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CPA PROGRAM ADVANCED AUDIT AND ASSURANCE FIFTH EDITION Brian Clarke

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CPA PROGRAM ADVANCED AUDIT AND ASSURANCE FIFTH EDITION Brian Clarke CPA PROGRAM ADVANCED AUDIT AND ASSURANCE FIFTH EDITION Brian Clarke CPA PROGRAM ADVANCED AUDIT AND ASSURANCE FIFTH EDITION Brian Clarke

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CPA PROGRAM ADVANCED AUDIT AND ASSURANCE FIFTH EDITION Brian Clarke
CPA PROGRAM ADVANCED AUDIT AND ASSURANCE FIFTH EDITION Pdf_Folio:i
Published 2019 by John Wiley & Sons Australia, Ltd, 42 McDougall Street, Milton Qld 4064, on behalf of CPA Australia Ltd, ABN 64 008 392 452 First published January 2010, reprinted with amendments July 2010, Updated January 2011, reprinted July 2011, updated January 2012, reprinted July 2012, Updated January 2013, reprinted July 2013, updated January 2014, reprinted July 2014, Updated January 2015, updated January 2016 Second edition published November 2016 Third edition published January 2018 Fourth edition published January 2019 Fifth edition published November 2019 © 2010–2020 CPA Australia Ltd (ABN 64 008 392 452). All rights reserved. This material is owned or licensed by CPA Australia and is protected under Australian and international law. Except for personal and educational use in the CPA Program, this material may not be reproduced or used in any other manner whatsoever without the express written permission of CPA Australia. All reproduction requests should be made in writing and addressed to: Legal, CPA Australia, Level 20, 28 Freshwater Place, Southbank, VIC 3006, or legal@cpaaustralia.com.au. Edited and designed by John Wiley & Sons Australia, Ltd Printed by Blue Star Print ISBN 9780730381877 Authors Brian Clarke (Consultant) David Gilchrist (Professor, Accounting and Finance (UWA Business School), University of Western Australia) Dessalegn Mihret (Senior Lecturer, Faculty of Business and Law, Deakin University) Roger Simnett (Scientia Professor, School of Accounting, University of New South Wales/ Chair and CEO of the Australian Auditing and Assurance Standards Board) Caroline Spencer (Managing Partner, Vista Advisory) Tiffany Tan (CPA Australia) Ken Trotman (Scientia Professor, School of Accounting, University of New South Wales) Reviewers Kirsty Meredith (University of the Sunshine Coast) Prerana Agrawal (The University of Western Australia) Advisory panel Roger Simnett (AuASB, UNSW) Peter Carey (Deakin University) Claire Grayston (CPA Australia) David Gowland (CPA Australia) Brian Clarke (Independent Consultant) Susan Fraser (Independent Consultant) Dean Newlan (Independent Consultant) Ram Nagarajan (CPA Australia) Seng Thiem Teh (CPA Australia) Kenny Yeoh (Baker Tilly Monteiro Heng, Kuala Lumpur, Malaysia) Lee Li Tan, PwC (Kuala Lumpur, Malaysia) Jessey Chin, PwC (Kuala Lumpur, Malaysia) Pei Pei Chiam (Deloitte PLT, Kuala Lumpur, Malaysia) Zulkifflee Bin Mohamed (Universati Tun Abdul Razak, Kuala Lumpur) Uma Devi Uturaju (Sunway University Malaysia) Foo Yin Fah (Sunway University Malaysia) CPA Program team Yvette Absalom Adam Moretti Victoria Altomare Ram Nagarajan David Baird Venkat Narayanan Shubala Barclay Isha Nehru Nicola Drury Shari Serjeant Jeannette Dyet Paul Shantapriyan Yani Gouw Alisa Stephens Kristy Grady Zina Suyat Geraldine Howley Tiffany Tan Elise Literski Seng Thiam Teh Julie McArthur Helen Willoughby P df_Folio:ii
ACKNOWLEDGEMENTS The Advanced Audit and Assurance 2019 edition includes the International Code of Ethics for Professional Accountants, 2018 Edition of the International Ethics Standards Board for Accountants (IESBA), published by the International Federation of Accountants (IFAC) in July 2018 and is used with permission of IFAC. Contact Permissions@ifac.org for permission to reproduce, store or transmit, or to make other similar uses of this document. The International Code of Ethics for Professional Accountants, 2018 Edition of the International Ethics Standards Board for Accountants (IESBA), published by the International Federation of Accountants (IFAC) in July 2018, is used by CPA Australia with permission of IFAC. Such use of IFAC’s copyrighted material in no way represents an endorsement or promotion by IFAC. Any views or opinions that may be included in the Advanced Audit and Assurance 2019 edition are solely those of CPA Australia, and do not express the views and opinions of IFAC or any independent standard setting board supported by IFAC. MODULE 1 Tables 1.1–1.5, 1.7 and 1.7; Figures 1.10 and 1.11: © CPA Australia; Figure 1.9: © Adapted from Rozario, A.M., 2019. Three essays on audit innovation: using social media information and disruptive technologies to enhance audit quality (Doctoral dissertation, Rutgers University-Graduate School-Newark). Figure 1.2: © Auditing and Assurance Standards Board, 2016; Table 1.2: © CPA Australia; Figure 1.9: © Adapted from Rozario A M, 2019. ‘Three essays on audit innovation: using social media information and disruptive technologies to enhance audit quality’ (Doctoral dissertation, Rutgers University-Graduate School-Newark); Figures 1.2 and 1.4: © Auditing and Assurance Standards Board, 2016; Extract: © Audit Office of New South Wales; Extracts: © External Reporting Board 2019; Extract: © Ernst & Young; Extracts: © John Wiley & Sons Australia Ltd. MODULE 2 Extract: © Association of Chartered Certified Accountants; Tables 2.5, 2.8 and 2.9; Figures 2.14 and 2.15: © CPA Australia; Figures 2.26 and 2.27: © CPA Canada; Figures 2.1, 2.5, 2.8, 2.10, 2.13, 2.22, 2.23, 2.24, 2.25, 2.28; Table 2.5; Extracts: © John Wiley & Sons Australia Ltd; Table 2.7: © Adapted from Knechel, W R & Salterio, S 2017, Auditing: Assurance and Risk, 4th edn, Taylor & Francis, New York, pp. 163–5. MODULE 3 Figure 3.5; Tables 3.3, 3.5 and 3.6: CPA Australia; Table 3.4, Figures 3.4 and 3.10; Extracts: © John Wiley & Sons Australia Ltd; Extract: © Adapted from Shabbir, M 2019, ‘Computer Assisted Audit Techniques (CAATs) © Modern Audit Tool’, Mayur Batra Group. MODULE 4 Extract: © Australian Securities & Investments Commission. Reproduced with permission; Extract: © AusGroup Ltd; Table 4.1; Figure 4.5: © CPA Australia; Extracts: © John Wiley and Sons Australia Ltd; Extract: © Qantas; Extract: © Simavita Ltd. MODULE 5 Figure 5.1; Table 5.2; Extracts: © Auditing and Assurance Standards Board, 2016; Figure 5.4; Extract: Internal Control—Integrated Framework © 2013, Committee of Sponsoring Organizations of the Treadway Commission 2013; Figures 5.5, 5.6, 5.11, 5.12: © CPA Australia; Figure 5.8; Extracts: © Commonwealth of Australia 2019; Extract: Copyright © by The Institute of Internal Auditors, Inc. All rights reserved; Extracts: © John Wiley and Sons Australia Ltd; Figure 5.3: © KPMG Pdf_Folio:iii ACKNOWLEDGEMENTS iii
BRIEF CONTENTS Subject Outline vii Module 1: The Auditing and Assurance Framework 1 Module 2: Planning the Audit of Historical Financial Information 66 Module 3: Performing the Audit of Historical Financial Information 169 Module 4: Conclusions and Reporting Responsibilities for an Audit of Historical Financial Information 225 Module 5: Other Assurance Engagements 288 Glossary 374 Westerways Case Study 381 Suggested Answers 421 Index 489 P df_Folio:iv
CONTENTS Subject Outline vii MODULE 1 The Auditing and Assurance Framework 1 Preview 4 1.1 Assurance environment 4 The internationalisation of auditing 5 Regulation of auditing in Australia 7 Regulation of auditing in New Zealand 10 1.2 Assurance engagement framework 11 Ethical principles 11 Quality control standards 18 Description of assurance engagements 25 Attestation and direct engagements 25 Reasonable and limited assurance engagements 26 Scope of the framework 27 Elements of an assurance engagement 28 1.3 Types of assurance engagements 39 Audits of financial statements 40 Audits of specialised areas 41 Review engagements 41 Historical non-financial reports assurance 41 Future-oriented information assurance 42 Assurance on systems and processes 42 Assurance on aspects of behaviour 43 Performance of an activity 44 1.4 Application of standards 45 Application of ISAs 45 Application of ISREs 51 Application of ISAEs 51 Application of ISRSs 52 Australian perspective 52 1.5 Changing environment 53 Evolving business models 54 Climate-risk disclosure 54 Technological innovations 55 Review 62 References 64 MODULE 2 Planning the Audit of Historical Financial Information 66 Preview 68 2.1 Objectives of an audit of financial statements 69 Overarching purpose 69 Legal, regulatory, professional and ethical requirements 72 2.2 Terms of engagements 83 Preconditions 83 Engagement terms and letter of engagement 84 Changes to terms 84 2.3 Audit planning procedures 86 Guidance materials for planning an audit of SMEs 86 Overall audit strategy 87 The audit plan 88 Financial statement assertions 91 Documentation 94 Materiality 95 Application of materiality concepts 96 Phases of an audit 99 2.4 Understanding the entity and its environment 102 The entity’s industry, regulatory and other external factors 102 Nature of the entity 103 The entity’s selection and application of accounting policies 105 The entity’s objectives, strategies and related business risks 105 Measurement and review of the entity’s financial performance 108 2.5 The entity’s internal controls 109 Components of internal control 110 Internal controls in SMEs 112 Controls in an IT environment 113 2.6 Risk assessments for specific matters 121 Fraud risk 121 Auditing accounting estimates 126 Related-party risk 128 Going concern risk 129 Climate-related risk 130 Non-compliance with laws and regulations (NOCLAR) 131 2.7 Risk assessment procedures 134 Methods used for risk assessment 134 2.8 Responding to assessed risks 159 Overall audit strategy 160 Approaches to assuring SMEs 163 Review 165 References 166 MODULE 3 Performing the Audit of Historical Financial Information 169 Preview 171 3.1 Key principles 171 Sufficient appropriate audit evidence 171 Financial statement assertions 172 Audit procedures 173 Pdf_Folio:v
3.2 Tests of controls 174 Objectives of tests of controls 175 Tests of controls procedures 176 Using CAATs for tests of controls 178 Sampling techniques for testing controls 184 3.3 Substantive audit procedures 186 Substantive analytical procedures 186 Relationship between substantive analytical procedures and other audit procedures 190 Tests of details 191 Using CAATs for substantive testing 197 Advanced audit data analytic techniques 200 Sampling techniques in substantive procedures 201 3.4 Evidence-gathering in an e-commerce environment 204 Tests of controls in an e-commerce environment 204 Substantive testing in an e-commerce environment 205 Using CAATs in an e-commerce environment 205 Advanced audit data analytic techniques and continuous audit in an e-commerce environment 205 3.5 Advanced evidence-gathering issues 207 Audit procedures for related parties 207 3.6 Using the work of other auditors and experts 210 Component auditors 210 Internal auditors 211 Using the work of an auditor’s expert 213 Using the work of management’s experts 213 3.7 Audit documentation 215 Security and confidentiality of client data 215 Audit file organisation 215 Examples of audit working papers 216 3.8 Evaluation of audit evidence 219 Misstatements identified during the audit 219 Sufficiency and appropriateness of evidence 221 Review 222 References 223 MODULE 4 Conclusions and Reporting Responsibilities for an Audit of Historical Financial Information 225 Preview 228 4.1 Completing the fieldwork 228 Significant areas 229 Litigation and claims 231 Going concern 232 Management representation letter 235 Subsequent events 236 Performing analytical procedures 239 4.2 Final review 242 Final evaluation of materiality and audit risk 243 Final review of working papers 245 Engagement quality control review 247 Final checklist 248 4.3 Preparing the audit report 251 Unmodified auditor’s report 251 Modified auditor’s report 262 4.4 Communication and reporting responsibilities 277 Communicating with the entity 277 Reporting responsibilities 280 Review 285 References 287 MODULE 5 Other Assurance Engagements 288 Preview 291 5.1 Audits of specialised areas 291 Special purpose financial statements 291 Single financial statements and specific financial statement components 293 Summary financial statements 293 5.2 Review engagements 295 Review of interim financial information performed by the auditor of the entity 296 Review where the assurance practitioner is not the auditor of the entity 298 Review of financial information for SMEs 298 Review of other historical financial information — an Australian perspective 299 5.3 Other assurance engagements — part 1 300 Overarching standard 300 Historical non-financial reports 303 Future-orientated information 311 5.4 Other assurance engagements — part 2 315 Systems and processes 315 Aspects of behaviour 327 5.5 Other assurance engagements — part 3 333 Performance of activity 333 5.6 Non-assurance services 366 Agreed-upon procedures 366 Compilation engagements 368 Review 370 References 371 Glossary 374 Westerways Case Study 381 Suggested Answers 421 Index 489 P df_Folio:vi vi CONTENTS
SUBJECT OUTLINE INTRODUCTION The purpose of this subject outline is to: • provide important information to assist you in your studies • define the aims, content and structure of the subject • outline the learning materials and resources provided to support learning • provide information about the exam and its structure. The CPA Program is designed around five overarching learning objectives to produce future CPAs who will: • be technically skilled and solution driven • be strategic leaders and business partners in a global environment • be aware of the social impacts of accounting • be adaptable to change • be able to communicate and collaborate effectively. BEFORE YOU BEGIN Important Information Please refer to the CPA Australia website for dates, fees, rules and regulations, and additional learning support at www.cpaaustralia.com.au/cpaprogram. SUBJECT DESCRIPTION Advanced Audit and Assurance The Advanced Audit and Assurance subject provides a body of knowledge for you to understand the nature and diversity of audit and assurance engagements. The subject provides an insight on audit and assurance processes, methodologies and procedures. It also examines the objectives of assurance engagements and current and future developments in assurance engagements. The environment within which the auditor or assurance practitioner operates and the respective roles of the private and public sector auditors and internal audit are also discussed. In the CPA Program, the professional responsibilities of accountants are discussed in the Ethics and Governance subject. However, this subject emphasises the ethical and professional conduct of auditors. The strategic business analysis techniques in the Advanced Audit and Assurance subject are further discussed in the Strategic Management Accounting and Global Strategy and Leadership subjects in their respective context. This subject and the Contemporary Business Issues subject also cover sustainability reporting and assurance with an emphasis on businesses. Advanced topics in financial reporting that complement the accounting knowledge of audit professionals are covered in the Financial Reporting subject, and accounting for financial instruments is discussed in the Financial Risk Management subject. This subject will introduce you to international pronouncements including the international standards for audit, review and assurance engagements, the standard on quality control for audit firms and the code of ethics. You will be taken through case studies to illustrate the strategic approach in audit engagements. Contemporary developments in assurance engagements are discussed in this subject in the context of future practice management opportunities. Subject Aims The aims of the subject are to address concepts related to: • the foundational knowledge required to understand the nature and diversity of assurance engagements • audit planning, including understanding the entity, assessing risk, developing the overall audit strategy, developing the audit plan and application of information technology to planning of audit engagements • performing the audit, including gathering and evaluating evidence, and application of information technology to performance of audit engagements • the audit conclusions and auditor’s reporting responsibilities and application of information technology to concluding and reporting on audit engagements • engagements other than audits of historical financial information and application of information technology to other assurance engagements. Pdf_Folio:vii SUBJECT OUTLINE vii
