CHAPTER 2:

The Rules & Who Sets Them

Hello Guys
Lets start with chapter 2. As you know, this chapter is not focused for exams. But as an ACCA
member, you should have a sound knowledge on audit rules.

Conduct of Audit is governed by three set of rules.

Codes of ethics

Auditing Standards (as in ISAs)

Company Law

Q: What is the Role of IFAC?

A: IFAC (The International Federation of Accountants) has the following role:

Serve the Public interest

Strengthen the accountancy profession globally

By establishing professional standard, contributing to the development of worlds economy

Q: What is ISA?
A: ISA (International Standards on Auditing) are some international standards set by IAASB
(International Auditing & Assurance Board). There are more than 30 ISAs.

IFAC

IAASB (subsidiary of IFAC)

ISAs (set by IAASB)

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Every Plc (public ltd company) are bound by law for audit. But in the case of Pv Ltd, this is not a
must. However, small and owner managed companies are often exempted. E.g. in Uk, if the
company’s turnover is less than £5.6, audit is exempt.

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Auditors Duties:
Okay. Let’s say. You are an auditor. Just think. Don’t mix yourself with your book. What would be
your fundamental or basic duties as an auditor?
Isn’t that to form an opinion on the financial statements whether they show a true and fair view and
prepared in accordance with the applicable reporting framework?
And after determining the opinion what you should do? Yes!! It’s issuing an Audit report.

Q: Who may act as Auditor?

A: There are some criteria to act as an auditor or audit firm like:

A member of recognised supervisory body (e.g ACCA) & allowed by that body to work as
an auditor. In the case of audit firm, it should be controlled by these members of
recognised supervisory body.
Or,

Someone direct authorised by the state.

Q: Who may not act as Auditor?

A: You just think, if you are asked about your parents or child that how are they? What you going to
say? The best in the world. Right? Simply like that. Those who are involved with managing the
company or somehow personally related to this company can not be an auditor of that company.
It includes,
o An officer (director or secretary) of the company
o An employee of the company
o A business partner or who has personal connection with the company.

Suppose I have a telecom company. You are my brother and a qualified ACCA and has the
authorisation to conduct audit. I have called you to become my Auditor. So what do you think? You
can be my company’s Auditor or not?
Absolutely right! You can never be my company’s auditor as you are connected to me.

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Q: How are the auditors are appointed any removed?

A: Auditor are appointed by members (shareholder) in the AGM (Annual General Meeting). This
appointment runs from the end of AGM to next end of the AGM. Directors also can appoint their
first Auditor which is known as Casual Vacancy. But this should be approved by member in the
next AGM.

Auditors are removed in two situations.

a) when an auditor audit of a company for long time. Suppose you audit a company from last 7
years. What happens than? May be you are familiar with them personally. So there would be
question arise from the members about your independence.
b) when members feels that there are doubts about your (auditor) abilities to continue your duties
effectively.

But in practice, when auditor and management can’t work together, auditor usually resigns.

So if you qualify are you allowed to be an auditor? Yes! because ACCA is a recognised body and
authorized by the RSB (Recognised Supervisory Body).