Summary
Summary Corporate Governance 2 Notes
- Course
- Institution
Comprehensive set of notes on the full year of Corporate Governance 2 coming from lectures, tutorials, and the textbook.
[Show more]
1 review
By: nigelmushure • 2 year ago
Seller
Follow
carlyhillestad
Reviews received
Content preview
Corporate Governance 2 (ACC3022H)Introduction to CG2
Auditors Purpose
- An auditor is a firm/individual who performs an audit; their purpose is to provide
assurance for financial statements in line with the underlying standards.
The shareholders appoint the directors and the auditors, who then issue an audit report back to
the shareholders.
Levels of Assurance
- Reasonable assurance is the level of confidence that an auditor, exercising professional
skill and care, reaches when the financial statements are not materially misstated; it is
the highest level of assurance.
- Limited assurance is a moderate level of assurance; it is where the auditor only
performs a set number of procedures.
The Audit Process
1. Pre-engagement activities/preliminary stage
o Auditor decides whether to accept a new client or retain an existing one.
2. Planning stage
o Auditor identifies and assesses the risk of material misstatement and plans how
to respond to them.
3. Risk response stage
o Auditor responds to the risk of material misstatement.
4. Evaluating and concluding stage
o The auditor expresses an opinion in a report of the fair presentation of the
financial statements.
- This process makes up the audit report.
- Slide with relevant ISAs for each stage.
Objective of an Audit
- To obtain reasonable assurance about whether the financial statements are free from
material misstatement, whether due to fraud or error, thereby enabling the auditor to
express and opinion on whether the financial statements are prepared, in all material
respects, in accordance with an applicable financial reporting framework.
,Material Misstatement
- Something in the financial statements that was recorded incorrectly, that can impact the
users of the financial statements.
Fraud vs. Error
- Fraud is intentional whereas errors are unintentional.
Benefits of being Audited
- Financial statements are accepted as reliable by third parties.
- SARS accepts the audited financial statements as a basis for tax calculations with less
questioning.
- The audited financial statements provide a reliable basis for the valuation of a business
or a shareholder’s interest.
- The audited financial statements are considered to provide a sound basis for the
settlement of claims. (Credibility of financial statements promotes business trust and
promotes business transactions.)
- The committing of fraud by employees and/or management is deterred.
- The auditor’s knowledge of business and finance puts him in the position to give
valuable tax and business advice. This may lead to the client’s business becoming more
efficient and effective leading to greater profits.
Pre-engagement Activities
- Performed by a prospective auditor to determine if they want to have a relationship
with the audit client.
- Can be a new client or an existing client
o New: not familiar with operations and personnel; certain pre-engagement
activities are unique to new clients; must assess independence.
o Existing: experience from previous audits; reassess independence.
- Consists of:
o Client acceptance considerations
o Pre-conditions for audit – ISA 210 (4)
o Agreement on audit engagement terms.
- The audit will only commence if all of these are successful.
,Client Acceptance Considerations
(Re)evaluate management/director integrity and competence
- Compliance with laws & regulations (Companies Act; CPC)
o Possible instances of fraud/alleged fraud or scenario specific (eg. environmental
regulations).
- Assess managements commitment to sound principles of corporate governance.
- Adherence to IFRS; follows good corporate governance (King IV)
- Must ensure the auditor is eligible to perform the audit in terms of the APA.
(Re)assess auditor independence
- Audit firm/auditor independence and objectivity in terms of CPC (& apply safeguards if
necessary).
(Re)assess if the auditor has sufficient time, resources and competence to perform audit
- Can be affected for businesses with:
o Complex business operations or drastic change in existing business operations
o Entity operates in a very regulated industry
- Tight audit deadline
- New accounting standards
- Sufficient manpower to perform the audit
- Use of experts required.
(Re)assess whether the audit firm wants to be associated with the client
- Reputational risk: associated with industry
- Not prohibited to do the audit (perhaps due to legal reasons).
- Client integrity
(Re)assess and document whether the audit firm’s criteria for acceptance/renewal of
acceptance for professional relationships has been satisfied.
Requirement: communicate with previous auditors (need client’s permission first)
- Only applicable if this is a new client
- Any reason why the client should not be accepted; preferably in writing
- It is important to consider the competence of previous auditors as the auditor will have
to rely on opening balances audited by the previous auditors.
, If existing client, the audit firm should:
- Successfully complete and document the results of the firm's criteria for continuing
appointment.
- Discussed the terms of engagement with the client and update the engagement letter.
If new or existing client:
- Discuss the terms of engagement with management and prepare (update) the
engagement letter.
- Providing a fee estimate is allowed provided the fee is based on:
Time to complete the audit
Complexity of the audit
Skill of staff/experts needed.
The level of training and experience
Other considerations
- Clients ability to pay the audit fee
- Assess/consider any conflict of interest regarding existing clients.
- Opportunity for other departments within the audit firm to provide non-audit services
o Although this may lead to some independence/Co Act issues.
- Likelihood of retaining the client for more than 1 year (for new client only).
- Whether all Companies Act requirements have been complied with prior to our
appointment
Engagement Letter
- Document containing the terms of the engagement.
- Used to confirm acceptance of the terms between the auditor, management and those
charged with governance (usually directors).
- The engagement letter is signed by the auditor and a member of management who has
authority to bind the company to its terms.
*ISAs*
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller carlyhillestad. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $8.54. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
73918 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now