SUBJECT OVERVIEW General Objectives On completion of this subject, you should be able to: • understand and apply the framework for assurance engagements in audit and review engagements, and other assurance engagements, and discuss the elements of an assurance engagement • apply the standards to assurance engagements, and the fundamental ethical principles for the auditing profession • explain the responsibilities of management and the auditor in relation to an audit • evaluate historical financial information by applying professional scepticism and judgement • design audit processes and procedures to be undertaken by auditors in conducting audit and assurance engagements • evaluate the indicators of potential fraud and recommend a course of action • apply the relevant auditing standards to the assessment for fraud and going concern in an audit of financial statements • evaluate the sufficiency and appropriateness of the audit evidence gathered • apply the appropriate standards that relate to a range of engagement circumstances that impact the auditor’s report and the auditor’s opinion • evaluate circumstances that may give rise to modifications to the auditor’s report or the auditor’s opinion • describe the various types of assurance engagements. STUDY GUIDE Module Descriptions The subject is divided into five modules. A brief outline of each module is provided below. Module 1: The Auditing and Assurance Framework This module starts by providing an overview of the current assurance environment and outlining the structure of the Framework that shapes auditing and other assurance engagements. The key matters pertaining to an assurance engagement are introduced and the importance of professional scepticism and professional judgment in collecting and evaluating evidence is emphasised. The various types of assurance engagements are discussed and include references to the application of the relevant standards to these engagements for different types of entities, including private sector, public sector, and small- and medium-sized entities. This module concludes by outlining the impact a changing environment is having on auditing due to evolving business models, enhanced disclosure requirements related to climate risks and the incorporation of technological innovations, Module 2: Planning the Audit of Historical Financial Information This module outlines the general principles governing an audit of financial statements and discusses the responsibility of personnel within the audit firm for the quality control of audits. The terms of audit engagements and audit planning procedures are discussed including the overall audit strategy, financial statement assertions, materiality and audit documentation. The focus then turns to the audit planning procedures such as understanding the entity and its environment including the entity’s internal controls. Given the increased emphasis by the profession on the detection of fraud, the auditor’s responsibility to consider fraud in an audit of financial statements is discussed in some detail. Other risk assessments for specific matters that have the potential to be significant risks are discussed, along with a variety of techniques commonly used for conducting strategic analyses and analytical procedures to better understand business risk and the audit implications. This discussion includes an overview of contemporary tools such as data analytics and visualisations. The module concludes with a brief outline of how auditors may respond to the assessed risks identified during the planning stage of the audit, depending on the overall audit strategy determined by the auditor. Module 3: Performing the Audit of Historical Financial Information Module 3 considers the general principles underlying the evidence-gathering procedures in an audit. Emphasis is placed on the need for auditors to obtain sufficient appropriate audit evidence on which to base their opinion. Both tests of controls and substantive procedures are examined in detail. Examples are also provided to demonstrate the application of the international auditing standards covering different aspects of performing the audit to gather evidence. The use of audit data analytic techniques is also considered as is the need to maintain audit documentation in relation to the conduct of the audit. In addition, the P df_Folio:viii viii SUBJECT OUTLINE
requirements relating to the security and confidentiality of the documents used in the audit are discussed. Finally, the auditor’s requirement to evaluate the audit evidence to ensure sufficient appropriate audit evidence is collected to inform their audit opinion is explained. Module 4: Conclusions and Reporting Responsibilities for an Audit of Historical Financial Information Module 4 begins by outlining the auditor’s responsibilities involved in completing the fieldwork. Reasons for obtaining a management representation letter is then discussed, before outlining the applicable audit procedures performed to identify subsequent events and the evaluation of management’s treatment thereof. Next, the use of analytical procedures to form an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity is explained and demonstrated. Next to be discussed is the final review of all the evidence in order to ensure sufficient appropriate audit evidence is obtained and to inform conclusions as to the truth and fairness of the financial statements. The types of auditor’s opinions that are issued, and the circumstances in which they are issued is also explained in detail and demonstrated through the use of examples. The final section covers a discussion of the the auditor’s communication and reporting responsibilities to shareholders, regulatory bodies and those charged with governance and management. Module 5: Other Assurance Engagements The module begins by describing some of the assurance services provided by auditors and includes a discussion of various examples of these assurance services. This discussion includes the potential for continuous assurance services due to the impact of information technology increasing the availability of data. The role of internal audit in the provision of assurance services is discussed. This module discusses how performance audits in the public sector are performed to comply with legislative requirements and to assist accountability and improved performance in public administration. This module concludes with a discussion on non-assurance services, including agreed-upon procedures, comfort letters and compilation engagements. Agreed-upon procedures are commonplace, as they are designed to reflect the individual circumstances of the clients and meet the needs of users, especially for SMEs that are not required to produce audited financial statements. Module Weightings and Study Time Requirements Total hours of study for this subject will vary depending on your prior knowledge and experience of the course content, your individual learning pace and style, and the degree to which your work commitments allow you to work intensively or intermittently on the materials. You will need to work systematically through the study guide, readings and case studies, attempt all the questions (including knowledge checks), and revise the learning materials for the exam. The workload for this subject is the equivalent of that for a one-semester postgraduate unit. An estimated 15 hours of study per week through the semester will be required for an average candidate. Additional time may be required for revision. The ‘Weighting’ column in the following table provides an indication of the emphasis placed on each module in the exam, while the ‘Recommended proportion of study time’ column is a guide for you to allocate your study time for each module. Do not underestimate the amount of time it will take to complete the subject. TABLE 1 Module weightings and study time Module Recommended proportion of study time (%) Weighting (%) 1. The Auditing and Assurance Framework 20 20 2. Planning the Audit of Historical Financial Information 20 20 3. Performing the Audit of Historical Financial Information 20 20 4. Conclusions and Reporting Responsibilities for an Audit of Historical Financial Information 20 20 5. Other Assurance Engagements 20 20 Pdf_Folio:ix SUBJECT OUTLINE ix
Exam Structure The Advanced Audit and Assurance exam is comprised of multiple-choice questions. Multiple-choice questions include knowledge, application and problem-solving questions that are designed to assess understanding of Audit and Assurance principles. LEARNING MATERIALS Module Structure These study materials form your central reference in the Advanced Audit and Assurance subject. Where advised, relevant sections of the CPA Australia Members’ Handbook and legislation are also examinable. Module Map A module map is at the beginning of each module. The module map outlines the topics covered in each module and how this relates to the other modules. Learning Objectives A set of learning objectives is included for each module in the study guide. These learning objectives provide a framework for the learning materials and identify the main focus of the module. The objectives also describe what candidates should be able to do after completing the module. Relevant Standards and Guidance Materials The relevant standards and guidance materials table is at the beginning of each module and details both the International and Australian Standards covered in each module. Preview The preview outlines what will be covered in the module and how it relates to other modules in the subject. Study Material The study material is divided into sections that will help you conceptualise the content and study it in manageable portions. It is also important to appreciate the cumulative nature of the subject and to follow the given sequence as closely as possible. Examples Examples are included throughout the study materials to demonstrate how concepts are applied to real- world scenarios. Study Material Activities Question activities are included throughout the study materials to provide you with the opportunity, as you progress through the subject, to assess your understanding of significant points and to stimulate further thinking on particular issues. These questions are an integral part of your study and they should be fully utilised to support your learning of the module content throughout the semester. Completing the question activities should also form one part of your revision for the exam. It is evident that candidates who achieve good results in the program and in their careers are those who are able to think, review and analyse situations, and solve problems. The question activities will assist you to develop these skills. The question activities in the study materials are numbered and require you to prepare answers and to compare those answers with the suggested answers at the end of the study guide. They test your comprehension of specific sections of a module and provide immediate feedback on your performance in comprehending the materials covered. Your answers to these questions do not contribute to your final result, and you are not required to submit your answers for marking. Key Points The key points feature provides a summary of the main learning objectives covered in the part and details the relevant content in this regard. Review The review section places the module in context of the other modules studied and summarises the main points. References The reference list details all sources cited in the study guide. You are not expected to follow up this source material. P df_Folio:x x SUBJECT OUTLINE
Suggested Answers These are located at the end of the Study Guide and provide important feedback on the questions, examples and case study activities included in the module learning materials. Consider them as model answers for your reference. To assess how well you have understood and applied the material supplied in the text, it is important to write your answer before you compare it with the suggested answer. My Online Learning and your eBook My Online Learning is CPA Australia’s online learning platform, which provides you with access to a variety of resources to help you with your study. We suggest you view the video ‘Insights for a great semester of study’ on My Online Learning, which will provide you with some insights on how to plan your semester. It will also take you on a guided tour of My Online Learning to show you how (and when) to access the range of resources available. You will find a wide range of subject-level and module-level resources on My Online Learning. Subject- level resources are those that apply to the entire subject. These resources can be used at any time but are most useful when you’ve completed all the modules for the entire subject — whereas module-level resources should be used while you work through a particular module in the Study guide. You should refer to the journey map located on My Online Learning to see what module resources you can access and in what order you should use them. You can access My Online Learning from the CPA Australia website: cpaaustralia.com.au/myonline learning. Help Desk For help when accessing My Online Learning, either: • email MemberServices@cpaaustralia.com.au, or • telephone 1300 73 73 73 (Australia) or +61 3 9606 9677 (international) between 8.30 am and 5.00 pm (AEST) Monday to Friday during the semester. eBook An interactive eBook version of the study guide will be available through My Online Learning. The eBook contains the full study guide and features instructional media and interactive questions embedded at the point of learning. The media content includes animations of key diagrams from the study guide and video interviews with leading business practitioners. GENERAL EXAM INFORMATION The Advanced Audit and Assurance exam is three hours and 15 minutes in duration. The Study Guide is your central examinable resource. Where advised, relevant sections of the CPA Australia Members’ Handbook and legislation are also examinable. For information on you what you can take into your exam, as well as your exam structure and mark allocations, please refer to ‘Study Companion and Exam Mark Allocations’ in My Online Learning. Pdf_Folio:xi SUBJECT OUTLINE xi
