...Guidance for audit committees Reviewing auditor independence November 2003 The Combined Code on Corporate Governance – July 2003 C.3 Audit Committee and Auditors Main Principle: The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors. Code provisions C.3.1 The board should establish an audit committee of at least three, or in the case of smaller companies two, members, who should all be independent non-executive directors. The board should satisfy itself that at least one member of the audit committee has recent and relevant financial experience. C.3.2 The main role and responsibilities of the audit committee should be set out in written terms of reference and should include: • to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them; • to review the company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors, or by the board itself, to review the company’s internal control and risk management systems; • to monitor and review the effectiveness of the company’s internal audit function; • to make recommendations to the board, for it to put to the shareholders...
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... Directors 2. Directors’ Remuneration 3. Shareholders 4. Accountability and Audit Below are the guideline set for Directors. 1. DIRECTORS I The Board Every listed company should be headed by an effective board which should lead and control the company. II Board Balance The board should include a balance of executive directors and non-executive directors (including independent non-executives) such that no individual or small group of individuals can dominate the board’s decision making. III Supply of Information The board should be supplied in a timely fashion with information in a form and of a quality appropriate to enable it to discharge its duties. IV Appointments to the Board There should be a formal and transparent procedure for the appointment of new directors to the board. V Re-election All directors should be required to submit themselves for re-election at regular interval and at least every three years. 2. DIRECTORS’ REMUNERATION I The Level and Make-up of Remuneration Levels of remuneration should be sufficient to attract and retain the directors needed to run the company successfully. The component parts of remuneration should be structured so as to link rewards to corporate and individual performance, in the case of executive directors. In the case of non-executive directors, the level of remuneration should reflect the experience and level of responsibilities undertaken by the particular non-executive concerned. II Procedure Companies...
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...affected the incidence of lawsuits against CPAs in recent years. a. “Growing awareness of the responsibilities of public accountants by the users of financial statements. b. An increased consciousness on the part of the SEC for its responsibility for protecting investors’ interested c. The complexity of auditing and accounting functions caused by the increasing size of businesses, the globalization of business, and the complexities of business operations d. The tendency of society to accept lawsuits by injured parties against anyone who might be able to provide compensation, regardless of who was at fault, coupled with the joint and several liability doctrine e. Large civil court judgments against CPA firms awarded in a few cases, encouraging attorneys to provide legal services on a contingent-fee basis, which offers the injured party a potential gain when the suit is successful, but minimal losses when it is not. f. Many CPA firms being willing to settle legal problems out of court in an attempt to avoid costly legal fees and adverse publicity, rather than pursuing resolution through the judicial process g. The difficulty judges and jurors have understanding and interpreting technical accounting and auditing matters.” (Arens, Elder, & Beasley, 2012) 10. Compare and contrast traditional auditors’ legal responsibilities to clients and third-party users under common law. How has that law changed in recent years? a...
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...over the audit of Smackey Dog Foods, Inc. Solution: The SEC (Securities and Exchange Commission) has substantial influence on the audit of Smackey Dog Food, Inc. This can be seen in the audit standards that have to be followed by the established independence of the auditors involved in the Smackey audit. In the audit of public listed companies which includes Smackey, the auditors need to observe several principles. Independence is one of the six principles exhibited by the AICPA and the others include responsibilities such as the public interest, integrity, objectivity and independence, due care, and scope and nature of services. An audit team is required to be objective and independent with regard to professional responsibilities and by being independent in fact and appearance when providing auditing and other attestation services. Under the Sarbanes – Oxley, auditors have to be objective and independent otherwise legal sanctions can be pursued and incurred. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: The following are several essential activities involved in the initial planning of an audit and how they are specifically related to Smackey Dog Food, Inc. : 1. First understand the client’s business and industry. The audit firm can get the full benefit of its experience in auditing other food manufacturers in planning and doing the audit for Smackey...
