ACCG340 Study Guide - Final Guide: Assurance Services, External Auditor, Internal Audit
19 Jun 2018
School
Department
Course
Professor
WK 8 – Q3 in Final
Governance and the auditor
1. Corporate governance:
a) covers the conduct of the board of directors (board) and management, as well as their
the relationship with stakeholders
b) is primarily the responsibility of the board (including its committees) and management.
Accountants and auditors (both internal and external) also perform key roles
i. Auditor provides assurance on management’s stewardship of resources and resource
allocation and thereby assists in the discharge of the accountability.
2. The effectiveness of the audit function depends on auditors’ relationship with management
and those charged with governance and their ability to develop a constructive working
relationship (ASA 260)
3. Audit committee, external audit, internal audit are audit mechanisms that form an essential
part of the corporate governance mosaic.
4. Corporate governance in Australia - (ASX CGC 2014)
a) ‘The framework of rules, relationships, systems and processes within which and by which
authority is exercise and controlled in corporations’
b) It encompasses the mechanisms by which companies, and those in control, are held to
account.
c) Good corporate governance promotes investor confidence, which is crucial to the ability
of entities listed on the ASX to compete for capital.
5. ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 3rd
Edition
Principle 1
Lay solid foundation for management and oversight
Principle 2
Structure the board to add value
Principle 3
Act ethically and responsibly
Principle 4
Safeguard integrity in corporate reporting
Principle 5
Make timely and balanced disclosure
Principle 6
Respect the rights of security holders
Principle 7
Recognise and manage risks
Principle 8
Remunerate fairly and responsibly
a) Not prescription but guidelines with flexibility
b) “If not, why not” approach
c) Requirement to disclose extent of adherence under ASX Listing Rule 4.10.3
d) Flexibility to disclose in either annual report or company website in 3rd Edition
Audit committees (ACs)
1.
Sub-committee
of board, which should consist mainly
independent and non-executive
directors.
2. Important component of corporate governance – enhances internal accountability and
facilitates participation of independent directors in governance process
3.
Auditor’s dealings with the board
are primarily
through this sub-committee
.
4. Top 500 ASX companies
required to have an AC
(ASX Listing Rule 12.7)
5. Top 300 ASX required to comply with Principle 4 Recommendations on AC composition, operation
and responsibilities
6. Principle 4 – Safeguard integrity in corporate reporting recommendations
a) The board of a
listed company
should:
i. have an audit committee which:
1. has >= 3 members, all non-executive directors and majority independent directors,
and
2. is chaired by an independent director, who is not the chair of the board, and
disclose:
3. charter; of the committee;
4. relevant
qualifications and experience
of the members;
5.
number of times the committee met
throughout the period and the individual
attendances of members; or
ii. if it does NOT have an audit committee,
disclose that fact and the processes
it employs
that independently verify and safeguard the integrity of its corporate reporting,
including the processes for the appointment and removal of the external auditor and
the rotation of the audit engagement partner.
b) The board of a listed entity should,
before it approves
the entity’s financial statements
for a financial period,
receive
from its CEO and CFO
a declaration
that, in their opinion,
the financial records of the entity have been properly maintained and that the financial
statements comply with the appropriate accounting standards and give a true and fair
view of the financial position and performance of the entity and that the opinion has
been formed on the basis of a sound system of risk management and internal control which
is operating effectively.
c) A listed entity that has an AGM should ensure that its
external auditor attends its AGM
and is available to answer questions
from security holders relevant to the audit.
7. Audit committee responsibilities
a) Liaises with the
board (selecting accounting policy), internal(bridge between the board
and internal auditors as internal auditors are not allowed to report to the board directly)
and external auditors and management
b)
Oversee
external audit, internal audit, risk management, internal control and compliance
c) Focus on issues relevant to
integrity of organisation’s financial reporting
, including
consideration of whether:
i. Financial report (FR) complies with applicable legislation and accounting standards
and present a true and fair view of the entity’s financial position and performance
ii. Methods and application of critical accounting policies and judgments are appropriate
and consistent with FR framework and nature of entity’s operations and across periods
Internal auditing
1. Mission of Internal Auditing - IIA International professional practices framework (ippf)
2015
To enhance and protect organizational value by providing
risk-based and objective assurance,
advice, and insight.
2. Definition of Internal Auditing
Internal auditing is an
independent, objective assurance and consulting
activity designed
to
add value
and improve an organization's operations. It helps an organization accomplish
its objectives by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes
.
3. Internal audit services
a) Assurance services
An objective examination of evidence for the purpose of providing an
independent
assessment
on governance, risk management and control processes for the organization.
Examples may include financial, performance, compliance, system security, and due
diligence engagements.
b) Consulting services
Advisory
and related client service activities, the nature and scope of which are agreed
with the client, are intended to
add value and improve
an organization’s governance,
risk management and control processes without the internal auditor assuming management
responsibility. Examples include counsel, advice, facilitation, and training.
4. Internal audit and ASX CGC Principles
Recommendation 7.3 in relation to internal audit has been introduced in the 3rd Edition of
the ASX CGC Principles and Recommendations. It states:
A listed entity should disclose:
Document Summary
Governance and the auditor: corporate governance, covers the conduct of the board of directors (board) and management, as well as their the relationship with stakeholders, is primarily the responsibility of the board (including its committees) and management. Accountants and auditors (both internal and external) also perform key roles. Financial report (fr) complies with applicable legislation and accounting standards and present a true and fair view of the entity"s financial position and performance. Methods and application of critical accounting policies and judgments are appropriate and consistent with fr framework and nature of entity"s operations and across periods: mission of internal auditing - iia international professional practices framework (ippf) To enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization"s operations.