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MODULE 1 THE AUDITING AND ASSURANCE FRAMEWORK Module 1 The Auditing and Assurance Framework Assurance environment Assurance engagement framework Types of assurance engagements Application of standards Changing environment Audits of historical financial information • The internationalisation of auditing • Regulation of auditing in Australia • Ethical principles • Quality control standards • Description of an assurance engagement • Scope of the Framework • Elements of an assurance engagement • Audits • Reviews • Historical non-financial reports • Future-oriented information • Systems and process • Aspects of behaviour • Performance of an activity • Application of ISAs, ISREs, ISAEs and ISRSs • Australian perspective • Evolving business models • Climate-risk disclosure • Technological innovations Module 5 Other assurance engagements Module 2 Planning the audit Module 3 Performing the audit Module 4 Conclusions and reporting responsibilities Pdf_Folio:1
LEARNING OBJECTIVES After completing this module, you should be able to: 1.1 apply the International Framework for Assurance Engagements (the Framework) and the related standards and other guidance to assurance engagements 1.2 apply the Code of Ethics for Professional Accountants to assurance engagements. RELEVANT STANDARDS AND GUIDANCE MATERIALS International standards Australian standards IESBA International Code of Ethics for Professional Accountants (including International Independence Standards) APES 110 Code of Ethics for Professional Accountants (including Independence Standards) International Framework for Assurance Engagements Framework for Assurance Engagements n/a ASA 101 Preamble to Australian Auditing Standards n/a ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards (Compiled) ISA 220 Quality Control for an Audit of Financial Statements ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information (Compiled) ISA 230 Audit Documentation ASA 230 Audit Documentation (Compiled) ISA 300 Planning an Audit of Financial Statements ASA 300 Planning an Audit of a Financial Report (Compiled) ISA 315 (Revised) Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment (Compiled) ISA 402 Audit Considerations Relating to an Entity Using a Service Organization ASA 402 Audit Considerations Relating to an Entity Using a Service Organisation (Compiled) ISA 510 Initial Audit Engagements — Opening Balances ASA 510 Initial Audit Engagements — Opening Balances (Compiled) ISA 540 (Revised) Auditing Accounting Estimates, and Related Disclosures ASA 540 Auditing Accounting Estimates and Related Disclosures ISA 600 Special Considerations — Audits of Group Financial Statements (including the Work of Component Auditors) ASA 600 Special Considerations — Audits of a Group Financial Report (Compiled) ISA 610 (Revised) Using the Work of Internal Auditors ASA 610 Using the Work of Internal Auditors ISA 800 (Revised) Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks ASA 800 Special Considerations — Audits of Financial Reports Prepared in Accordance with Special Purpose Frameworks (Compiled) ISA 805 (Revised) Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement ASA 805 Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement (Compiled) ISA 810 (Revised) Engagements to Report on Summary Financial Statements ASA 810 Engagements to Report on Summary Financial Statements ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, Other Assurance Engagements and Related Services Engagements P df_Folio:2 2 Advanced Audit and Assurance
ISRE 2400 (Revised) Engagements to Review Historical Financial Statements ASRE 2400 Review of a Financial Report Performed by an Assurance Practitioner Who is Not the Auditor of the Entity ISRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity (Compiled) n/a ASRE 2415 Review of a Financial Report: Company Limited by Guarantee or an Entity Reporting under the ACNC Act or Other Applicable Legislation or Regulation (Compiled) ISAE 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information n/a ASAE 3100 Compliance Engagements n/a ASAE 3150 Assurance Engagements on Controls ISAE 3400 The Examination of Prospective Financial Information n/a ISAE 3402 Assurance Reports on Controls at a Service Organization ASAE 3402 Assurance Reports on Controls at a Service Organisation ISAE 3410 Assurance Engagements on Greenhouse Gas Statements ASAE 3410 Assurance Engagements on Greenhouse Gas Statements ISAE 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus ASAE 3420 Assurance Engagements to Report on the Compilation Of Pro Forma Financial Information Included in a Prospectus n/a ASAE 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective Financial Information n/a ASAE 3500 Performance Engagements n/a ASAE 3610/AWAS 2 Assurance Engagements on General Purpose Water Accounting Reports ISRS 4400 Engagements to Perform Agreed-Upon Procedures Regarding Financial Information ASRS 4400 Agreed-Upon Procedures Engagements to Report Factual Findings ISRS 4410 (Revised) Compilation Engagements n/a n/a ASRS 4450 Comfort Letter Engagements n/a APES 310 Client Monies Pdf_Folio:3 MODULE 1 The Auditing and Assurance Framework 3
PREVIEW This module begins by describing the assurance environment. The institutions behind the development of the International Framework for Assurance Engagements (the Framework), which shapes auditing and other assurance engagements, are introduced. The regulation of auditing in Australia is also outlined. Next, the following key requirements of the assurance engagement framework are discussed: • ethical principles • quality control standards • description of assurance engagements • attestation and direct engagements • reasonable and limited assurance engagements • scope of the Framework • elements of an assurance engagement. The audit profession has developed its reputation, methodology and expertise through financial state- ment audits and reviews and, in the public sector, on performance engagements. More recently, the profession has expanded its range of assurance services to cover numerous situations where there is a desire to have the credibility of a report enhanced for users. Some of the common types of assurance engagements are discussed, including: • audits and reviews of historical financial information • other assurance engagements – non-financial information (e.g. sustainability or business performance reports) – future-oriented information (e.g. prospectuses) – systems and processes (e.g. internal control) – aspects of behaviour (e.g. compliance with regulations) – performance of an activity. Next, the module discusses the application of the standards, including: • auditing standards that are applied to audits of historical financial information (i.e. audits of financial statements) • review engagement standards • other assurance engagement standards • related services engagement standards. Lastly, this module introduces material to be covered in subsequent modules, discusses how the business and regulatory environment is evolving and highlights potential impacts on the auditing profession largely due to technological innovations. 1.1 ASSURANCE ENVIRONMENT Assurance services are independent professional services that aim to improve the quality, relevance and reliability of information necessary for decision making. The terms ‘auditing’ and ‘assurance’ are sometimes confused. An audit is a specific type of assurance engagement that focuses on historical financial information. That is, an audit is a subset of assurance engagements. As shown in table 1.1, assurance services are divided between: • audits of historical financial information • reviews of historical financial information • assurance engagements other than audits and reviews of historical financial information. Further information on the structure and hierarchy of assurance standards is provided later in this module. The International Framework for Assurance Engagements (para. 7) defines assurance engagements as: an engagement in which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the measurement or evaluation of an underlying subject matter against criteria. This definition provides five essential elements of an assurance engagement. For an audit of financial statements, an auditor evaluates the presentation of the financial statements against criteria (e.g. accounting standards) and expresses a conclusion (audit report) based on their findings. The audit is designed to provide users (such as shareholders) with a reasonable level of confidence about the truth and fairness of the financial statements. P df_Folio:4 4 Advanced Audit and Assurance
TABLE 1.1 Population of assurance services Types of information Historical financial information All other information Level of assurance provided Reasonable Limited Reasonable or limited Examples Audit of financial statements Review of financial statements • Corporate social responsibility (CSR) reports • Greenhouse gas statements (GHG) • Sustainability reports • Water accounting reports • Business performance measurement • Integrated reports • Future-oriented information • Systems and processes • Aspects of behaviour • Performance of an activity International standards ISAs 100–999 International Standards on Auditing ISREs 2000–2699 International Standards on Review Engagements ISAEs 3000–3699 International Standards on Assurance Engagements Source: CPA Australia 2019. Auditing and assurance are governed by two separate but closely related sets of standards: auditing standards that are concerned with audits of historical financial information; and assurance standards that are concerned with all other types of assurance engagements. Both the International Standards on Auditing and International Standards on Review Engagements continually evolve to keep pace with changes in business and social expectations. The demand for assurance services continues to grow and so does the range of assurance services offered by public accountants. As a result, the role of regulators and regulation in maintaining the quality of the assurance services is pivotal. Assurance engagement providers operate in a complex environment that is subject to a number of important influences, such as the internationalisation of auditing and regulation. This section will explain these influences on the provision of assurance services. THE INTERNATIONALISATION OF AUDITING Auditing has become an international market with a large increase in the number of multinational corpora- tions as audit clients. The auditing profession, the auditing standard-setting process and the regulatory process have also become internationalised. This internationalisation has led to the promulgation of international assurance pronouncements to harmonise auditing practices across jurisdictions. Figure 1.1 shows the structure and hierarchy of the international pronouncements, including the Inter- national Standards on Quality Control and the International Framework for Assurance Engagements. The Framework and Standards on Quality Control will be discussed in section 1.2. The types of assurance engagements will be discussed in section 1.3, and the application of the standards will be discussed in section 1.4. The pronouncements shown in figure 1.1 govern assurance engagements conducted in accordance with International Standards. However, they do not override the local laws and regulations that govern historical financial statement audits or assurance engagements on other information that are required to be followed in a particular country. Regulatory agencies implement and enforce laws and regulations. Globally, regulators want greater consistency in the delivery of quality audit services (Deloitte 2019). This includes increasing coordination through the International Forum of Independent Audit Regulators (IFIAR) by ‘sharing knowledge, collaborating and promoting consistency in the way auditing is regulated’ (Deloitte 2019). The main regulatory agencies that have an impact on auditing and assurance engagements in a global setting include: • International Federation of Accountants (IFAC) • International Forum of Independent Audit Regulators (IFIAR) • International Ethics Standards Board for Accountants (IESBA) • International Auditing and Assurance Standards Board (IAASB). Pdf_Folio:5 MODULE 1 The Auditing and Assurance Framework 5
FIGURE 1.1 Pronouncements issued by the IAASB IESBA Code of Ethics for Professional Accountants ISQCs 1–99 International Standards on Quality Control International Framework for Assurance Engagements Audits and Reviews of Historical Financial Information ISAs 100–999 International Standards on Auditing ISAEs 3000–3699 International Standards on Assurance Engagements Related Services ISRSs 4000–4699 International Standards on Related Services ISREs 2000–2699 International Standards on Review Engagements Other Assurance Engagements Engagements Governed by the Standards of the IAASB Source: International Auditing and Assurance Standards Board (IAASB) 2018, Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018 ed., vol. 1, p. 4, accessed July 2019, https://www.ifac.org/publications-resources/2018-handbook-international-quality-control-auditing-review-other-assurance International Federation of Accountants (IFAC) The International Federation of Accountants (IFAC) is the global organisation for the accountancy profession dedicated to serving the public interest by strengthening the profession. With headquarters in New York, IFAC’s members are the associations of professional accountants from around the world. CPA Australia, for example, is a member of IFAC. The IFAC council comprises one representative of each member body. In 2019, IFAC had over 175 members from 130 countries and jurisdictions (IFAC 2019). International Forum of Independent Audit Regulators (IFIAR) There has been increased oversight of the auditing profession by independent audit regulatory authorities, resulting in the formation in 2006 of the International Forum of Independent Audit Regulators (IFIAR), which in 2018 had a membership of 55 independent public oversight bodies (such as the Australian Securities and Investments Commission (ASIC) in Australia) from different countries (IFIAR 2019). International Ethics Standards Board for Accountants (IESBA) The International Ethics Standards Board for Accountants (IESBA’s) restructured code of ethics, the International Code of Ethics for Professional Accountants (including International Independence Stan- dards) (the Code), which was issued in April 2018, is the fundamental pronouncement for assurance practitioners. The Code was developed with a view to enhancing ease of navigation, use and enforcement. The Code states that ‘a professional accountant shall comply with the code’ (the Code, para. R100.3) except for parts where laws and regulations in a specific jurisdiction preclude compliance. All other standards and related guidance issued by the IAASB shall be applied in the context of the ethical framework presented in the Code. Similarly, all standards other than the Code shall be applied in the context of the International Standards on Quality Control (i.e. ISQC 1). It is not possible for a practitioner to comply with the standards without first complying with the Code. P df_Folio:6 6 Advanced Audit and Assurance