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...response to several major corporate and accounting scandals; two of the most infamous cases are Enron and WorldCom. This research paper will focus on the analysis of four issues and discuss how the Sarbanes-Oxley Act affected the following subjects: A. 1. Audit committees of public company board of directors responsibilities since SOX 2. Sarbanes-Oxley section 404 on internal control 3. The accuracy of public company financial statements and the cost of capital for public companies 4. The main advantages and disadvantages of Sarbanes-Oxley Act B. Can legislation guarantee the accuracy of public company financial statements? Why have previous laws failed? Why CEOs and CFOs are paying so much attention to this law? Audit Committees of Public Company Board of Directors Responsibilities since Sarbanes-Oxley Act Since its enactment, the Sarbanes-Oxley Act (SOX) has significantly increased the authority and responsibilities of audit committees and the board of directors in overseeing their companies’ financial reporting processes (American Institute of Certified Public Accountants [AICPA], 2005). The board of directors and its audit committee are responsible for overseeing the actions of management. A proactive audit committee and board of directors promotes the likelihood of preventing, deterring, and detecting fraudulent financial reporting (2005)....
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...[pic] Case Analysis The COLLAPSE OF BARING BANK (Individual Assignment) BU 041 Why Corporate Social Responsibility Matters Name: Ou Yang Ning Xiao Term: January 2012 Lecturer: Mr. Issac Leung Due Date: 29th February 2012 Words count: 2133 words TABLE OF CONTENT Executive Summary-----------------------------------------------------Page 3 Introduction-------------------------------------------------------------- Page 4 CSR Problem within the Barings Bank----------------------------- Page 5 FIVE Acts to Prevented Leeson from Destroying the Bank---- Page 7 Why SOX not Prevent the Fraud------------------------------------ Page 9 How monitor the ethical standard----------------------------------- Page 10 Conclusion---------------------------------------------------------------- Page 11 Reference----------------------------------------------------------------- Page 12 Executive Summary This report is through the case analysis about the collapse of Baring Bank, to talk about how the corporate social responsibility influences a company. Through the related CSR problems in Baring bank and trying to find what matters that the organization lack of. In addition to know more about how CSR effect the global business environment, depends on the Sarbanes-Oxley Act, the report talk about the five acts can possibly prevented Leeson to destroy the company. And also discuss why the SOX act is not effective which lead...
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...114 (Objectives 11, 13, 15) the following questions deal with audits by CPA firms. 14. Choose the best response. A. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? 1) It is difficult to prepare financial statements that fairly present a company’s financial position, operations, and cash flows without the expertise of an independent auditor. 2) It is management’s responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements. 3) The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements. 4) Itisacustomarycourtesythatallstockholdersofacompanyreceiveanindependent report on management’s stewardship of the affairs of the business. B. Independent auditing can best be described as 5) A branch of accounting. 6) Adisciplinethatatteststotheresultsofaccountingandotherfunctionaloperations and data. 7) A professional activity that measures and communicates financial and business data. 8) A regulatory function that prevents the issuance of improper financial information. C. Which of the following professional services is an attestation engagement? 9) A consulting service engagement to provide computer processing advice to a client. 10) An engagement to report on compliance...
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...Introduction to Accountant Responsibility Essentially, accountants have a responsibility a number of parties, with the major parties in this case being the government, clients and third parties. In today’s capitalist society, the accounting profession is deemed to be a common and important feature. Discussing the responsibilities accountants have to the three parties identified above would, therefore, certainly be a prudent and logical move. Responsibility to Clients To begin with, accountants have a responsibility to keep client information confidential. If an accountant discloses confidential client information to a third party, such an accountant would be deemed to have violated Rule 301. The said rule, in simple terms, states that “a member CPA shall not disclose any confidential information without the specific consent of the client” (Perkins, 2004). In that regard, therefore, an accountant must obtain the consent of the client before disclosing information which could be regarded confidential. The said consent could be in writing. It should, however, be noted that an accountant cannot be deemed to have violated Rule 301 if the information disclosed already happens to be in the public domain. Similarly, an accountant cannot be held liable for the violation of client confidentiality if disclosures of client information are made pursuant to proceedings of a legal nature. Yet another critical responsibility of accountants to their clients has got to do with exercise...
