The audit environment and legal liability
This section focuses on content related to the audit environment and legal liability
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Legal liability
Ethics
Audit contracts – engagement letters
Audit quality
Audit work papers and documentation
Legal liability
The concept of “proximity” when it comes to audit can be a difficult concept to master – in this video I use finger puppets to explain
Auditors will often come under scrutiny when a company collapses. This was the case with Enron (& rightly so, Arthur Anderson we’re complicit in misleading shareholders). But are auditors an easy target for shareholders and journalists? In the next video I evaluate the situation with the collapse of Thomas Cook
The ethics of audit
Most countries will follow the international ethics set out by the IEASB. Here is an overview video. The IESBA website has a great interactive resource.
The ethical standards are then promulgated by each country – below is an outline of ASA102 which covers that APES11o is enforceable by law for entities that must be audited.
Creating a contract between the auditor and client
The contract between the auditor and client is called an Engagement Letter
Here is a full lecture on the above 3 topics
Audit quality
The purpose of auditing standards and a regulated profession is to ensure that users of audit reports (normally shareholders) receive a high quality product that meets minimum standards. But how exactly does this work in an audit firm that may have many staff conducting many audits?
Audit documentation
There is a saying in audit that if it isn’t documented in the file, it didn’t happen. This is important because regulators look at audit firm files and documentation to determine whether they’ve been following the auditing standards to provide a quality audit.
In today’s world, most documentation is prepared electronically – but the principles of ASA/ISA230 remain the same in a paper environment – we need to know who is completing audit documentation (often called “work papers”), what they are doing and the conclusions they have reached. Therefore completing work papers correctly is very important on an audit!
The audit documentation file creates, in essence, a huge book of audit evidence. Firms will use some form of the numbering system in the video below to keep everything in order. Every piece of work or document (made by the auditor, provided by the client, or from an external source) should be numbered.