You should look through the Code now to familiarise yourself with its content. The Code is available online at https://www.ifac.org/system/files/publications/files/Final-Pronouncement-The-Restructured- Code_0.pdf. However, it will be discussed further in section 1.2. International Auditing and Assurance Standards Board (IAASB) The International Auditing and Assurance Standards Board (IAASB) is: an independent standard-setting body that serves the public interest by setting high-quality international standards for auditing, quality control, review, other assurance, and related services, and by facilitating the convergence of international and national standards (IAASB 2019). The convergence of international and national standards enhances the quality and consistency of practice throughout the world and strengthens the public’s confidence in the global auditing and assurance profession. The IAASB develops and issues standards for three types of assurance engagements: audits, review engagements and other assurance engagements. 1. International Standards on Auditing (ISAs) — to be applied to the audit of historical financial information. 2. International Standards on Review Engagements (ISREs) — to be applied to the review of historical financial information. 3. International Standards on Assurance Engagements (ISAEs) — to be applied in assurance engagements dealing with information other than historical financial information (e.g. prospectuses, sustainability reports). Information that is ‘other than historical financial’ may be future oriented and/or non-financial. The application of these standards will be discussed later in this module. As shown in figure 1.1, the IAASB also issues International Standards on Related Services (ISRSs), which are not assurance engagements (in that they are not designed to offer a degree of assurance), but which do utilise assurance- type, evidence-gathering procedures (e.g. agreed procedures engagements to report factual findings). This will be discussed in more detail in module 5. In addition, the IAASB issue other pronouncements such as the International Framework for Assurance Engagements and A Framework for Audit Quality. Both of these frameworks are discussed in section 1.2. REGULATION OF AUDITING IN AUSTRALIA This section describes Australian institutional arrangements surrounding the Australian auditing pro- nouncements, which are based on the international pronouncements. There are a number of regulators and institutions that have an impact on the audit process, either directly or indirectly. They include the: • Financial Reporting Council (FRC) • Australian Securities and Investments Commission (ASIC) • Accounting Professional and Ethical Standards Board (APESB) • Auditing and Assurance Standards Board (AUASB) • Companies Auditors and Liquidators Disciplinary Board (CALDB) • Australian Securities Exchange (ASX) • professional accounting bodies: – CPA Australia – Chartered Accountants Australia and New Zealand (CAANZ) – Institute of Public Accountants (IPA). Financial Reporting Council (FRC) The Financial Reporting Council (FRC) is an independent statutory agency that was established in 1999 to oversee the accounting standards-setting process. Its duties were expanded in 2005 to include the oversight of the auditing standard-setting process and the monitoring of auditor independence. Its responsibilities include appointing the members of the AUASB. Australian Securities and Investments Commission (ASIC) The Australian Securities and Investments Commission (ASIC) is an independent Commonwealth body that was set up under the Australian Securities and Investments Commission Act 2001 (Cwlth) (ASIC Act). ASIC carries out most of its work under the Corporations Act 2001 (Cwlth) (Corporations Act). ASIC regulates the corporate markets and financial services sectors in Australia by overseeing activities to protect investors. Their aim is to ensure investors have access to adequate information, are treated fairly Pdf_Folio:7 MODULE 1 The Auditing and Assurance Framework 7
and have adequate avenues for redress. Of particular interest to auditors is the expanded role of ASIC in recent years to include responsibility for reviewing the quality of audit work performed (Leung et al. 2019). Its responsibilities with regard to the oversight of the auditing profession include registration of auditors, enforcement of rules regarding auditor independence and use of auditing standards, and inspection of audit firms. Accounting Professional and Ethical Standards Board (APESB) The Accounting Professional and Ethical Standards Board (APESB) is responsible for setting ethical standards in Australia. It is funded by the professional accounting bodies in Australia (however, its members are independent). It is responsible for setting standards on quality control, ethical conduct and compliance with auditing and assurance standards. Australian Auditing and Assurance Standards Board (AUASB) The Australian Auditing and Assurance Standards Board (AUASB) was established in Australia as an independent statutory agency under the ASIC Act. The AUASB’s mandate requires it to consider revisions and improvements to the pronouncements initiated by the IAASB. The Australian Framework for Assurance Engagements (Australian Framework) conforms with the International Framework for Assurance Engagements (the Framework) with only minor differences. Pronouncements are issued in Australia by the AUASB and are, in general, the same as the pronounce- ments of the IAASB. However, they are not identical to the international pronouncements and differences mainly arise to accommodate the requirements of Australian legislation. Differences also arise because the Australian Auditing Standards (ASAs) include a small number of paragraphs that are not found in the ISAs. These paragraphs are labelled Aus (e.g. Aus 14), and in most cases, Aus paragraphs impose requirements on Australian auditors that are additional to those found in the international standards. Figure 1.2 illustrates the AUASB standard-setting process and identifies the procedures followed when International or Australian technical issues are identified and research and consultation with stakeholders are undertaken prior to issuing a standard or other pronouncement. FIGURE 1.2 The AUASB standard-setting process Submission to IAASB Identify international technical issue Add topic to the agenda Research and consider issue Consult with stakeholders Comments from stakeholders Implementation and compliance Identify Australian technical issue Australian stakeholders International Issue standard or other pronouncement Source: AUASB 2019, The Standard-Setting Process’, accessed August 2019, https://www.auasb.gov.au/About-the-AUASB/The- standard-setting-process.aspx P df_Folio:8 8 Advanced Audit and Assurance
Table 1.2 shows the equivalent Australian pronouncements to the International pronouncements cover- ing various aspects of audit and assurance engagements. TABLE 1.2 Equivalent Australian pronouncements IAASB (International) pronouncements AUASB (Australian) pronouncements ISQC ASQC ISA ASA ISRE ASRE ISAE ASAE Source: CPA Australia 2019. The Companies Auditors Disciplinary Board (CADB) The CADB is a statutory body initially established as the Companies Auditors and Liquidators Disciplinary Board (CALDB) in 1990. It hears applications from ASIC to determine whether auditors or liquidators have breached the Corporations Act. It also has the power to impose a penalty if it determines that a registered auditor or liquidator has failed to carry out duties properly or is not a fit and proper person to be registered. Penalties include the cancellation or suspension of registration, an imposition of restrictions on conduct, or an admonition (Leung et al. 2019). CADB members are appointed by the Treasurer based on the requirements of the ASIC Act and have a breadth of knowledge and experience encompassing the law, accounting and business (Leung et al. 2019). The Australian Securities Exchange (ASX) The ASX is also an important participant in the market, but it is not a regulator. The ASX became a public company in 1998 and operates as the main national securities exchange for equities, derivatives and fixed- interest securities. It facilitates capital raisings and trading for listed companies, settlement and capital matching, and provides comprehensive market data and information to a range of users. The ASX describes itself as ‘an integrated exchange’ offering ‘listings, trading, technology, data and post-trade services for a wide range of asset classes, including equities, fixed income, commodities and energy’ (ASX 2018). To list a company on the ASX, there are a number of Listing Rules designed to protect investors. The Listing Rules are enforceable against listed entities under the requirements of the Corporations Act. Listing Rules create obligations that are additional and complementary to the statutory obligations under the Corporations Act. One particular example of the enhanced requirements under the Listing Rules is Listing Rule 4.10.3, which requires an entity to make a statement of the extent to which their corporate governance practices have followed the best practice recommendations of the ASX Corporate Governance Council and disclose reasons for any non-conformity. Another example of enhanced requirements is in relation to continuous disclosure, where Listing Rule 3.1 requires that once a company becomes aware of any information that a reasonable person would expect to have a material effect on the price or value of its securities, it should inform the market. The ASX has a role in maintaining the integrity of the capital market. Professional Accounting Bodies Professional accounting bodies represent the interests of their members by lobbying governments and provide the framework for self-regulation, where permitted by statute. Professional bodies also administer training and examinations for students and members. There are three professional accounting bodies in Australia. They are: • CPA Australia • Chartered Accountants Australia New Zealand • Institute of Public Accountants (IPA). CPA Australia CPA Australia is a professional body with more than 164 000 members working as finance, accounting and business professionals, academics, and public servants in Australia and around the world. CPA Australia’s core services to their members include education, training, technical support and advocacy. To become a CPA it is necessary to undertake the CPA Program and have three years of work experience mentored by a member of CPA Australia. Pdf_Folio:9 MODULE 1 The Auditing and Assurance Framework 9
Chartered Accountants Australia and New Zealand (CAANZ) CAANZ is a professional body with more than 120 000 members working in public practice (including the Big-4 and mid-tier chartered accounting firms), industry, academia and government. Its members work in Australia, New Zealand and more than 100 other countries. To become a chartered accountant it is necessary to undertake the Chartered Accountants (CA) Program, which combines study and mentored work experience. Institute of Public Accountants (IPA) The IPA is a professional body with more than 35 000 members working in industry, commerce, government, academia and public practice. To become an IPA member it is necessary to meet eligible accounting qualifications equivalent to the IPA Program Stage 1 and industry experience equivalent to the Mentored Experience Program. An alternative path is available for those who have a current membership with an IFAC Member level body. QUESTION 1.1 Several private and public sector organisations are associated with the public accounting profes- sion. The following are functions pertaining to these organisations. 1. Hear applications from ASIC to determine whether auditors have breached the Corporations Act. 2. Oversee the accounting standards-setting process. 3. Formulate auditing standards and audit guidance statements. 4. Regulate the distribution and trading of securities offered for public sale. 5. Establish a code of professional ethics. 6. Oversee the Australian Auditing and Assurance Standards Board. 7. Issue auditing standards. 8. Take punitive action against an independent auditor. 9. Establish quality control standards for audit work. 10. Undertake investigation of perceived breaches of the Corporations Act. Indicate the organisation associated with each activity. REGULATION OF AUDITING IN NEW ZEALAND In the previous two sections we have described the regulation of auditors and institutional arrangements around auditing pronouncements in the international setting and then some specific Australian differences. Here we consider the New Zealand environment. The External Reporting Board (XRB) is an independent Crown entity established under the Financial Reporting Act 1993 with the following functions: 1. developing and implementing an overall strategy for financial reporting standards and auditing and assurance standards (including developing and implementing tiers of financial reporting and assurance); 2. preparing and issuing accounting standards; 3. preparing and issuing auditing and assurance standards, including the professional and ethical standards that will govern the professional conduct of auditors; and 4. liaising with national and international organisations that exercise functions that correspond with, or are similar to, those conferred on the XRB (XRB 2019a). The XRB consists of the New Zealand Accounting Standards Board (NZASB) and the New Zealand Auditing and Assurance Standards Board (NZAuASB). The auditing and assurance standards issued by the NZAuASB consist of four suites of standards: 1. Professional and Ethical Standards: these are the professional and ethical standards applying to assurance practitioners issued by the XRB Board/NZAuASB. 2. International Standards on Auditing (NZ): apply to the conduct of audit engagements (reasonable assurance) undertaken by assurance practitioners. 3. Review Engagement Standards: apply to the conduct of review engagements (limited assurance) undertaken by assurance practitioners (XRB 2019c). 4. Other Assurance Engagement Standards: apply to the conduct of assurance engagements (other than on historical financial information) undertaken by assurance practitioners. P df_Folio:10 10 Advanced Audit and Assurance