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...LITERATURE REVIEW 6 a. Introduction 6 b. The Need for an Audit 7 c. Risk of fraud 8 d. The Auditor-Investor ''Expectation Gap'' 9 e. Auditing Profession and Challenges 9 f. Public opinion 10 g. Family or Personal Relationship 10 h. Integrity 11 i. Inherent limitations of an audit. 11 j. Responsibility of Auditors to Third Parties – Case Law 12 k. International, Assurance Auditing, Standards Board (IAASB) 14 CORPORATE FRAUD CASES 16 CASE STUDY: 21 CONCLUSIONS………………………………………………………………………………24 REFERENCES……………………………………………………………………………..….25 SUMMARY OF TERMS ISA: International standards of Audit KPC: Kenya Pipeline Company IAASB: International Assurance Audit Board IFAC: International Federation of Accounting USD: United States Dollar KCB: Kenya Commercial Bank BCCI: Bank of Credit International SEC: Securities and Exchange Commission ABSTRACT The way in which auditors perform their duties and the auditing profession in general raises questions and puts the auditors on the spotlight from clients who rely on their reports. Questions on whether the public trust the way auditors perform their secondary duty of detecting errors and frauds, the reliability, completeness and accuracy of their auditing reports have been raised. The research focuses on; Management and auditors’ responsibility for its prevention and detection of fraud, the auditor’s responsibility for reporting fraud to management. The primary responsibility for prevention and detection of errors and irregularities...
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...Audit Process Letter Laura Sferra ACC/546 November 23, 2015 Allen Foster Mrs. Susan Right Senior Partner Anderson, Olds, and Watershed 1 Shoe Street New York, NY. 90001 Dear Mrs. Right, Mr. Lancaster, President of Apollo Shoes, has expressed his satisfaction with the services that our firm offers and would like to continue with a full audit. Because our client does not want our firm to talk to the predecessor auditor, I recommend accepting a prospective engagement after I perform an investigation by gathering information about our client's reputation and background. Client acceptance and continuance procedures are the foundation of the risk assessment process (SAS No. 8). Upon acceptance of our client, I am confident that we will be able to move forward under the AICPA auditing standards to determine that the financial reporting framework is appropriate. My objective is to plan the audit so that it is conducted efficiently and effectively, in accordance with Generally Accepted Auditing Standards. I will take into consideration the preliminary planning activities such as the client acceptance, ethical position of our audit firm and our understanding of the entity and its environment, including its internal control, to develop an effective and efficient overall audit strategy that will appropriately respond to assessed risks. Our engagement letter, will include the timetable of fieldwork, the scope and duration of...
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...International Inc. 1. Who has the final responsibility for the integrity of a SEC registrant's internal controls: its audit committee its management team or its independent auditors? Explain The management has the final responsibility for the authenticity of internal controls. The client prepares the financial statements and the management makes certain claims or assertions about these numbers. The auditor's validate the management's assertions by identifying audit objectives, which are the auditor's version of assertions on the financial statements. The auditors are hired by the audit committee, which is comprised of key members with financial expertise and not the management. The audit committee relies on the management to run the daily operations of the business, and maintain quality and integrity of the accounting and reporting practices, internal controls, and financial statements. The management is also responsible for legal and regulatory compliance, the auditors’ qualifications and independence, and the performance of the company’s internal audit function and independent auditors. The audit committee is responsible for the oversight of all of the above management responsibilities. Other responsibilities of the audit committee include: a) Monitoring choice of accounting policies and principles and internal control process. b) Overseeing the financial reporting and disclosure process, the performance of the internal audit function and of the regulatory compliance...
