Auditors’ Rights, Appointment, Removal, Resignation and Regulation - ACCA Audit and Assurance (AA)
Summary
TLDRThis Open Tuition lecture covers the rights and duties of auditors, including access to all company records and the ability to attend and speak at general meetings. Auditors have the right to resign if they encounter issues with information access or cooperation. Their primary duty is to issue an audit report expressing an opinion on the financial statements' accuracy. The lecture also touches on the regulatory framework, including ACCA, FRC, IFAC, and other bodies, ensuring auditors maintain professional standards and independence.
Takeaways
- 🔑 Auditors have extensive rights, including access to all records of the audit client, the entitlement to all necessary information, and the ability to attend and speak at general meetings.
- 🗣️ Auditors can resign from their position, particularly if they encounter issues such as lack of cooperation or access to information, which could hinder their ability to perform a proper audit.
- 📊 The primary duty of auditors is to issue an audit report that provides opinions on whether the financial statements present a true and fair view and are properly prepared.
- 🔍 Upon resignation or dismissal, auditors are required to issue a statement of circumstances explaining why they resigned or were removed, which is crucial for shareholders and other stakeholders.
- 🔄 Auditors must be reappointed annually at general meetings, and their resignation can occur for various reasons, including the company outgrowing the audit firm's capacity or the auditor nearing retirement.
- 🚫 There is a concern that auditors might be removed by directors if they are too effective, which is why the outgoing auditors are allowed to file a statement and speak at general meetings to clarify the reasons for their removal.
- 🌐 The regulatory framework for auditors includes organizations like ACCA, FRC, IFAC, and the PIOB, which oversee qualifications, ethical standards, and the alignment of financial reporting and auditing practices internationally.
- 🏛️ The International Federation of Accountants (IFAC) works towards harmonizing financial statement preparation and auditing standards globally to ensure consistency regardless of the company's nationality.
- 🏅 To be an auditor in the UK, one must be a member of a recognized qualifying body like ACCA and a recognized supervisory body, ensuring qualifications and ongoing professional development.
- 🚫 Auditors must maintain independence and cannot be directors, employees, or business partners of a director or employee of the client company to ensure objectivity and integrity in the auditing process.
Q & A
What are the rights of auditors according to the lecture?
-Auditors have the right to access all records of the audit client, which can include Board minutes, payroll records, employee appraisals, contracts, and any other documentation. They are also entitled to all information and explanations required for sufficient appropriate audit evidence.
Are auditors allowed to attend and speak at general meetings?
-Yes, auditors are allowed to attend general meetings and they can also speak at these meetings on relevant matters.
Under what circumstances might an auditor resign during an audit?
-An auditor might resign if they are not given the right information or access to certain records, and they believe they won't be able to complete the audit properly, possibly due to attempts to hide fraud or confusion.
What is the auditor's prime duty?
-The prime duty of the auditor is to issue an audit report giving opinions on whether the financial statements show a true and fair view and whether they have been properly prepared.
What happens if an auditor resigns or is removed?
-If an auditor resigns or is removed, they must issue a statement of circumstances explaining why they resigned or were removed. This statement goes to the company's members.
Why might auditors be reappointed every year?
-Auditors have to be reappointed at every annual general meeting, where they are put up for appointment again and members vote on it.
What are some innocent reasons for an auditor's resignation?
-Innocent reasons for an auditor's resignation might include the client becoming too large or complex for the auditor's firm, or the auditor approaching retirement and wanting to reduce their workload.
What is the concern when auditors are removed?
-The concern is that auditors might be removed by the directors because they are too effective, and the directors may replace them with new ones who are more compliant.
What is the role of the ACCA in regulating auditors?
-The ACCA regulates its members by overseeing qualifications, ensuring continuing professional development, and maintaining behavioral standards. It can discipline members, including expelling them or fining them, and ensures they stay updated with current developments.
What is the purpose of the International Federation of Accountants (IFAC)?