The XRB Board has set key strategic objectives for the NZAuASB related to harmonisation as follows: 1. the adoption of international auditing and assurance standards as applying in New Zealand unless there are compelling reasons not to; and 2. working with the Australian Auditing and Assurance Standards Board (AUASB) towards the establish- ment of harmonised standards based on international standards (XRB 2019b). The equivalent of the Australian regulator (ASIC) in New Zealand is the Financial Markets Author- ity (FMA), which is an independent Crown authority responsible for ensuring public confidence in New Zealand financial markets. Its responsibilities include: • the licensing of New Zealand and overseas auditors and audit firms • monitoring the audit firm performance • performing quality reviews of New Zealand audit firms and auditors • overseeing and monitoring accredited bodies to make sure they carry out their statutory duties. Further details of the FMA’s role can be obtained from the Auditor Regulation and Oversight Plan 2019–2022 (FMA 2019). The key points covered in this part, and the learning objectives they align to, are below. KEY POINTS 1.1 Apply the International Framework for Assurance Engagements (the Framework) and the related standards and other guidance to assurance engagements. • The International Framework for Assurance Engagements distinguishes assurance engagements from other engagements and provides a hierarchy of standards applicable to different engagements. 1.2 Apply the Code of Ethics for Professional Accountants to assurance engagements. • All professional accountants have to comply with the fundamental ethical principles set out in the Code. 1.2 ASSURANCE ENGAGEMENT FRAMEWORK The International Framework for Assurance Engagements (the Framework) issued by the IAASB applies to all assurance engagements. It helps in understanding the engagements to which ISAs, ISREs and ISAEs apply. Engagements for non-assurance and related services including consulting engagements are outside the scope of this Framework, but accountants undertaking such engagements must also adhere to the IESBA Code of Ethics for Professional Accountants (the Code). The Framework is not a standard and does not include any requirements for performance. The Framework refers to the applicable assurance standards and the Code where requirements are prescribed. As such, this section will outline information contained in the Framework as well as requirements of the Code and applicable standards. Matters contained in the Framework that will be discussed in this section include: • ethical principles • quality control standards • description of assurance engagements • attestation and direct engagements • reasonable and limited assurance engagements • scope of the Framework • elements of an assurance engagement: – three-party relationship – underlying subject matter – criteria – evidence – assurance report. ETHICAL PRINCIPLES The Framework specifies that firms that perform assurance engagements must comply with the fun- damental ethical principles outlined in IESBA’s Code. The Code’s conceptual framework (the Code, s. 120) outlines circumstances in which threats to compliance with the fundamental principles may occur. Pdf_Folio:11 MODULE 1 The Auditing and Assurance Framework 11
The Code’s conceptual framework also specifies how accountants may identify, evaluate and address the threats by eliminating them or reducing them to an acceptable level. The Code IFAC established the IESBA to develop ethical principles for accountants. IESBA’s Code is the central standard. The Ethics and Governance subject of the CPA Program examines the Code in depth. The aspects of the Code that are of particular interest to assurance practitioners are discussed next. The Code is divided into four parts. • Part 1 introduces and describes the fundamental principles and conceptual framework. • Part 2 applies to professional accountants in business. • Part 3 applies to professional accountants in public practice. • Part 4 covers independence standards for: – 4A audits and review engagements – 4B other assurance and non-assurance engagements. After providing an overview of the fundamental principles included in Part 1 of the Code, this section will focus on Part 3 ‘Professional accountants in public practice’, which includes professional accountants in the auditing and assurance profession. Part 3 is extensive and describes many of the circumstances and relationships that could be encountered by an assurance practitioner and the associated threats to compliance with the fundamental ethical principles. This will be followed by a review of the independence requirements outlined in Part 4 of the Code. Part 2 is outside the scope of this study guide as it concentrates on the Code that relates to professional accountants in business. Fundamental Principles The Code begins by establishing the fundamental principles of professional conduct and outlining the requirements and application of the conceptual framework to identify, evaluate and address the threats to compliance with the fundamental principles set out in the Code. The following topics are discussed next. • Fundamental principles (the Code, s. 110): – integrity – objectivity – professional competence and due care – confidentiality – professional behaviour. • Conceptual framework (the Code, s. 120): – threats and safeguards. Integrity The principle of integrity imposes an obligation on professional accountants to be straightforward and honest (the Code, para. R111.1). Objectivity Accountants, and in particular auditors, may be exposed to numerous situations that could reduce objectivity in their professional judgments. Therefore, they have a duty to avoid relationships or situations that allow prejudice, bias, conflict of interest or the undue influence of others, which might compromise their professional and business judgments (the Code, para. R112.1). Professional Competence and Due Care The principle of professional competence and due care (the Code, para. R113.1) is an obligation that has two distinct parts: (a) Attaining and maintaining professional knowledge and skills necessary to provide competent profes- sional service to the client. (b) To act ‘diligently and in accordance with applicable technical and professional standards’ (the Code, para. R113.1(b)). This obligation requires continuing awareness of relevant technical, professional and business devel- opments, which can be obtained through continuing professional development (the Code, para. 113.1 A2). The Code explains that ‘diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis’ (the Code, para. 113.1 A3). Professional accountants are required to decline a job unless they possess the necessary skills to perform it properly. P df_Folio:12 12 Advanced Audit and Assurance
QUESTION 1.2 Brenda Jones is a newly qualified accountant who is carrying out her first audit as the in-charge auditor for a construction company client that is engaged in a range of long-term contracts. Brenda has little experience of these types of clients and the accounting requirements in relation to long- term contracts. John Bull is the CFO of the client — he is a busy man and has a notorious reputation for being unfriendly to auditors. It has become apparent that Brenda has not fully understood the accounting issues involved and has avoided asking the necessary questions of John Bull to gain an understanding of the company’s transactions and the necessary audit work required to obtain evidence on the long-term contract transactions. As Brenda’s supervisor, how would you explain to her the importance of professionalism, using the International Code of Ethics for Professional Accountants (including International Indepen- dence Standards) and particularly referring to its guidance on competence? What advice would you give as to how she should proceed? Confidentiality A professional accountant must respect the confidentiality of information acquired as a result of professional and business relationships. They must not: • use the information for the personal advantage of themselves or third parties • disclose any such information to third parties without proper and specific authority, unless there are responsibilities under law, regulation or relevant ethical requirements to disclose (the Code, para. R114.1). Circumstances where disclosure of confidential information may be required or appropriate (the Code, para. 114.1 A1) include: (a) Disclosure is required by law, for example: (i) Production of documents or other provision of evidence in the course of legal proceedings; or (ii) Disclosure to the appropriate public authorities of infringements of the law that come to light; (b) Disclosure is permitted by law and is authorized by the client or the employing organization; (c) There is a professional duty or right to disclose, when not prohibited by law: (i) To comply with the quality review of a professional body; (ii) To respond to an inquiry or investigation by a professional or regulatory body; (iii) To protect the professional interests of a professional accountant in legal proceedings; or (iv) To comply with technical and professional standards, including ethics requirements (the Code, para. 114.1 A1). Professional Behaviour An accountant must demonstrate professional behaviour by complying with relevant laws and regulations and avoid any conduct that discredits the profession (the Code, para. R115.1). They must act in a way that promotes the good reputation of the profession. Threats and Safeguards Using the conceptual framework approach recommended by the Code, members must identify any threats to compliance with the fundamental principles, evaluate those threats and address threats to compliance with the fundamental principles in section 110 of the Code. Where the threats are significant, members must apply safeguards to eliminate them or reduce them to an acceptable level (i.e. so that compliance with the fundamental principles is no longer compromised). If members cannot implement appropriate safeguards, they must either decline or discontinue the specific professional service, or consider resigning from the client or employer. Compliance with the fundamental ethical principles can be jeopardised by a range of threats. • Self-interest threat may occur as a result of the financial or other interests of a professional accountant. • Self-review threat may occur when the assurance team needs to form an opinion on their work or work performed by others in their firm. • Advocacy may occur when an auditor is asked to promote or represent their client in some particular way. This could happen when a client asks the auditor to promote their shares on the stock exchange, argue their client’s position on a proposed accounting disclosure or represent them in a court case. The auditor’s objectivity may be impaired. Further, the auditor’s independence of mind and in appearance could be compromised. • Familiarity may occur when, because of a long or close relationship with a client, a professional accountant becomes too sympathetic to their interests or too accepting of their work. Pdf_Folio:13 MODULE 1 The Auditing and Assurance Framework 13
• Intimidation may occur when a professional accountant is deterred from acting objectively because of actual or perceived threats (the Code, para. 120.6 A3). Many of the safeguards that eliminate or reduce threats are discussed in the Code. Safeguards may be created by the following. • The profession, legislation or regulation — for example: – the issue of quality standards, member education, establishment of a code of ethics, and the enactment of legislation such as the Corporations Act and the ASIC Act. • In the work environment of the assurance client — for example: – when the client’s management appoints the auditor, people other than management ratifying or approving the appointment – the client having competent employees to make managerial decisions – policies and procedures emphasising the client’s commitment to fair financial reporting – internal procedures ensuring objective choices in commissioning non-audit work – strong corporate governance, including an effective audit committee. • In the work environment of the audit firm — for example: – systems and procedures to ensure compliance with ethical standards (e.g. rules on share ownership, relationship with clients, client acceptance procedures) – partner rotation policies to enhance audit partner independence – peer review policies to provide other partners with feedback. In exercising judgment on the significance of threats and safeguards, accountants must consider what a reasonable and informed third party would likely conclude on whether compliance with the fundamental principles has been compromised. You should now read paragraphs 200.1–200.8 of Part 2 of the Code, ‘Professional accountants in business’, which provide guidance on identifying, evaluating and addressing threats. Professional Accountants in Public Practice Part 3 of the Code, ‘Professional accountants in public practice’, provides guidance on applying the conceptual framework from Part 1. In this section, we consider specific issues relevant to public practitioners, including: • conflicts of interest • professional appointments • second opinions • fees and other types of remuneration • inducements (including gifts and hospitality) • custody of client assets • responding to non-compliance with laws and regulations. You should now read paragraphs 300.6–310.13 of Part 3 of the Code, ‘Professional accountants in public practice’, which provide many examples of the various threats and safeguards for professional accountants in public practice. Conflicts of Interest A professional accountant should not allow a conflict of interest to compromise their professional judgment. ‘A conflict of interest creates threats to compliance with the principle of objectivity and might create threats to compliance with other fundamental principles’ (the Code, para. 310.2). Such threats may be created, for example, when the interests of the client and the professional accountant conflict or when a professional accountant in public practice performs services for two or more clients whose interests are in conflict. In these circumstances, it is the responsibility of the professional accountant to notify the relevant parties that they are acting for two or more parties whose respective interests are in conflict and obtain their consent to so act. Safeguards to address threats created by a conflict of interest include: 1. Having separate engagement teams who are provided with clear policies and procedures on maintaining confidentiality. 2. Having an appropriate reviewer, who is not involved in providing the service or otherwise affected by the conflict, review the work performed to assess whether the key judgments and conclusions are appropriate (the Code, para. 310.8 A3). Professional Appointments Before accepting a new client, a professional accountant in public practice must determine whether acceptance would create any threats to compliance with the fundamental principles. P df_Folio:14 14 Advanced Audit and Assurance
