-governmental bodies-crime or civil wrong (民事）
    • Professional competence and due care (专业胜任能力，尽责）
      • knowledge and skill, accourdance with professional standards
    • Objectivity (客观）
      • not allow bias
        • Independence (独立）
          • Independence of mind (professional skepticism)怀疑态度
          • Independence in apperance-safeguards applied
    • Professional behavior (专业行为）
      • comply with law
  • Five ethical threats (道德威胁）
    • Self-interest (自身利益）
      • Gifts and hospitality (礼物，款待）从中获益
        • Thrests：indebted （受惠的）
          • Safeguards: Trivial,inconsequential(不重要）
          • Approved by partner
      • Overdue fees (欠钱不还）
        • Threats: regard as loan
          • Safeguards: not perform any further work (终止服务）
          • arrangement for payment (约定）
      • Contigent fees (或有费用）
        • Threats :利益趋于一致
          • Safeguards : not permitted
      • High percentage of fees /Fee dependency (高额占比收费）
        • Threats：
          • Safeguards: client exceed 15% of firm total fees for two consecutive years (连续两年）
          • communicate
          • pre-issuance or post-issuance (事前/事后审核是否高额收费）
          • resign of non-audit service
      • Loans and guarantees (贷款和担保）-bank
        • Threats： normal course of business
          • Safeguards:
      • Owning shares /financial interests （持有股票）
        • Threats：
          • Safeguards: immediate family, must dispose
      • Pontential employment with an audit client
        • Threats: believe they
          • Safeguards: notify the firm ,Remove
      • Business relationship (商业关系）
        • Threats： joint ventures (合资）
          • Safeguards: removed
      • Recruitment services (招聘服务）
        • Threats： self-interest ，familiarity
          • Safeguards：
        • management responsibilities
    • Self-review (自我评价）
      • Bookkeeping and Internal audit (记账，内审）
        • Threats:
          • Safeguards: cannot provide
      • Temporary staff assignments /Secondment (借调）
        • Threats：
          • Safeguards: Staff may be loaned to client
          • Secondment period is short
          • management responsibilities
          • not a menber of audit team
          • Remove/rotate
      • Tax services
        • Threats: tax advice
          • Safeguards: can nnot provide
      • Advisory/Consulting service
        • Threats: IT services, Valuation services,Corporate finance services
          • Safeguards: use professionals who are not members of the audit
    • Advocacy (过度推介）
      • Represent/ on behalf (代表客户）
        • Threats: Representing client in court
          • Safeguards: shall not provide
        • Negotiating on the client's behalf
    • Familiarity (亲密关系）
      • long close symapthetic
      • Long association of senior person (长时间高level)
        • Therets:
          • Safeguards: no more than 7 years with a minimum break of 2 years (7+2)
      • Family and other personal realtionship
        • Threats:
          • Safeguards：remove
      • Audit staff leave the firm to join the client
        • Threats：
          • Safeguards: Rotate the related individual (换掉熟悉的人）
    • Intimiidation (外在压力）
      • Actual or perceived pressures
        • Threats：litigation (诉讼）
          • Safeguards: decline or resign (拒绝)
        • removal
        • not being awarded
        • Overdue audit engagement services fees(欠审计费）
    • Safeguards to offset the threats (见招拆招）
      • Politely decline (拒绝）
      • Rotation
      • Different partners
      • Separate teams
      • Resign or reject
      • other professional accountant (其他专业人士帮忙）
    • Questions
  • Conflict of interest(利益冲突）
    • Between members and client interests
      • Firm should not accept
    • Between the interests of different clients
      • direct competiton, sensitive information
      • acceptance or continuance of an engagement would,safeguards, prejudice the interests
    • Safeguards include：
      • Notify ,obtain their conset (获取同意）
      • Separate teams (不同团队）
      • Strict physical separation of such team, secure data filing, password protection
      • Clear guidelines
      • Confidentiality agreements (保密协议）
      • Regular review/monitor
      • Advising one or more clients

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