Topic A2 Statutory Audits.docx
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Topic A2 Statutory Audits.docx
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TopicA2StatutoryAudits
Theauditorsmustkeepup-to-datewiththeregulatoryframework.Thereareincreasingdemandsonauditors,forexampletoseekoutfraudandtoprovidesupporttocomplywiththecorporategovernancerequirements.Theexternalauditorshavedutiesandrightsundernationallegislation.
Anessentialfeatureoftheprotectionofthepowersoftheexternalauditorsistherequirementforacompanytoappointanauditorinthefirstplaceandsecondlytheauditorsmustbegivensomerightsregardingtheirremovalfromoffice.
[知识点关联]
Auditor在任命和解除时的ethicalissue:
·appointment
·Removal
·Resignation
·Retirement
1.Appointment
Auditorsarecommonlyappointedbyshareholders,directorsorsometimesbyasupervisoryboardorauditcommittee.
Asimplemajority,2/3ora75%majoritymayberequiredtoappointauditors,dependingonlegislationandthecompany’sconstitution.
Generally,auditorsareappointedforatermofoneyear,althoughthisisoftenextended.
Theauditor’sremunerationisgenerallyfixedwiththedirectorsortheauditcommitteeandtheauditorshaveacontractwiththecompany.
独立性问题(Independence)这是Auditor考虑是否接受任命首要考虑的ethicalissue.
是assuranceclient和auditor双向选择的过程
具体需考虑的问题在讲解ethicalissue时再进行详细解释
2.Removal
2.1background
Itisuncommonforauditorstoresign,ortoberemovedbytheirclientbeforetheendoftheirtermofoffice.Ifauditorsdisagreewiththeirclientsoverfeesoraccountingpolicies,theysimplydonotofferthemselvesforre-appointmentwhentheircontractisfinished.Removalorresignationbeforetheendoftheauditcontractimpliesseriousdisagreementbetweenauditorandclientandisoftenaccompaniedbylitigation.
2.2Removalprocedure
Itisgenerallymoredifficulttoremoveauditorsthantoappointthem,asshareholdersand/ordirectorsneedtobeproperlyinformedastothenatureoftheproblem.
[请神容易送神难]
1.Simplemajority2/375%requiredalongwithspecialnotice
2.Auditorsgiventherighttomakewrittenrepresentationsandtospeakatthemeetingatwhichitisproposedtoremovethem
3.Auditorstoberequiredtomakesomesortstatements:
statementofcircumstances/statementofnocircumstances[alsorequiredwhenremoval,resignationornottoofferthemselvesfore-election]
4.Removalsmustusuallybenotifiedtoregulatoryauthorities.
2.3Purpose
Theseprovisionsarenecessarytoensurethatauditorsarenotremovedforimproperreasonswithouttheknowledgeofshareholders,andthatauditordonotseektoavoidtheirresponsibilitiesby‘goingquietly’,whereproblemsarise,withoutinformingtheshareholders.
Theclientmaywellbeinbreachofcontractindismissingtheauditor,andtheauditormaysue.[客户单边解除合约,客户违约]
3.Resignation
Resignationusuallyrequireswrittennoticebytheauditortothecompanyandtotheregulatoryauthorities.Italsorequiresastatementofcircumstancesasdiscussedaboveandtheauditorisagaingenerallypermittedtospeakandcommunicateinwritingwithshareholdersandothers.
Insomecountriestheauditorisallowedtorequirethecompanytocallameetinginordertodiscussthereasonsfortheresignation.
Thistime,itistheauditorwhomaybeinbreachofcontract,andwhomaybesuedbytheclient.
4.Advantagesandlimitationsofstatutoryaudits
4.1Advantage
Theaudit:
Increasethecredibilityofpublishedfinancialstatements
Confirmstomanagementthattheyhaveperformedtheirstatutorydutiescorrectly
Providesassurancetomanagementthattheyhavecompliedwithnon-statutoryrequirements(e.g.corporategovernancerequirements)
Providesfeedbackontheeffectivenessofinternalcontrolsandgivesrecommendationsforimprovement.Thiswillassistmanagementinreducingriskandimprovingtheperformanceofthecompany.
Evenwhereanauditisnotrequired,duetostatutoryexemptionlimits,anauditwillincreasethecredibilityofpublishedfinancialstatementsforpotentiallenders(whomay,inanycase,requireanaudit)
4.2Limitations
Themainlimitationsofanauditareseenasbeing:
·Itscost
·Thedisruptioncausedtoacompany’sstaffduringtheaudit
5.Auditors’rightsandduties
Theauditorhasvariousdetaileddutiestoperforminordertoachievetheoveralldutytoreportonthetrueandfairview.Inordertofulfilltheseduties,variouslegalrightsaregiventotheauditor.