• A threat to integrity or professional behaviour may be created from behaviours of the ‘client (its owners, management or activities)’, such as ‘illegal activities, dishonesty, questionable financial reporting practices or unethical behaviour’ (the Code, para. 320.3 A1). The professional accountant can safeguard against this threat by obtaining knowledge and understanding of the client or securing the client’s commitment to address the questionable behaviours. • A threat to professional competence and due care arises if the engagement team does not possess the competencies necessary to properly carry out the engagement. In these circumstances, an obvious safeguard would be for the practitioner to acquire knowledge of the relevant industry and its regulatory requirements. In Australia, there are additional requirements that apply to the appointment of auditors. If the auditor has been an officer or audit-critical employee of the proposed client within the 12 months immediately before the proposed audit period, accepting an appointment is not permitted (Corporations Act, s. 324). In respect of a change of auditor, an accountant who is asked to replace an existing auditor will generally need to obtain the prospective client’s permission to communicate with the existing auditor. On receipt of permission, they should request the necessary information to enable a decision to be made as to whether the audit engagement should be accepted. If permission is not granted, the accountant must carefully consider if the appointment should be declined. In this situation, the accountant must take reasonable steps to obtain information by other means about the circumstances of the change of appointment and any possible threats. These steps include enquiries of third parties or background investigations of senior management or those charged with governance of the prospective client (the Code, paras 320.4–320.5 A1). Second Opinions In accounting, an intimidation threat arises when a client succeeds in obtaining a second opinion favourable to their position — for example, an opinion on the use of particular accounting policies — and uses this to apply pressure on the existing accountant. The fundamental principle threatened is objectivity. Safeguards include the accountant who is asked to provide the second opinion seeking client permission to contact the existing accountant, as well as providing the existing accountant with a copy of the second opinion (the Code, para. 321.3 A3). Fees and Other Types of Remuneration Even though auditors, may quote whatever fee they consider as appropriate, quoting fees that are too low may make it difficult for the auditor to perform the assurance engagement in accordance with the applicable technical and professional standards. This is likely to impact on the principle of professional competence and due care. Safeguards to address this type of self-interest threat include: • adjusting the level of fees or the scope of the engagement • having an appropriate reviewer review the work performed (the Code, para. 330.3 A4). Additionally, contingent fees may create a threat to compliance with the principle of objectivity. Having an appropriate reviewer review the work performed or obtaining a written agreement with the client on the basis of remuneration prior to commencement of work may address such self-interest risks (the Code, para. 330.4 A3). A self-interest threat ‘with the principles of objectivity and professional competence and due care is created if a professional accountant pays or receives a referral fee or commission relating to a client’ (the Code, para. 330.5 A1). Such self-interest threats can be addressed by having the client outline commission arrangements prior to commencing work or ‘disclosing to clients any referral fees or commission arrangements’ with other professional accountants (the Code, para. 330.5 A2). Inducements — Gifts and Hospitality Professional accountants may find themselves in situations where they, or their immediate or close family members, are offered inducements to influence their behaviour, such as: • gifts • hospitality • entertainment • political or charitable donations • appeals to friendship and loyalty • employment or other commercial opportunities • preferential treatment, rights or privileges (the Code, para. 340.4 A1). Pdf_Folio:15 MODULE 1 The Auditing and Assurance Framework 15
Offers of inducements may create self-interest, familiarity or intimidation threats to the principles of integrity, objectivity or professional behaviour (the Code, para. 340.2). Professional accountants need to understand and comply with the relevant laws and regulations as offering or accepting inducements are prohibited in many jurisdictions. Custody of Client Assets A professional accountant should not take ‘custody of client money or other assets unless permitted to do so by law’ because doing so may create a self-interest threat to the principles of professional behaviour and objectivity (the Code, para. R350.3). Before taking custody, a professional accountant should make enquiries about the source of the assets as they may be derived from illegal activities such as money laundering. After taking custody of client money or other assets, a professional accountant must comply with the relevant laws and regulations, keep the assets separate from personal or firm assets, use them only for the intended purpose and be ready to account for them at all times (the Code, para. R350.5). Responding to Non-Compliance with Laws and Regulations The Code incorporates the IESBA’s standard, Responding to Non-Compliance with Laws and Regulations (NOCLAR), which became effective in July 2017. The Code sets out an approach to guide professional accountants who encounter or become aware of a potential NOCLAR committed by a client (the Code, s. 360). Section 360 of the Code outlines provisions relevant to professionals in public practice, which are also reflected in auditing standards, as explained in module 2. While providing professional services to a client, a professional accountant may encounter or be made aware of non-compliance or suspected non-compliance with laws and regulations. Regardless of the nature of the client, including whether or not it is a public-interest entity, the accountant has a responsibility to act in the public interest. If they encounter, or are made aware of NOCLAR, their objectives are: (a) To comply with the principles of integrity and professional behavior; (b) By alerting management or, where appropriate, those charged with governance of the client, to seek to: (i) Enable them to rectify, remediate or mitigate the consequences of identified or suspected non- compliance; or (ii) Deter the commission of the non-compliance where it has not yet occurred; and (c) To take such further action as appropriate in the public interest (the Code, para. 360.4). QUESTION 1.3 The following circumstances raise questions about an auditor’s ethical conduct. • An auditor accepts an engagement knowing that they do not have the specialist knowledge required. • An auditor discloses confidential information about a client to a successor auditor. • A public accountant pays a commission to a solicitor to obtain a client. • A public accountant agrees to be the committee chairperson for a local fundraising activity. • An auditor accepts a Christmas gift from a client. • An auditor accepts a commission from an insurance company for recommending the company to one of its audit clients. • An auditor has a bank loan with a bank that is an audit client. • An auditor retains a client’s records as a means of enforcing payment of an overdue audit fee. 1. Discuss the fundamental principles of the International Code of Ethics for Professional Accoun- tants (including International Independence Standards) in relation to each of the above. 2. Indicate, in each of the above circumstances, whether the effect on professional ethics is (i) a violation, (ii) not a violation or (iii) indeterminate, and explain. Independence Independence is generally considered to be the cornerstone of the auditing and assurance profession. The definition of independence in the Code stresses that the accountant must be independent both of mind and in appearance (refer also Glossary, APES 110). Accordingly, the accountant must act with integrity, and exercise objectivity, professional judgment and professional scepticism. In addition, the accountant must remain alert for new information, changes in facts and circumstances and avoid circumstances that a reasonable and informed third party might think indicate that a member’s integrity, objectivity or professional scepticism has been compromised. The reasonable person must P df_Folio:16 16 Advanced Audit and Assurance
perceive that the accountant is impartial and free of bias. When fraudulent practices and large business failures occur without apparent warning, the independence of the profession is questioned. As a result, the Code establishes a conceptual framework that requires a member to identify, evaluate and address threats to compliance with the fundamental principles (the Code, para. 120.2). The Code provides extensive application material in Part 4A describing numerous circumstances of threats to independence and safeguards to reduce these threats. One of the major features of the Code is the independence requirements in relation to long association of personnel with an audit client, in particular the audit partner rotation requirements (the Code, s. 540). Audit partner rotation and independence requirements in relation to the conduct of an audit are discussed further in module 2. Under the Corporations Act, ASIC has responsibility for the surveillance, investigation and enforcement of auditor independence. EXAMPLE 1.1 Principles of Professional Conduct Identify the fundamental principles of professional conduct outlined in the Code that are under threat for each of the situations below. ............................................................................................................................................................................ (a) You become aware that one of your clients is involved in illegal activities. (b) Your largest client (and the related fees) is growing at a much quicker rate than the rest of your business. The client’s fees have increased from 10% to 16% of your firm’s total fees. (c) You are the auditor of a client whose CEO is your long-time next-door neighbour. (d) In the past, you have not carried out audits of credit unions. Most of your clients are clubs and small local businesses. You decide to take on a credit union as a new client and hope there is a professional development program available to update your staff on specialised issues for this industry. (e) The audit assistant is asked to randomly select ten items from a stock list, then sight and count the relevant inventory. The assistant selects the ten items, finds nine, and is told the tenth item is in the loft. The assistant is wearing new clothes and, knowing how dusty the loft is, instead randomly selects and locates another item. (f) A partner received a loan from an audit client that is an Australian credit union. (g) A member of your assurance team is considering resigning to take up a job offer with the assurance client during the year. (h) A prospective client asks for an audit to be completed within a month to meet bank requirements. It offers a fixed fee plus a bonus for completing the audit on time. (i) A current client, for whom you have provided consulting services that involved hiring financial accounting staff and designing an information system, asks for an audit to be completed within a month to meet bank requirements. It offers a fixed fee for completing the audit on time but there is no bonus attached. (j) An audit manager is concerned that their client is not investing their funds wisely by having large amounts of cash in the bank. To help the client without offending the bank manager, the audit manager explains this issue to a friend who is a qualified financial adviser, who then sends the relevant information to the client. (k) The audit firm places an advertisement stating they have had fewer legal suits than any other firm of accountants in Australia or Asia. Check your response against the suggested answer at the end of the book. EXAMPLE 1.2 Independence Policies and Procedures Audit firms are required to comply with independence requirements. ............................................................................................................................................................................ For each of the three listed audit firm requirements, describe practical policies and procedures a firm could implement to ensure compliance. 1. Audit firms must have policies and procedures to provide reasonable assurance that the firm and its personnel maintain independence. 2. Audit firms must communicate with and educate partners and professional staff, including non-audit personnel, to ensure they understand the independence policies that relate to their activities. 3. Audit firms must maintain adequate records to identify, communicate and monitor compliance with specific independence requirements (e.g. prohibited investment lists). Check your response against the suggested answer at the end of the book. Pdf_Folio:17 MODULE 1 The Auditing and Assurance Framework 17
Australian Perspective Note that in Australia, the APESB issued APES 110 Code of Ethics for Professional Accountants (including Independence Standards) in November 2018, which is based on the Code in both structure and content. The updated APES 110 code is effective from 1 January 2020. You should now read the Preface section of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) on the application of APES 110 to members of CPA Australia and auditors who conduct audits in Australia. ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assur- ance Engagements states that the auditor, assurance practitioner, engagement quality control reviewer, and firm shall comply with the Code. ASA 102 was designed to suit Australian law so there is no equivalent ISA. It allows references to ethical requirements in other AUASB standards to remain current. Whenever APES 110 is amended, the AUASB amends ASA 102, thereby eliminating the need to amend other AUASB standards. QUALITY CONTROL STANDARDS The Framework specifies that ethical principles, independence requirements and quality control (QC) within firms are widely recognised as being in the public interest and are an integral part of high-quality assurance engagements. The Framework outlines that professional accountants performing assurance engagements are subject to ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements. An auditing standard ISA 220 Quality Control for an Audit of Financial Statements discusses specific engagement matters. Much of the content of ISQC 1 is repeated in ISA 220, but as indicated, the difference is that ISA 220 relates to the specific engagement while ISQC 1 is broader and relates to the audit firm as a whole. In February 2019, the IAASB issued a suite of proposed international standards on quality management. The proposals change the way professional accounting firms will be expected to manage quality for audits, reviews and other assurance and related services engagements. Quality management is being addressed to: • more proactively manage quality to address stakeholder expectations and concerns • improve the scalability of the standards • modernise the standards and keep them fit for purpose. For more details of these proposals, see https://www.iaasb.org/quality-management. ISQC 1 establishes basic principles and essential procedures for firms to establish and maintain a system of QC for assurance engagements. Each of the elements of quality control will be discussed, followed by an overview of the Framework for Quality Control. Elements of Quality Control There are six areas where firms should have QC policies in place: 1. leadership responsibilities for quality within the firm 2. relevant ethical requirements 3. acceptance and continuance of client relationships and specific engagements 4. human resources 5. engagement performance: (a) engagement support materials (b) supervision and review (c) consultation (d) an engagement QC review 6. monitoring (ISCQ 1, para. 16). Leadership Responsibility Leadership culture underpins all other elements of QC, so it is important for a firm to have a strong QC culture established by the leadership of the firm and the examples it sets. Operational responsibility for the firm’s QC system must rest with a person with appropriate experience and ability, as well as the necessary authority. In all likelihood, this will be one of the most senior partners. An assurance firm should develop, document and implement appropriate QC procedures and a formal code of conduct. Perhaps most challengingly, its leadership should demonstrate the firm’s overriding commitment to quality above commercial considerations. This means that the work done in an assurance P df_Folio:18 18 Advanced Audit and Assurance
