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doubt 1:
ISQC 1 also mentions that where the client is aggressively concerned with maintaining the firm’s fees as low as possible, this can indicate a lack of integrity of the client.
ma’am I was trying to figure out the underlying reason for this. a cleint’s agressive behaviour to maintain as low as fees as possible indicates a lack of integrity because, basically by quoting a lower figure he’s indirectly prodding audit firm to perform less detailed SPs and don’t use very experienced staff(because mgt fears getting caught red handed), right?
doubt 2:
as a part of CDD/KYC procedures one the points meniotend in my exam kit is–Identify any beneficial owner who is not the client. This is the individual (or individuals) behind the client who ultimately own or control the client or on whose behalf a transaction or activity is being conducted.
can you think of any examples of Beneficial owners behind the client? I could think of shareholders, but other than them, any?
doubt 3:
A Companies House search (or equivalent) on Setter Co should take place. This will confirm the existence of the company, the shareholders and directors and will provide some financial information. This will confirm that Gordon Potts is the ‘beneficial owner’ of the entity – i.e. that he is the person who owns or controls, directly or indirectly, more than 25% of the shares or voting rights or who otherwise exercises control over the directors.
ma’am I have not come across this 25% definition of beneficial owner, anywhere-neither int eh text nor in your notes. Are we expected to know and remember this definition of beneficial owner?
There is no definition of “management integrity” – it’s a broad term that encompasses “tone at the top”. A lack of management integrity does not mean outright dishonesty/fraud/something illegal – e.g. the pursuit of directors’ own interests to earn bonuses may result in the company accepting business risks that are contrary to the risk appetites of the shareholders. Many owner/managers (in particular) don’t see any value in external audit – only that it is a necessary cost to be borne for the privilege of limited liability (which doesn’t matter so much in the UK because of the audit exemption for small companies). But if the management of larger companies that require an audit hold this view, they would see as cheap an audit as they can get to be in the company’s best interests.
A beneficial owner has to be a “natural person”. The concept is generally accepted to mean ” … the natural person(s) who directly or indirectly ultimately owns or controls the corporate entity …”
As far as AAA is concerned, ownership of a company is effected through shares, therefore a beneficial owner is a shareholder of the company (or a parent in a group scenario).
Assumed knowledge of law – not necessarily Eng law – “more than 25%” is the widely accepted threshold throughout company law. When a resolution in a general meeting requires a “super majority” i.e. 75%, someone who controls more than 25% of the voting rights can block the resolution.
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