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(a) Materiality is defined in ISA 320 to be the expression of the relative significance or importance of a particular matter in the context of the financial statements as a whole. A matter is material if its omission or misstatement would reasonably
influence the decisions of an addressee of the auditors report. Materiality is not capable of general mathematical definition as it has both quantitative and qualitative aspects.
The auditors‘ responsibility is to plan and perform their audit to obtain reasonable assurance that the financial statements are free of material misstatement and give a true and fair view. Thus anything that would distort the view given by accounts
must lead to a qualification, but only if it is material.
(b) The duty of confidentiality requires that information acquired in the course of professional work should not be disclosed except where consent has been obtained from the client, employer or other proper source, or where there is a legal or
professional right or duty to disclose.
A member acquiring information in the course of professional work should neither use nor appear to use that information for his personal advantage or for the advantage of a third party. Where a member is in any doubt, the matter if appropriate should initially be discussed fully within his firm or organization. If not appropriate, or if it fails to resolve the problem, he should consider taking legal advice and/or consult ICPA(K)
Confidentiality in practice:
-An accountant should only act for a client on the understanding that the client will make full disclosure to him. In the absence of such an understanding the accountant should decline the appointment.
-If during the course of an engagement, the client fails to furnish all the information considered necessary, the accountant should disclose this in his report. The accountant should also consider whether he can continue to act.
-Sometimes in the course of his work an accountant may obtain information from a client that has a bearing on information supplied to him by another client. In such circumstances, it would be breach of confidence to reveal the information to the second client without the permission of the first client.
-The accountant should instead endeavour to substantiate the information with evidence obtained directly from the books and records of the second client. This may necessitate direct confirmation. Ultimately he may have to qualify his report or resign.
(c) A part of gross income of the auditing firms is paid to insurance firms as part of professional indemnity insurance (PII) such that when negligence claims are brought against the audit firm, then the insurance will settle these claims. Some professional bodies require their members in public practice to hold PII covering all civil liability incurred in connection with the conduct of the firm‘s business by partners, directors or employees. This means that if a client or other party successfully sues the firm for negligence, then the firm will not meet the claim but the insurer will. So if the firm is unable to pay a very large claim, the insurance will have the required resources.
(d) Peer review: A system where one firm of auditors reviews the working practices of another.
The work of the review is limited to: -
a) Professional aspects of the practice.
b) Overall quality control policies
c) Professional aspects of firm‘s accounting and auditing practices like maintenance of working papers work products such as
financial statements.
(e) Quality controls
ISA 220, ?Quality control for audit work requires that all firms implement quality control policies and procedures at the levels of the audit firm, and on individual audits. Those policies and procedures should be communicated to staff, via formal policy statements, audit manuals and informal briefings, and monitored to ensure that they are implemented
Quality controls ensure the audit is carried out: -
- In accordance with international accounting standards.
- In conformity with statutory and contractual requirements
- In accordance with ethical standards
Wilfykil answered the question on February 21, 2019 at 05:58