-IFAC aims to bring the preparation of financial statements and the auditing of those statements into line internationally, so that financial statements are drawn up according to the same accounting standards worldwide.
Who can be an auditor and what are the requirements?
-In the UK, an auditor must be a member of a recognized qualifying body like the ACCA and a member of a recognized supervisory body. They cannot be directors or employees of the company and must be independent from the client.
Outlines
📜 Auditors' Rights and Duties
This paragraph discusses the rights and duties of auditors, focusing on their access to all records within an audit client's organization, including sensitive documents like Board minutes and payroll records. Auditors are also entitled to any information or explanations necessary for gathering sufficient audit evidence. They have the right to attend and speak at general meetings, allowing direct communication with company members. The paragraph also covers the circumstances under which auditors might resign, such as when directors withhold information or access to records, which could hinder the audit process and pose a risk to the auditor's reputation. Lastly, auditors have the right to ensure that corrected financial statements are circulated to shareholders if errors are discovered post-publication.
🔄 Auditor Appointment, Resignation, and Removal
Paragraph 2 delves into the process of auditor appointment, resignation, and removal. Auditors are subject to reappointment at annual general meetings, and their resignation can occur for various reasons, including the company outgrowing the auditor's capacity or the auditor nearing retirement. However, there is a concern that resignations might be due to a lack of cooperation or confidence issues with the directors. Shareholders and other stakeholders need to be aware of the reasons behind resignations to assess any underlying issues. The paragraph also addresses the removal of auditors, which can raise suspicions of the auditors being too effective, leading to their replacement. Outgoing auditors are required to file a statement of circumstances explaining the reasons for their resignation or removal. Additionally, the regulatory environment for auditors is discussed, including the role of professional bodies like ACCA, the FRC, IFAC, and the PIOB, which oversee the auditing profession and ensure adherence to professional standards.
🏛️ Regulatory Framework for Auditors
Paragraph 3 outlines the regulatory framework for auditors, emphasizing the role of various organizations in maintaining the integrity and quality of the auditing profession. It discusses the ACCA's responsibility for members' qualifications and professional development, as well as its disciplinary powers. The FRC's role in regulating financial reporting and governance in the UK is highlighted, along with the IFAC's efforts to standardize financial statement preparation and auditing standards internationally. The paragraph also mentions the PIOB, which provides broader input on the effectiveness of regulatory environments and standards from a variety of financial statement users. Furthermore, it outlines the requirements for becoming an auditor, including membership in a recognized qualifying body and a supervisory body, and the importance of auditor independence from the company they audit.
Mindmap
Keywords
💡Auditors Rights
💡Audit Evidence
💡General Meetings
💡Resignation
💡Regulatory Framework
💡True and Fair View
💡Statement of Circumstances
💡Appointment and Removal
💡Professional Qualifying Body
💡Independence
Highlights
Auditors have the right to access all records of the audit client, including board minutes, payroll records, and contracts.
Auditors are entitled to all information and explanations required for sufficient audit evidence; directors cannot withhold information due to confidentiality.
Auditors have the right to attend and speak at general meetings on relevant matters.
The general meeting is a key opportunity for direct communication between auditors and company shareholders.
Auditors may resign before or during an audit if they are not provided with the necessary information or access to records.
Resignation of auditors could be due to a lack of cooperation or potential fraudulent activities within the company.
Auditors have the right to ensure that amended financial statements are circulated to shareholders if errors are discovered.
The primary duty of auditors is to issue an audit report providing opinions on the true and fair view of financial statements.
Upon resignation or dismissal, auditors must issue a statement of circumstances explaining why they resigned or were removed.
Auditors are expected to communicate with new auditors about any significant issues or potential fraud suspicions.
Auditors must be reappointed at every annual general meeting, where members vote on their appointment.
There can be innocent reasons for auditor resignation, such as the client outgrowing the audit firm's capacity.
Shareholders and other stakeholders should be informed of the reasons behind auditor resignation to assess the implications.