engagement cannot be limited by the budget or by the fee, but must be determined by the assessed risk and the procedures thought necessary to address that risk. Read ISQC 1, paragraphs 18–19 and A4–A6 for discussions on these responsibilities. Ethical Requirements The assurance firm should develop, document and implement policies and procedures to guide and reinforce ethical behaviour. These include independence policies describing permitted and prohibited behaviour reflecting the advice in the Code, and independence consultations that allow staff and partners to refer independence threats to relevant partners so that timely action can be taken. Systems that support ethical behaviour include databases to match staff disclosures with a prohibited securities list, and (in Australia) tracking the firm’s management of the auditor rotation requirements of the Corporations Act. Read ISQC 1, paragraphs 20–25 for discussions on these responsibilities. ISA 220 explains the ethical requirements, including independence, of the engagement team in relation to audit engagements. In particular, the engagement partner shall consider whether members of the engagement team have complied with relevant ethical requirements relating to audit engagements. The engagement partner must remain alert for evidence of non-compliance with the ethical requirements relating to the audit engagement. With respect to independence, it is mandatory that the engagement partner: (a) obtain relevant information from the firm and, where applicable, network firms, to identify and evaluate circumstances and relationships that create threats to independence; (b) evaluate information on identified breaches, if any, of the firm’s independence policies and procedures to determine whether they create a threat to independence for the audit engagement; and (c) take appropriate action to eliminate such threats or reduce them to an acceptable level by applying safeguards … The engagement partner shall promptly report to the firm any inability to resolve the matter for appropriate action (ISA 220, para. 11). Non-compliance can be at the firm level (e.g. the control system to monitor employee ownership of shares in listed companies is not adequate) or at the individual client level (e.g. the audit manager and the CFO are related). In most firms, senior personnel (e.g. risk management partners) will be assigned to look after these issues at the firm level. However, individual partners are responsible at the engagement level. ASIC’s 2019 audit inspection report discusses compliance with these independence requirements. It states that most firms have established policies and processes to facilitate compliance with the auditor independence requirements of the Corporations Act and professional standards. However, there were some instances of non-compliance. • Three larger firms provided non-audit services to audit clients that compromised the appearance of independence. • One small firm failed to send partners and staff an annual independence questionnaire to confirm compliance with independence (ASIC 2019, p. 40). Examples such as these can undermine actual or apparent independence of auditors. Acceptance and Continuance of Client Relationships An assurance firm must: • consider the integrity of each client, including potential issues associated with the client (e.g. client involvement in illegal activity, questionable financial reporting practices or unethical behaviour) • determine that it is competent to perform the engagement • determine that it can comply with the Code, including, in particular, those matters related to independence. One approach taken by practitioners to assess the integrity of a client is a risk checklist. The client’s risk score is used to determine whether the audit engagement should be accepted or continued. The risk assessment can affect: • the choice of an appropriate engagement team • the extent of consultation required • the audit approach • the calculation of an appropriate audit fee. The acceptance and continuance decisions should focus on independence considerations, possible conflicts of interest and the ability to provide requisite skills to conduct the audit (e.g. whether the firm has staff with the required expertise to do this audit). Pdf_Folio:19 MODULE 1 The Auditing and Assurance Framework 19
For each engagement, the engagement partner is required to make the acceptance or continuance decision prior to commencing the audit, and this decision needs to be documented. Prior to accepting the engagement, the auditor may be required by law, regulations or relevant ethical requirements to request the predecessor auditor to provide known information regarding any facts or circumstances that, in the predecessor auditor’s judgment, the auditor needs to be aware of before deciding whether to accept the engagement (ISA 220, para. A9). Thereafter, if the engagement partner obtains information that would have caused the firm to decline the audit engagement (had that information been available earlier), this information needs to be promptly communicated to the firm so that ‘necessary action’ can be taken (ISA 220, para. 13). The auditing standard is not clear on what this appropriate action should be, but it is likely to depend on what stage of the audit has been reached. During the audit, it is unlikely that the firm would withdraw from the audit, although this could happen. Read ISQC 1, paragraphs 26–28 and A18–A23 for discussions on these responsibilities. QUESTION 1.4 List four factors that may indicate additional client evaluation procedures are necessary when evaluating the continuance of an audit client. Human Resources An assurance firm’s human resource policies must apply at both the staff and partner levels. Important personnel issues include: 1. recruitment 2. performance evaluation 3. capabilities, including time to perform assignments 4. competence 5. career development 6. promotion 7. compensation 8. the estimation of personnel needs (ISQC 1, para. A24). ‘Effective recruitment processes and procedures help the firm select individuals of integrity who have the capacity to … perform competently’ (ISQC 1, para. A24). Human resources policies should demonstrate that adherence to QC policies and ethical principles are criteria for promotion and remuneration decisions. Non-compliance should result in disciplinary action (including financial penalties) and other follow-up procedures such as training. For audit firms, it is also important that partner evaluations and promotions are documented and that the documentation covers quality controls and independence. Assignment of Engagement Teams A firm should establish policies and procedures to assign appropriate personnel with the necessary competence and capabilities to an engagement (ISQC 1, para. 31). The firm should have systems in place to monitor the workload and availability of engagement partners. This will ensure that engagement partners assigned to an engagement ‘have sufficient time to adequately discharge their responsibilities’ (ISQC 1, para. A30). ISA 220 requires an engagement partner to be satisfied that the engagement team collectively has the appropriate capabilities and competence to perform the audit engagement (ISA 220, para. 14). Note that these requirements apply to the engagement team as a whole. Therefore, it is possible to put a staff member on an audit without all of the required capabilities and competencies, provided there is adequate supervision and review. In most firms these issues will be handled through staff training and on-the-job training. Knowledge of relevant industries can sometimes provide additional challenges and require using resources from outside the firm. If the auditor becomes particularly aware of specific risk areas or areas requiring specialist skills, the engagement partner may include more senior staff and specialists on the audit and carry out additional reviews of the work done. Engagement Performance Engagement performance means completing assurance engagements in accordance with professional standards, and legal and regulatory requirements. P df_Folio:20 20 Advanced Audit and Assurance
Important policies and procedures that relate to engagement performance are: • consistency in the quality of engagement performance • supervision and review of work • consultation • engagement quality control review. Consistency in the Quality of Engagement Performance Most audit firms promote consistency in the quality of engagement performance through written or electronic manuals, software tools or other forms of documentation and materials. Supervision and Review The engagement review process has long been accepted as a critical QC process within auditing firms. A hierarchy of review is established within the audit team. Seniors review the work of juniors, managers review seniors, and partners review managers. These reviews are ongoing throughout the engagement. They ensure that sufficient evidence has been collected, the conclusions reached are consistent with the results of the work performed, and documentation is appropriate. Additionally, the review process provides training for all members of the audit team. Read ISQC 1, paragraphs A34 and A35 for further details of the supervision and review processes. The engagement partner takes responsibility for the direction, supervision and performance of the audit engagement (ISA 220, para. 15). Direction to other members of the audit engagement team would normally include informing them of: • their responsibilities • risk-related issues • problems that may arise • the detailed approach to the performance of the engagement. Supervision of members of the engagement team is also an important aspect of engagement perfor- mance. ISA 220, paragraph A16, provides the following examples of supervision: • tracking the progress of the audit engagement • considering the capabilities, competence, time availability and understanding of instructions of team members, and whether the work is being carried out consistent with the planned audit approach • addressing significant issues that arise during the audit and modifying the planned approach where appropriate • identifying matters for consultation with more experienced engagement members. An important part of the supervision responsibility includes the review process, where more experienced team members review work performed by less experienced team members. Reviewers will consider whether, for example: (a) the work has been performed in accordance with professional standards and applicable legal and regulatory requirements; (b) significant matters have been raised for further consideration; (c) appropriate consultations have taken place and the resulting conclusions have been documented and implemented; (d) there is a need to revise the nature, timing and extent of work performed; (e) the work performed supports the conclusions reached and is appropriately documented; (f) the evidence obtained is sufficient and appropriate to support the auditor’s report; and (g) the objectives of the engagement procedures have been achieved (ISQC 1, para. A35; ISA 220, para. A18). Consultation Consultation is an important responsibility of the engagement partner. This includes the requirements to: (a) take responsibility for the engagement team undertaking appropriate consultation on difficult or contentious matters; (b) be satisfied that members of the engagement team have undertaken appropriate consultation during the course of the engagement, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm; (c) be satisfied that the nature and scope of, and conclusions resulting from, such consultations are agreed with the party consulted; and (d) determine that conclusions resulting from such consultations have been implemented (ISQC 1, para. 34; ISA 220, para. 18). Pdf_Folio:21 MODULE 1 The Auditing and Assurance Framework 21
In most assurance firms, specialist partners are available for consultation on technical or complex aspects of auditing and accounting issues, tax, systems and legal matters. Often, a technical query database is compiled and firms designate partners to consult on conflict of interest and independence issues. In addition, many firms have a mentoring scheme in place where audit staff are assigned to a mentor who is a more senior auditor. The mentor provides the staff member with career planning and can be another source of consultation when needed. It is common for the larger firms to emphasise their culture of consultation. For example, Ernst and Young states that their: consultation policies are built upon a culture of collaboration, whereby audit professionals are encouraged to share perspectives on complex accounting, auditing and reporting issues. Consultation requirements and related policies are designed to involve the right resources so that audit teams reach appropriate conclusions (Ernst & Young Australia 2018, p. 11). Read ISQC 1, paragraphs 34 and A36–A40 for further details of the consultation processes. Engagement Quality Control Review On completion of the audit of listed entities and other public interest entities, assurance firms must perform an engagement quality control review (EQCR). The EQCR provides an objective and independent evaluation of the significant judgments made and the conclusions reached by the audit team and the audit partner. The EQCR is in addition to the ongoing ‘review of audit working papers’ (see module 4) performed by the engagement team and the engagement partner, discussed in the previous section, ‘Supervision and review’. EQCR reviewers are experienced audit partners who are not otherwise involved in the audit engagement. They carry out a second (or concurring) independent review of the engagement, including the quality of the work performed and the appropriateness of the auditor’s opinion. An EQCR policy should identify: • the nature, timing and extent of an EQCR • criteria for eligibility of an EQCR reviewer • documentation required of an EQCR • how differences of opinion are to be resolved. Read ISQC 1, paragraphs 35–42 for further details on engagement quality control reviews. QUESTION 1.5 What are the main attributes of an effective audit quality review program (i.e. quality review processes within audit firms) in an audit engagement? Monitoring ‘Monitoring’ refers to the ongoing examination of QC systems and procedures to ensure that they are appropriate and are carried out consistently and properly. Monitoring systems should ensure that any identified problems are communicated to the partner responsible for the firm’s QC and that appropriate responses to problems are implemented. These responses might include additional training, counselling or disciplinary action for individuals, or a revision of the firm’s QC policy. ASIC (2019) continues to emphasise that effective firm quality review processes are important for improving audit quality. Such monitoring of audit quality involves regular reviews within firms of a sample of completed audits. These reviews are usually carried out by senior staff from a different location (e.g. interstate). ASIC also released Information Sheet 222 ‘Improving and maintaining audit quality’ (INFO 222) in June 2017 to outline considerations for auditors to improve and maintain audit quality. Some of the considerations raised in INFO 222 for effective audit firm quality reviews include: • suitability of reviewers • review coverage • review and reporting • remedial action. For more details, read INFO 222 at https://asic.gov.au/regulatory-resources/financial-reporting-and- audit/auditors/improving-and-maintaining-audit-quality. P df_Folio:22 22 Advanced Audit and Assurance
