Audit & Assurance 2

This set of vocabulary flashcards covers the fundamental concepts of corporate governance, UK and international audit regulation, and professional ethics as presented in the lecture notes.

Corporate governance

The system by which companies are directed and controlled to ensure they are run in the interests of shareholders, other stakeholders, and the wider public interest.

Rules-based approach

A governance approach used mainly in the USA, based on legal rules where directors may face penalties such as fines or imprisonment for breaches, exemplified by the Sarbanes-Oxley Act $2002$.

Principles-based approach

The governance approach used in the UK following a “comply or explain” basis, linked to the UK Corporate Governance Code.

Audit Committee

A board committee that must have at least $3$ independent non-executive directors, with at least $1$ member having recent and relevant financial experience.

Financial Reporting Council (FRC)

The UK’s audit regulator which oversees statutory audit, issues audit and assurance standards, and monitors audit quality for public interest entities.

Recognised Supervisory Bodies (RSB) / Recognised Qualifying Bodies (RQB)

Professional bodies such as ICAEW, ICAS, ICAI, and ACCA that deal with auditor registration and professional development.

IAASB

The International Auditing and Assurance Standards Board, which issues International Standards on Auditing (ISAs).

IESBA

The International Ethics Standards Board for Accountants, which issues the International Code of Ethics for Professional Accountants.

Fundamental ethical principles: Integrity

A fundamental ethical principle requiring an accountant to be honest and straightforward.

Objectivity

An ethical principle dictates not allowing bias, conflicts of interest, or undue influence to affect judgment.

Professional competence and due care

The ethical principle to maintain professional knowledge and skill, act diligently, and follow standards.

Confidentiality

The requirement not to disclose client information without proper authority unless there is a legal or professional duty.

Professional behaviour

The ethical requirement to comply with laws and regulations and avoid actions that discredit the profession.

Independence

the auditor must be objective and free from inappropriate relationships with the client

Independence in fact

When an auditor is genuinely independent and objective, such as not owning shares in the client.

Independence in appearance

When an auditor looks independent to an informed outside observer, avoiding relationships that may seem to affect judgment.

Ethical threats: Self-interest threat

An ethical threat where a financial or personal interest influences judgment, such as fee dependence on one client.

Self-review threat

An ethical threat where the auditor reviews work they previously performed, like preparing accounts and then auditing them.

Advocacy threat

A threat where the auditor promotes the client’s position, such as representing them in a dispute.

Familiarity threat

A threat where the auditor becomes too close to the client due to a long relationship or family connection.

Intimidation threat

A threat where the auditor is pressured by the client, such as being threatened with replacement.

Professional scepticism

An attitude that includes a questioning mind, being alert to possible misstatement due to fraud or error, and critically assessing audit evidence.

Professional judgment

The application of relevant training, knowledge, and experience to make informed decisions during an audit.