Which one of the following is NOT a duty of the auditors?
A Duty to report to the government’s tax department
B Duty to report to the shareholders
C Duty to sign the auditor’s report
D Duty to report a suspicion of terrorism
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Wilson is a partner at Gyan & Co, a medium-sized firm of chartered accountants. He has been asked to give a presentation about recent developments in reporting and auditing sustainability.
Required:
Prepare notes for Wilson to use in the presentation. These should cover the following matters:
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An audit is often carried out in more than one sitting, especially when there are tight reporting deadlines. The auditors will carry out an interim audit during the period under review followed by a final audit shortly after the year end. Work at the interim audit will often include obtaining audit evidence about the operating effectiveness of controls.
(a)(i) Describe the impact on the final audit of performing work on internal controls at an interim audit.
(ii) Assuming an interim audit has taken place and work on internal controls was carried out, list the factors the auditor should consider when deciding how much more work is needed at the final audit in relation to internal controls.
Businesses may establish an audit committee to help improve corporate governance within a company. This can provide benefits to both internal and external auditors.
(b) Explain how an audit committee can benefit both the external auditors and the internal auditors of an entity.
There are similarities and differences between the responsibilities of internal and external auditors. Both internal and external auditors have responsibilities relating to the prevention, detection and reporting of fraud, for example, but their responsibilities are not the same.
(c) Explain the difference between the responsibilities of internal auditors and external auditors for the prevention, detection and reporting of fraud and error.
ISA 610 Using the Work of Internal Auditors provides guidance to external auditors on the use of internal audit work.
(d) List and explain the various criteria that should be considered by external auditors when assessing whether to take reliance from work performed by internal audit.
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(a) Contrast the role of internal and external auditors.
(b) Apex Ltd designs and manufactures luxury motor vehicles. The company employs 2,500 staff and consistently makes a net profit of between 10% and 15% of revenue. Apex Ltd is not listed; its shares are held by 15 individuals, most of them from the same family. The maximum shareholding is 15% of the share capital.
The executive directors are drawn mainly from the shareholders. There are no non-executive directors because the company legislation in Apex Ltd’s jurisdiction does not require any. The executive directors are very successful in running Apex Ltd, partly from their training in production and management techniques, and partly from their ‘hands-on’ approach providing motivation to employees.
The board are considering a significant expansion of the company. However, the company’s bankers are concerned with the standard of financial reporting as the financial director (FD) has recently left Apex Ltd. The board are delaying provision of additional financial information until a new FD is appointed.
Apex Ltd does have an internal audit function, although the chief internal auditor frequently comments that the board of Apex Ltd do not understand his reports or provide sufficient support for his department or the system of internal control within Apex Ltd. The board of Apex Ltd concur with this view. Barnes & Co, the external auditors, have also expressed concern in this area and the fact that the internal audit function focuses work on systems of internal control, not financial reporting. Barnes & Co are appointed by and report to the board of Apex Ltd.
The board of Apex Ltd are considering a proposal from the chief internal auditor to establish an audit committee. The committee would consist of one executive director, the chief internal auditor as well as three new appointees. One appointee would have a non-executive seat on the board of directors.
Required:
Discuss the benefits to Apex Ltd of forming an audit committee.
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