Duties:
·Toreporttotheshareholdersofdirectorsonwhetherthefinancialstatementsofthecompany(orgroupofcompanies)showa‘trueandfairview’or‘presentfairly’andhavebeenproperlypreparedinaccordancewithlegislation;
·ToconsiderwhethertheinformationintheManagementReportincludedwithintheannualreportisconsistentwiththeauditedfinancialstatements;
·Togivevariousdetailsrequiredbylegislationintheirreport,ifnotgiveninthefinancialstatementsthemselves.Thesecommonlyincludedetailsoftransactionswithdirectorsandofthedirectors’emoluments;
·Toformanopinionastowhether:
◎Properaccountingrecordshavebeenkeptbythecompany
◎Theprofitfortheyearandbalancesheettotalsarefairlystated
◎Suchinformationandexplanationsastheauditorsthinknecessaryfortheperformanceoftheirdutieshavebeenreceivedfromthecompany’sofficers
·Toreportonanyviolationoflaworthecompany’sconstitution;
·Tomakea‘statementofcircumstances’whentheyceasetoholdofficeforanyreason
Rights:
·Therightofaccesstothebooks,records,documentsandaccountsofthecompany;
·Therighttorequirefromtheofficersofthecompanysuchinformationandexplanationsastheythinknecessaryfortheperformanceoftheirduties
·Therightto:
◎Receiveallnoticesrelatingtoanygeneralmeetingofthecompany
◎Attendanygeneralmeeting
◎Beheardatanygeneralmeetingonanypartofthebusinesswhichconcernsthemasauditors
·Therighttobesentbythecompanyacopyofanoticeofintentiontoproposetheirremovalorreplacementandrighttomakewrittenororalrepresentations(thisisinadditiontotheirdutytomake‘statementofcircumstances’)
·Therighttorequirethedirectorstorequisitionageneralmeetingontheirresignationandtoattendandbeheardatthatandanyothermeetingwhichconcernsthem
·Therighttorequirethedirectorstorequisitionageneralmeetingontheirresignationandtoattendandbeheardatthatandanyothermeetingwhichconcernsthem
HistoryExamQuestionsAnalysis
(B-Q5/D2005)
5.YouaretheauditorofLALDLtd.Themainactivityofthecompanyistheconstructionofbuildingsranginginsizefromindividualhousestolargeofficesandblocksofflats.
UnderUKlaw,LALDmustaddValueAddedTax(VAT)toallbuildingssoldandtheypaythistaxtothegovernmenteachquarter.
ThelargestfixedassetonLALD’sbalancesheetistheplantandmachineryusedintheconstructionofbuildings.Duetothevarietyofdifferentassetsused,fourdifferentsub-classesofplantandmachineryarerecognised,eachwithitsownrateofdepreciation.
Youarenowreachingtheendoftheauditworkfortheyearended30September2005.Therearetwospecificmatterswhereadditionalauditworkisrequired:
(i)TheVATforthequarterendinginAugustwasnotpaidtothegovernment.Thisappearstohavebeenanaccidentalerrorandtheamountinvolvedisnotmaterialtothefinancialstatements.
(ii)Thecomplicatedmethodofcalculatingdepreciationforplantandmachineryappearstohaveresultedindepreciationbeingcalculatedincorrectly,withtheresultthatdepreciationmayhavebeenunder-providedinthefinancialstatements.
Required:
(a)ExplaintheadditionalauditproceduresyoushouldtakeregardingtheaccidentalunderpaymentofValueAddedTax. (7marks)
(b)Explaintheadditionalauditproceduresyoushouldtakeregardingthepossibleunderprovisionofdepreciation. (7marks)
(c)Youhavedeterminedthattheunder-provisionismaterialtothefinancialstatementsandthereforeneedtoqualifytheauditreport.Thedirectorshaveinformedyouthattheydonotintendtotakeanyactionregardingtheunderprovisionofdepreciation.TheyalsodisagreewithyouractionandhavethreatenedtoremoveyourcompanyastheauditorsofLALDunlessyouagreenottoqualifyyourreport.
Required:
ExplaintheproceduresthatthedirectorsmustfollowinordertoremoveyourcompanyastheauditorsofLALD. (6marks)
(20marks)
(ii)Reviewengagements:
workperformedandassuranceprovided
Reviewengagementsprovideamoderatelevelofassurancethatmaybeexpressedasnegativeassurance.Theyconsistprincipallyofanalyticalproceduresandinquiriesmadebythereviewer.Thereviewerisnotrequiredtounderstandtheaccountingandinternalcontrolsystem,norisherequiredtocorroborateexplanations,performdetailedtestsonmaterialfinancialstatementassertionsortoconductagoingconcernreview.
(iii)Addressee
(1)Auditreportsaregenerallyaddressedtotheshareholdersorotherownersofcompanies,reviewreportsareaddressedtodirectorsorothermanagement.Thisisbecausemostauditengagementsarestatutoryauditengagements(wheretheauditorreportstoshareholdersonthefinancialstatementspreparedbydirectors).
(2)Statutoryauditreports,particularlythoseoflargecompanies,areoftenmadeavailabletothegeneralpublicbecausetheyarefiledwiththefinancialstatementsatapublicregistryorareotherwisemadeavailabletopotentialinvestorsandotherinterestedstakeholders.
(3)Reviewreportsaregenerallynotmadeavailabletothegeneralpublic.Theyaregenerallypri
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