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Hi tutors,
What does it exactly mean when standard states that auditors shall not assume management’s responsibilities?
And why would this be causing a threat to fundamental principles including independence?Thank you,
Welcome to my forum!
See here for an answer to your first question https://opentuition.com/topic/ethics-assuming-management-responsibility
In general, to assume “management responsibility” gives rise to “management threat” – however, in the IESBA and ACCA Codes of Ethics, this is not recognised as a separate category, because it can be classified under one or more of the other threats.
For example, to assume responsibility for the preparation of the financial statements (a management responsibility) gives rise to a self-review threat.
Hi tutor, thank you for your response.
For example, If auditor assumes the management responsibility, does that mean they are preparing or making changes to the financial statement? Or does it purely mean that auditor is assuming management would have done something and take a guess?
Thank you,
I thought the link would answer that, but perhaps you are unclear about the word “assuming” in this context?
It has nothing to do with making assumptions/presumption as in “I assume/presume you are preparing for the AA exam, because you are asking a Q on the AA forum”.
It means “accepting”, “undertaking” – the auditor cannot take on/bear management’s responsibilities.
Hi Kim, yes! You did answer my question there really nicely. So basically, auditors shall not ‘undertake’ the role of the mgmt as it will arise threats to obstruct in complying with ethical principles including independence right?
Also, may I please ask regarding ISA 260 (revised). The standard continually mentions the term “How the auditor plans…” in paragraph A13. Does that mean where there is an issue in the FS, the auditor would actually fix it? Or does that mean Auditor will give opinion/guidance to the mgmt to address those matters so that it complies with the reporting standards?
Thank you,
CJYes! But allow me to correct you – independence underpins the independent auditor’s opinion – but it is not in itself a “fundamental principle” (the five fundamental principles are listed on page 21 of the notes).
You’re reading an ISA? Well done you! I look forward to seeing you in my AAA forum in due course! If the issue is insufficient evidence obtained from originally planned audit procedures, the audit might “fix” this by performing further audit procedures. But if the issue is that material misstatement exists, only the directors can “fix” this – the auditor would explain why it is a misstatement (e.g. non-compliance with an IFRS) and the implications for the audit opinion if it is not corrected. Either the directors correct the FS to the auditor’s satisfaction, or the auditor modifies the audit opinion.
Hi Kim, thank you so much for this! If there isn’t a limit on how many questions I can ask… do you mind if i continuously ask questions as I read through standards?
If you don’t mind, I have another question to ask. As per standards, shouldn’t the Engagement Letter be agreed and signed before audit procedure could commence? I am a little confused by IAS 260 para 16(d) where it says where the engagement terms are no agreed between auditor and those charged with governance, auditor shall provide them with copy of EL to inform governance that auditor’s report may differ from the expected form. Sorry for such a messy question. My question is messy as I am struggling to understand what this standard is trying to say…
Thank you,
CJThere is no set limit, but if the number of Qs on a forum becomes overwhelming we do tend to ask students to restrict their queries to three new posts a day.
All I would ask, is that for each new topic, there should be a new post with a meaningful subject line – as key words enhance the search function – https://opentuition.com/search-opentuition – to benefit more students.
So, for example, this post might have been labelled “Management responsibility – threat” and then “Matters communicated to TCWG – ISA 260” – they’re all revised at some time so no need to specify revised 🙂
I’ll get back to you on the engagment letter query in a moment …
As the engagement letter is the contract between the auditor and the client, an auditor would not want to waste time/money/resources before a contract is signed (though some work must have been done to ensure that the preconditions for an audit are met).
In connection with “significant findings from the audit”, as you might expect, the audit should communicate with TCWG anything that is going to affect the auditor’s report – so if the auditor is thinking that the audit opinion is going to be modified (unless something is done so that this isn’t necessary) – TCWG need to know(!)
You really DON’T need to concern yourself with the minute details of the “application and other explanatory material” – even in AAA, candidates need only know the objectives, definitions and requirements – and even these, it is only to the extent that the ISAs are examinable.
Exam docs such as ISAs do not “drive” what is examinable – it is the learning outcomes in the syllabus and detailed study guide that determine what can be examined.
So FYI, ISA 260 A9 is saying that if TCWG are not signing the contract (e.g. if TCWG include members of an audit committee but it is the chief exec who signs it on behalf of the board of directors), TCWG will need a copy of the EL – in which they will see:
“A statement that there may be circumstances in which a report may differ from its expected form and content.” (ISA 210 10.f)
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