BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 The Big Picture – QAD audit webinar Nick Reynolds and Henrietta Thompson 13 May 2014

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 The Big Picture Ethical standards Understanding the business and audit risk assessment Professional scepticism

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 QAD audit visits % satisfactory – happy that firms will make any improvements required 20% follow-up action – submit information such as cold file review or CPD plans 10% report to committee – conditions and restrictions – regulatory penalties

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BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Ethical standards Financial, business, employment and other personal relationships Long association Fees Non-audit services Documentation

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Financial, business, employment and other personal relationships Roles of partners, staff and their immediate and close family members Trustee shareholdings – Refer to Audit News 52

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Long association and fees Listed audit clients Other statutory audits Fee dependency

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Non-audit services Ethical Standard 5 Prohibited services (particularly listed audit clients) Threats: management, self review, self interest, advocacy Safeguards really can prevent errors

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Documentation Basic requirements Partner and senior staff involvement Accounts preparation work Audit software

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Understanding the business and risk assessment

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Risk assessment The business Accounts and accounting policies Fraud and error Control environment

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 The business Industry, regulatory and other external factors Operations, products and services Ownership and governance Structure, finance and investment Objectives and strategies

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Accounts and accounting policies Turnover Other accounting policies Disclosure

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Fraud and error Financial statement manipulation – Revenue recognition Discussions with client Discussions within audit team Management override of controls

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Control environment ISA 315 Control not process IT controls Design and implementation Operating effectiveness

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Professional scepticism Central to audit quality Documentation and language used for judgements

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 We discussed the discount rate with management and agreed that 7.5% was a suitable rate for the goodwill impairment review. There is no risk of fraud in revenue recognition because we have not found indications of fraud at previous audits.

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 We discussed the discount rate with management and agreed that 7.5% was a suitable rate for the goodwill impairment review. We agreed the discount rate of 7.5% to management’s calculation of the cost of capital. We tested the calculation and agreed the source data to the recent new loan facility and estimated return on equity.

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 There is no risk of fraud in revenue recognition because we have not found indications of fraud at previous audits. There is no risk of fraud in revenue recognition as revenue is calculated based on straightforward contracts with third parties. We have not found any problems in the past and the services offered by the company have not changed.

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Professional scepticism Central to audit quality Documentation and language used for judgements Appropriate challenge Consider the big picture

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Reminders Documentation ISQC1 Audit compliance reviews

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 Resources and support Audit & Beyond CPD aide memoire Audit News ICAEW Practice Support Services Technical Advisory Services ICAEW website

BUSINESS WITH CONFIDENCEicaew.com © ICAEW 2014 QUESTIONS & ANSWERS

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