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...all the company financial records in order to make sure its accurate and reliable. Therefore, the auditors must maintain independence in audit process because they will have to express their opinions of fairness about the company’s financial position. According to GAAP, independence section states that all the auditor must maintain independence in mental attitude in all matters relating to audit. It’s also defined as independence in fact and appearance. In addition, independence standards for public companies are currently a strong combination of announcement by AICPA and the SEC and the legal requirements of the Sarbanes-Oxley Act of 2002, as well as being enforced and interpreted by the PCAOB. Failing to perform independence audit services will brings many negative consequences to the firms because it affects the fairness of auditor’s opinion as well as considering as unethical act. This document will use Enron and Arthur Andersen independence case to discuss more about the important of being independence during audit process and its serious consequences if failure in providing in independence audit work, as well as auditors’ responsibilities. Enron Corporation was an American energy, commodities and services company, which filed bankruptcy at the end of 2001. Arthur Andersen, a big accounting firm that was responsible for Enron’s audit process, was found guilty on federal charge a year later after Enron filed its bankruptcy because it obstructed by destroying thousand...
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...Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. Solution: The SEC does not have direct influence over the audit of Smackey Company because, Smackey is not a public held organization, they do not have assets in excess of $10 million, and they do not have over 500 stockholders; which are the requirements for public and privately held companies. The SEC does have indirect influence over the audit because all companies, whether public or private are required to comply with General Accepted Accounting Principles (GAAP) and the SEC plays a significant role in influencing these standards. The auditors, while not bound by SEC rules they are required to obey specific audit rules and guidelines as outlined under the the American Institute of Certified Public Accountants (AICPA). The AICPA is responsible for establishing auditing and attestation standards for private companies in the United States and for enforcing a code of professional conduct for its members. The code is comprised of six principles that the auditors must adhere to. The principles are: responsibilities, the public interest, integrity, independence and objectivity, due care, and the scope and nature of services. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: During the initial planning of the audit of Smackey Dog Food, the auditors should discuss the...
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...Journal of Finance and Accountancy The Effect of the Sarbanes-Oxley Act on Auditors’ Audit Performance Tae G. Ryu Metropolitan State College of Denver Barbara Uliss Metropolitan State College of Denver Chul-Young Roh East Tennessee State University ABSTRACT The issue of audit reporting for financially distressed firms continues to be of interest to the public and to legislators. Previous studies have consistently shown that auditors fail to issue going-concern opinions to more than half of bankrupt firms one year prior to bankruptcy. The Enron and Arthur Andersen failures in late 2001 and early 2002, respectively, led to the enactment of the Sarbanes-Oxley Act (SOX) in July 2002. Audit firms now claim that they have become much more conservative with respect to client retention and acceptance decisions because the risks associated with auditing increased significantly after the enactment of the SOX. The primary purpose of this study is to provide a basis for a proper evaluation of auditors’ performance. We conducted performance comparisons between the pre- and post-SOX periods. Although auditors are now expected to use a more vigorous audit process in deciding whether to issue going-concern or other qualified opinions to financially distressed firms, our preliminary results show that there is no significant difference between the two periods. Key words: Audit Decision, Going-Concern, Opinion, Z-score, Industry Failure Rate The Effect of Sarbanes Oxley...
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...Gemma Wood and Lauren Hulme, Richard, Wood and Hulme LLP (“RWH”) is a financial services firm offering audit and taxation services to its clients with a mission of delivering excellent service and improving clients’ internal controls. Being a “team player” is an essential trait of a RHW employee because client audits are completed by teams. The client fee is flat, so the more efficiently and effectively the team members’ work, the higher the margins the firm realizes. The firm does not tolerate those with poor teamwork behaviors as evidenced by the fact that RWH has terminated only a handful of employees since the firm’s inception, and those terminations were mainly because those individuals were not able to work effectively in teams. The case is set in the Fall of 2008 at the height of the North American financial crisis and at a time when some of RWH’s clients are filing for bankruptcy and others are demanding reductions in audit fees. During this difficult economic time, RWH is opting to maintain existing staffing levels and as a result is losing money. However, RWH views an event scheduled to occur in 2011, the conversion of Canadian financial reporting standards from GAAP to IFRS, as an attractive business opportunity and wants to maintain its current staffing level to take advantage of this future opportunity. During the Fall of 2008, RWH commenced the audit for Spector Industries Limited (“Spector”), an important client not due to the revenue it produces for...
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