Section 1: Legal and other professional regulations,
ethics and current issues
1. Ethical issues and procedures (15 The second opinion may compromise the opinion of the existing auditor Client may be opinion shopping which may indicate lack of management integrity May be a threat to professional competence and due care if firm is not in possession of all the facts Audit firm may be tempted to give the opinion the client desires in order to obtain future work (Self-interest threat) Obtaining clients permission to contact the existing auditor and notifying auditor of the work to be undertaken so that your firm is in full possession of all the facts If client refuses permission must normally decline to act 2. Safeguards re fees To recognise threat: Regularly review situation as client profile changes To offset threat: The fact needs to be disclosed to the ethics partner and those charged with governance at the client and adopt appropriate safeguards where necessary. For non-listed clients an external hot review needs to be undertaken. If total fees regularly exceed 15% of annual fee income (or 10% for listed company) do not accept the assignment 3. Overdue fees 4. Actions Report to Money Laundering Reporting Officer (MLRO) within the firm, which fulfils their responsibility Report to National Crime Agency (NCA) Avoid tipping off the client So as not to prejudice legal proceedings Recommend repayment to customers Ensure included as liability not income Reasons: Representing proceeds of crime or theft; criminal offence if auditor does not report 26.Audit firms are required, by ES3, to establish procedures and policies to monitor the length of time that audit engagement partners serve as a long association with the audit engagement may create threats to auditors objectivity and independence resulting from: self-interest, self-review and familiarity. An engagement partner or other key people should be moved off the job when they have been involved with an audit engagement for: 10 years for non-listed clients 5 years for listed clients (It may be extended if the clients audit committee considers that this is necessary to safeguard the quality of the audit) A firm need to:
Apply safeguards to reduce any threats to an acceptable level
Resign from the audit if appropriate safeguards cant be applied. 38.Reasons By ES5, valuation services should not be provided for a listed company where the valuation would have a material effect on the financial statements (greater than 2% of total assets). Self-review threat is too great so that no adequate safeguards can be applied. May rely too heavily on valuations in subsequent audit May be reluctant to identify a misstatement in the valuation Management threat as may involve subjective judgement/making assumptions.
Section 2: Accepting and managing engagements
1. Professional enquiry (Relevant matters included in letter from prospective auditor to existing auditor) Unlawful acts and defaults by the client Serious doubts re clients integrity Differences of opinion between the auditor and the client Information required by auditor being deliberately withheld by client Clients reasons for change not in accordance with the facts Important differences of principle or practice behind the proposed change A statement of circumstances to be brought to attention of members 2. Rights on removal Receive notice, attend, speak and hear at the meeting where they would have been appointed, or the proposed new auditor is appointed To have a written representation notified to all members to explain why they should not be removed as auditors 3. Accepting appointment as auditors Matters to consider Whether the going concern issue likely to be present for future accounting periods Whether the going concern disclosures made were warranted Whether Meldrew will give permission to contact existing auditors Whether current auditors agree with reason given by Meldrew for not wishing to reappoint Is your firm independent from Meldrew to be able to carry out objective audit? Nature of Meldrews business Timing/resource requirements to be able to perform audit competently Procedures to follow
Discuss with directors current going concern status
Review PY account to see whether going concern disclosures were
necessary and to ascertain amount of work likely to be necessary Request permission to contact current auditors If refused, decline the appointment Write to current auditors enquiring if any matters that affect appointment of your firm as auditors If no response, consider refusing appointment Compare estimated time required with current resources to ascertain whether sufficient staff available at required times Compare estimated level of fee income with current recurring fee income to ascertain whether ethical limits likely to be breached 4. Reasons for review Consider whether work done is in line with strategy Confirm the work has been performed in accordance with professional standards and regulatory and legal requirements Confirm all significant matters have been raised for further consideration Assurance work carries duty of care to client Audit work carries duty of care to third parties/protection against litigation Audit is regulated activity and governed by ISAs