Auditors may be removed by directors, raising suspicions of their effectiveness or uncovering of issues within the company.
Outgoing auditors are required to file a statement of circumstances explaining the reasons for their removal.
Auditors are part of a regulatory environment with multiple layers, including professional bodies and international standards boards.
ACCA members are regulated by ACCA, which oversees qualifications, professional development, and disciplinary actions.
The FRC is the UK's regulatory body for financial reporting and governance, ensuring standards are met.
IFAC, the International Federation of Accountants, works towards harmonizing financial statement preparation and auditing standards globally.
The Public Interest Oversight Board was established to provide external input on the effectiveness of the regulatory environment and standards.
To be an auditor in the UK, one must be a member of a recognized qualifying body and a recognized supervisory body, ensuring qualifications and ethical standards.
Auditors must maintain independence and cannot be directors, employees, or business partners of a director or employee of the client.
Transcripts
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chapter 3 is relatively short it deals
with auditors rights and duties
appointment resignation and the
regulatory framework within which they
operate
first of all auditors rights and very
important rights to access all records
in the audit client this can mean Board
minutes it can be payroll records it
could be appraiser records of employees
contracts any documentation any part of
the records at all the auditors have a
right to examine secondly they are
entitled to all information explanations
that they require in the quest for
sufficient appropriate audit evidence a
director is not allowed to say I can't
tell you because it's confidential the
argument is and of course once you open
the door to keeping some information
back claiming it's confidential
how do you know whether it's being kept
back for you know proper confidential
reasons or whether it's just the
director looking for an excuse to hide
something auditors are allowed to attend
general meetings and they're allowed to
speak at general meetings or relevant
matters if you remember the general
meeting is where all of the members are
invited and you have a big meeting
usually directors on a kind of a stage
the members all sitting in an auditorium
and the members often will vote at these
meetings but this is the one time where
there's a direct learning absolutely
direct communication possible between
the auditor who will only be sitting up
kind of often alongside the directors
but making clear that the auditor is not
a director can address directly the
members of the sea in a couple of slides
it is the members of the company its
shareholders who appointed the directors
and it is to those members and the big
monitors the members of the company the
shareholders who appointed the leading
the auditors and the auditors report to
the numbers of the company they can
receive proposed resolutions interesting
one before last there they can resign
the for model completion why would in
order to resign maybe before the start
or halfway through an audit well what
would happen if the directors were not
giving you the right information if they
were not giving you access to certain
records and so on and you know that you
won't be able to complete the audit
properly and there's danger there for
the auditor and there's a danger there
being associated with a company which is
maybe trying to bury fraud or company
which is trying to confuse the auditor
so probably better to stop and get out
even with the risk of unpaid fees than
try to hang in there and suffer perhaps
great reputational damage and then the
auditor can also have a right of
information circulated to shareholders
for example what would happen if the
financial statements came out and they
were wrong you know two months later
discovered with some error in the
financial statements a serious error
that it is possible for the auditors to
insist an amended set of financial
statements would be sent to the members
the duties of the auditors here the
prime one is to issue an audit report
giving opinions on whether the financial
statements show a true and fair view
whether the financial statements have
been properly prepared
we'll see in a moment that upon
resignation or being sacked the auditors
also must issue a statement of
circumstances this is basically saying
why they resigned or why they were
sacked and this goes to the members of
the company and also after they resigned
the auditors are supposed to talk to the
new auditors letting the new auditors
know whether there's anything that they
should know about that line to maybe
some major disagreement or some even
suspicion of fraud maybe that's why the
old auditors resigned appointment the
resignation and the removal and
appointment the auditors have to be
reappointed had every annual general
meeting so was then put up for
appointment again and for the members to
vote on that resignation auditors might
resign for what I would call innocent
purposes it might be that the client has
simply got much larger and more
complicated than the relatively small
firm of auditors can deal with maybe the
auditors kind of getting towards
retirement once they cut down a little
