with generous support of

REPARIS Road to Europe: Program of Accounting Reform and Institutional Strengthening

Client File Series

Audit Training of Trainers Workshop

Vienna Institute 24-26 September, 2012 Alexander Fawcett and Lejla Begtasevic Rudalija, CFRR

with generous support of

REPARIS Road to Europe: Program of Accounting Reform and Institutional Strengthening

Obtaining and accepting

professional appointments

CFS 1

3

Obtaining and accepting professional appointments

4

Change in auditors

5

• Felicity Carr and Frank Harrison both auditors and they have decided to set

up in practice together. Their new firm holds an auditing certificate and they

intend to undertake small audits and some tax work. They will charge

themselves out at $200 per hour initially. They will operate from Frank's

home. They are a little rusty on the rules concerning advertising and

obtaining professional work and so have asked you to advise them.

They have decided to call their practice Harrison Carr and to advertise in the

local paper. As they are launching themselves, they have decided to take

out a full page advertisement one week and then run a series of smaller

adverts in the future. They have also decided to advertise in a local

business newspaper.

Advertising and fees

6

• Matters to be considered when invited to

tender

• Fees

• Lowballing

• Practical issues

Tendering

7

Acceptance

8

• Obtain information

• Client screening

• Anti-Money laundering (next session)

• Politically exposed persons (next session)

Acceptance

9

• Documents in your client file series (CFS)

– CFS 1.1 Client Acceptance and Retention Checklist

– CFS 1.2 Sample Audit Engagement Letter

– CFS 1.3 Audit Engagement Letter Checklist

• Case Study (CS)

– CS1 Pascal & Jan

Client File Series

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REPARIS Road to Europe: Program of Accounting Reform and Institutional Strengthening

Professional codes

CFS 2

11

Money laundering scheme

Bernard Madoff’s ‘Ponzi’ scheme

New investors

Hard-earned cash Bernard Madoff

Investment

Company

Aston Martin DB2/4

(ill-gotten gains)

Good return

Existing investors

More

details

13

• http://www.pwc.co.uk/forensic-services/issues/anti-money-

laundering-know-your-customer-quick-reference-guide.jhtml

Money laundering – active examples

14

• Internal controls and policies

• Client identification

• Record keeping

• Recognition of suspicion

• Reporting suspicious transactions

• Tipping off

Money laundering – ACCA Guidance

15

Money laundering risk indications

16

• You are the audit manager of Luft Co, a chain of

nightclubs across the north-west of England. During the

course of the audit Mr Liam, an employee of the

company, informed you that a substantial cash deposit

was paid into the company's bank account and a month

later, the same amount was paid by direct transfer into a

bank account in the name of Evissa, a company based

overseas. The employee also informed you that Mr Alex,

the managing director of Loft Co had instructed him not

to record the transaction in the accounting records as it

had nothing to do with Loft Co's business.

Money laundering question

17

• The transaction described in the scenario raises suspicion of money laundering for several

reasons.

• (a) It has been alleged by Mr Liam that the purpose of the transaction has nothing to do with the

nightclub business. This could be a sign that Mr Alex is attempting to legitimise the proceeds of a

crime through Loft Co by concealing the illegal source of the cash.

• (b) The amount of the transaction is substantial for Loft Co. An unusually large transaction

should alert the auditor to the possibility of money laundering, especially as it does not seem to

relate to the business of Loft Co.

• (c) The cash amount paid into Loft Co's bank account is the same as the amount paid to Evissa.

This could be an attempt by Mr Alex to make the cash appear legitimate by moving it through

several companies and jurisdictions.

• (d) Mr Liam was instructed not to record the transaction in the accounting records of Loft Co.

Increased secrecy over transactions is another indicator of money laundering.

• Loft Co's bank statement should be checked to confirm Mr Liam's assertion. The suspicious

transaction should be reported to the firm's MLRO or SOCA as soon as possible and any 'tipping

off' must be avoided. It is a criminal offence to not report suspicions of money laundering.

Money laundering answer

18

Politically exposed persons

19

Code of ethics and conduct

20

• IFAC Code of Ethics for

Professional Accountants

Sources of regulation

21

The most common threats

22

The most common threats

23

The most common threats

24

Threats arising from provision of non-assurance services

25

• Documents in your client file series (CFS)

– CFS 2.1 Anti-money laundering technical factsheet

– CFS 2.2 Independence checklist for employees

– CFS 2.3 Independence resolution memorandum

– CFS 2.4 Client evaluation checklist

• Case Study (CS)

– CS2 Sandra

– CS3 Big

Client File Series

with generous support of

REPARIS Road to Europe: Program of Accounting Reform and Institutional Strengthening

Documentation

CFS 3

27

• New client questionnaire

• Internal ethical checklist

• Previous auditor clearance

• Engagement contract

• Company registration documentation

• Other legal documents such as leases and sales agreement

• Details of the history of the client’s business

• Board minutes of continuing relevance

• Previous years’ signed financial statements, analytical review

and comments letters

• Accounting system notes, previous years’ control

questionnaires

Minimum file requirements – PART 1

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REPARIS Road to Europe: Program of Accounting Reform and Institutional Strengthening

Audit planning

CFS 4

29

Overview

30

Audit process flow

31

The form and nature of planning is affected by •Size of the entity •Complexity of the audit •Auditor’s experience with the entity •Knowledge of the business •Commercial environment •Method of processing transactions •Reporting requirements

The need for planning

Objectives of planning •Ensuring that appropriate attention is devoted to important areas of the audit •Ensuring that potential problems are identified •Ensuring that the work is completed expeditiously •Proper assignment of work to assistants •Coordination of work done by other auditors and experts; and •Facilitating review.

32

The audit strategy and the audit plan