bit there plenty of innocent reasons for
resignation the big big don't however
the worry is that the auditors are
resigning because of some major perhaps
lack of confidence or major lack of
cooperation with the directors and it's
important for shareholders and others to
know why had the order to design this is
something some dark secret behind this
so to speak or is it a perfectly
innocent just flies me not growing us
and you needn't have to worry too much
about that that is called a statement of
circumstances the circumstances of why
you resigned
removal again the big problem is of
course you're always suspicious that
maybe the auditors are being removed by
the directors because they're too good
so the directors cut the reappoint new
ones but they would suggest that the
auditors were replaced why is that it
could be that they think the auditors
are doing a bad job that the companies
become international that the auditors
are still small and provincial there
could be a policy to change all of those
every five years every 10 years to get a
fresh set of eyes on it but always the
suspicions were being sacked or they're
being sacked because they're too good
and again the outgoing auditors the
sacked auditors if you like are entitled
to and required to file a statement a
circumstance that the company's offers
explaining the circumstances of the
removal they're also allowed to speak at
the general meeting where their term of
office would have expired so you get a
kind of last chance of telling it
straight to the members to who really
live the prime duty regulatory
environment several different layers if
you like first of all members of the
ACCA are regulated by the ACCA ACCA
looks after your qualification your
exams it insists that this continuing
professional development it looks after
behavior if you found guilty of a crime
for example or maybe found guilty of not
carrying out an audit properly they can
find you or ask you to leave the
professional room to leave the ACCA and
in many ways this is how professional
qualification like ACCA is different to
an MBA once you have an MBA degree it's
yours for life and amount
no matter how evil you become but you're
a member of the ACCA they retained
disciplinary powers
for you and you can be thrown out or
fined or they ensure that you keep up to
date with current developments in the UK
the FRC that's a financial reporting
Council which is our of the UK
regulators for reporting and governance
so if you like is a kind of statutory
body and then internationally there is
the I fact the International Federation
of accountants what they try to do one
of the important things they try to do
is to bring the preparation of financial
statements and the order to those
financial statements into line
internationally so that the matter which
nationalities have a unit for whatever
nationally the company is whose
financial statement you're looking at
they're drawn up according to the same
accounting standards and the same
standard of auditing will be done
finally not too important for you a
public interest oversight board this has
been set up because it was felt that
perhaps the the regulation of auditors
is Israel is almost too inwardly looking
it's kind of auditors looking after
auditors and countless regulating
accountants but of course very much what
accountants do when they're auditing is
they are doing the audit on financial
statements which I'm going to go to a
wide range of other businesses like
banking like insurance like stockbrokers
like investment trusts and so on and it
was thought may be quite useful to get
it some input into how effective the
regulatory environment and the
accounting standards and auditing
standards were could a bit of input from
our wider variety of users of the
financial statements I thought effects
purposes as well as what I said there to
serve the public interest strengthen the
worldwide accountancy profession
establish and promote adherence to
high-quality professional standards
within IFAC you have the IAASB and the
international auditing and assurance
standards board these are people who
basic
developed ISAs auditing standards for to
get kind of international quality almost
there's the IES BA the Ethics Board this
set would be looking at ethics in the
next chapter
this sets out ethical dines under which
accountants should act will see words
like independence integrity professional
competence and so on within the
requirements for professional
accountants and finally there's a tac
not so important for you transnational
auditors committee many companies now of
course are international or raise money
on international markets and we just
have to make sure that we take into
account international considerations
when designing accounting standards or
the audience who can be an auditor well
you have to be in the UK a member of a
recognized qualifying body that's the
ACCA you must be a member of the
basically recognized qualifying body
looks after your qualifications and then
to make sure you stay righteous the the
you have a member of the recognized
supervisory body which the ACC is also
one and their directors may not be I
think one auditors may not be directors
or employees of the company and they
have to be independent really from that
and they are not allowed to be an
employee or business partner of a
director or employee of the client
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