You can also refer to ISQC 1, paragraphs 48–56 for further details on monitoring. As mentioned previously, in addition to an audit firm’s internal monitoring process, external monitoring also takes place. In Australia, for example, in order to review compliance with audit quality and auditor independence requirements, ASIC started an audit firm inspection program in 2004. The purpose of the inspection program is to focus on audit quality and promote compliance with the requirements of the Corporations Act, auditing standards, and professional and ethical standards. The audit firms to be inspected are selected based on a number of criteria, but there is an emphasis on audit firms that audit publicly listed or public interest entities. With auditing moving beyond national borders, there is a need for effective global auditor oversight. ASIC, through its membership of IFIAR, has sought arrangements with other international audit oversight bodies with the intention of conducting work either jointly or on their behalf. ASIC regularly releases a report of its inspection program. At the time of writing, the most recent report released was in January 2019 for ASIC’s audit inspection program in the 18 months to 30 June 2018 (ASIC 2019). ASIC continued to find deficiencies in quality control systems and the audit evidence obtained. It concluded: In our view, in 20% of the key audit areas that we reviewed, auditors did not obtain reasonable assurance that the financial report as a whole was free of material misstatement. This compares to 23% in the previous 18-month period ended 31 December 2016 and represents a welcome reduction in the level of findings for the largest six firms. (ASIC 2019, p. 4). ASIC stated that its findings did not necessarily mean the financial reports audited were materially misstated, but rather that the auditor did not have a sufficient basis to support its opinion on the financial report. It also noted that the level and nature of the findings were consistent with those found by inspectors in other countries. As further evidence of monitoring, in 2013, Australia mandated the preparation and release of transparency reports by the larger audit firms of significant entities, with a focus on the disclosure of their internal governance systems. Under section 322 of the Corporations Act, all audit firms must publish a transparency report on their website if they have conducted audits under the Corporations Act of ten or more significant entities. Just over 20 audit firms in Australia are required to publish such reports. The information to be published includes: • a description of the firm or company’s legal structure and ownership • a description of the auditor’s governance structure and internal quality control system • a statement by the management body on the effectiveness of the functioning of the internal quality control system • information concerning the basis for remuneration of the audit firm’s partners or the authorised audit company’s directors. The KPMG Auditor Transparency Report 2018 can be viewed at https://home.kpmg/au/en/home/ insights/2018/10/transparency-report.html. QUESTION 1.6 Outline procedures that a firm could implement to demonstrate its commitment to quality above commercial considerations. A Framework for Audit Quality Identifying the drivers of high-quality audits has been the subject of extensive discussion. In 2014, the IAASB published A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality (2014a), which describes, in a holistic manner, the different elements that create the environment for audit quality at the engagement, firm and national levels, as well as relevant interactions and contextual factors. There are three parts to the audit quality framework. As outlined diagrammatically in figure 1.3, these are the input, process and output stages of the audit, with each of these capable of being identified at the engagement, firm and national level. Figure 1.3 illustrates the main contextual factors impacting on audit quality as identified in A Framework for Audit Quality (IAASB 2014a). Pdf_Folio:23 MODULE 1 The Auditing and Assurance Framework 23
FIGURE 1.3 A framework for audit quality Financial reporting timetable A t t r a c t i n g t a l e n t L i t i g a t i o n e n v i r o n m e n t A u d i t r e g u l a tion Broader cultural factors Corporate governance Inform a t i o n s y s t e m s A p p l i c a b l e fi n a n c i a l r e p o r t i n g f r a m e w o r k L a w s a n d r e g u l a t i o n s fi n a n c i a l r e p o r t i n g Business practices and commercial law Contextual factors Those charged with governance Management Inputs Auditor Audit quality Regulators Process Outputs Users Source: International Auditing and Assurance Standards Board (IAASB) 2014, A Framework for Audit Quality: Key Elements That Create an Environment for Audit Quality, in Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018 ed., vol. 3, p. 6, accessed August 2019, available from: https://www.ifac.org/ publications-resources/2018-handbook-international-quality-control-auditing-review-other-assurance The inputs to quality audits include auditors: • exhibiting appropriate values, ethics and attitudes • being sufficiently knowledgeable, skilled and experienced, and having sufficient time allocated to them to perform the audit work. A quality audit process involves auditors applying a rigorous audit process and appropriate quality control procedures that comply with laws, regulations and applicable firm and national standards. Quality audit outputs are those that are useful and timely to the report users and include outputs from the auditor, the audit firm, the entity and audit regulators. These include the independent auditor’s report at the individual engagement level or the audit firm’s transparency report at the national level, which in Australia are both publicly available. The outputs also include those that arise from the auditing process but that are generally not available to those outside the audited organisation, including the management letter provided by the auditor to the audit committee at completion of the audit. The second part of the audit quality framework covers the interactions between the various participants in the financial reporting supply chain. The participants identified in the audit quality framework include management, those charged with governance, regulators, users and auditors. While the primary P df_Folio:24 24 Advanced Audit and Assurance
responsibility for performing quality audits rests with auditors, audit quality is best achieved in an environment where there is support from the other participants. The way the stakeholders interact may affect audit quality, and increased interaction is promoted in the audit quality framework. Recently there has been much greater emphasis on communication between the auditors and the audit committee. The third level outlines the contextual factors, as shown in the circle around the audit quality framework (see figure 1.3). The ten contextual factors identified in the audit quality framework are: 1. business practices and commercial law 2. laws and regulations relating to financial reporting 3. the applicable financial reporting framework 4. information systems 5. corporate governance 6. broader cultural factors 7. audit regulation 8. litigation environment 9. attracting talent 10. financial reporting timetable. Collectively, the contextual factors have the potential to affect the nature and quality of financial reporting and, directly or indirectly, audit quality. Where appropriate, auditors respond to these factors when determining how best to obtain sufficient appropriate audit evidence. Notwithstanding the publication of A Framework for Audit Quality (IAASB 2014a), it is recognised that the concept of audit quality is elusive, because it is only when financial statements are restated or companies fail that a misstatement in the financial statements is discovered, and this is often long after the period under audit. DESCRIPTION OF ASSURANCE ENGAGEMENTS Assurance engagements are described in the Framework for Assurance Engagements (para. 10) as an engagement in which a practitioner obtains sufficient appropriate evidence in order to express a conclusion aimed at enhancing the degree of confidence the intended users will have about the evaluation of the underlying subject matter against criteria. The outcome of the measurement or evaluation is ‘the subject matter information about which the practitioner gathers sufficient appropriate evidence as the basis’ for their conclusion (Framework, para. 11). Examples of assurance engagements are provided in table 1.3 and will be discussed further later in this module and again in module 5. TABLE 1.3 Examples of assurance engagements Underlying subject matter Criteria Outcome Financial position, financial performance and cash flows Financial reporting framework Financial statements Entity’s internal control process Relevant criteria Internal control effectiveness Various aspects of performance Relevant measurement methodologies Entity-specific performance measures Entity’s greenhouse emissions Recognition, measurement and presentation protocols Greenhouse gas statement Entity’s compliance Law and regulation Compliance statement Source: The Framework, para. 11. ATTESTATION AND DIRECT ENGAGEMENTS Assurance engagements include the following. • Attestation engagements (where attest means affirm, verify or corroborate the work of others), where a party other than the assurance practitioner (normally management) measures or evaluates the underlying subject matter against the criteria (i.e. prepares the financial statements in accordance with the accounting standards) (Framework, para. 12). For this type of engagement, the preparers of the subject matter assert in the report that it is in accordance with a stated framework. The auditor’s role is to attest to whether (in their opinion) that is the case. Pdf_Folio:25 MODULE 1 The Auditing and Assurance Framework 25
• Direct engagements where the assurance practitioner directly ‘measures or evaluates the underlying subject matter against the criteria’ (Framework, para. 13). In this type of engagement, as there are no such assertions made regarding the subject matter, the auditors must directly test the content themselves. There is no overlap between attestation and direct engagements: an assurance engagement is either an attestation engagement or a direct engagement. The key distinction is who measures or evaluates the under- lying subject matter against the criteria. In the Framework definition, ‘measure or evaluates the underlying subject matter’ essentially means ‘prepares a report’. In an attestation engagement, management prepares the report and the practitioner examines that report to provide assurance to readers. In a direct engagement, the report and the assurance on that report are both provided by the practitioner. Audits and reviews of financial statements are structured as attestation engagements (i.e. financial statements are prepared by management in accordance with the accounting standards and relevant legislation). Auditors and reviewers are not permitted to prepare the financial statements that they audit. In contrast, an assurance engagement examining the efficiency of an internal control system (the under- lying subject matter) against, for example, COSO (2013) (the criteria) could be carried out as either an attestation engagement or a direct engagement. • It is an attestation engagement if management evaluates the internal control system against the criteria and the assurers attest to the credibility of their report. • It is a direct engagement if the assurers undertake the evaluation of the internal control system against the criteria and report on this. The main advantage of a direct engagement is that an independent assurer undertakes the measurement and prepares the information. This approach reduces the appearance of any bias or measurement error that management can, either deliberately or not, incorporate in the report. Direct engagements can, in this sense, offer an additional level of assurance to users. QUESTION 1.7 For a report on internal controls, select whether the following are attestation or direct engagements. (a) Management provides an assessment of the effectiveness of the internal control system and the practitioner provides a conclusion on that assertion. (b) The practitioner evaluates and measures the internal control system and reports their findings to the intended users of the assurance report. REASONABLE AND LIMITED ASSURANCE ENGAGEMENTS The Framework sets out the distinction between reasonable and limited assurance engagements. An audit is an example of a reasonable assurance engagement, and a review is an example of a limited assurance engagement. The following descriptions of the two types of engagements are derived from the Framework. Reasonable Assurance Engagements In a reasonable assurance engagement, the practitioner reduces engagement risk to an acceptably low level in the circumstances of the engagement as the basis for their conclusion. The practitioner’s conclusion is expressed in a form that conveys their opinion on the outcome of the measurement or evaluation of the underlying subject matter against criteria (Framework, para. 14). The term ‘reasonable assurance’ is a high level of assurance but not an absolute level of assurance. The latter is not feasible because of the inherent limitations of an audit, where most of the evidence obtained by the auditor is persuasive rather than conclusive. The auditor needs to obtain reasonable assurance about whether the financial statements, as a whole, are free of material misstatement. Reasonable assurance arises when the auditor obtains sufficient appropriate audit evidence to reduce audit risk to an acceptably low level (ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing, para. 5). Sufficient appropriate audit evidence includes: • obtaining an understanding of the engagement circumstances • assessing risks • responding to these risks • performing further procedures, including substantive procedures • evaluating the evidence obtained. P df_Folio:26 26 Advanced Audit and Assurance
The entire audit process is geared towards an expression of opinion on the financial statements. The assurance report for a reasonable assurance engagement conveys the practitioner’s opinion on the outcome of the assessment of the subject matter information against the criteria. For an audit of the financial statements, the following opinion is commonly used: ‘In our opinion, the financial statements are fairly presented …’ Examples of conclusions provided in ISAE 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information, paragraph A179 are: ‘In our opinion, the entity has complied, in all material respects, with XYZ law.’ ‘In our opinion, the forecast of the entity’s financial performance is properly prepared, in all material respects, based on XYZ criteria.’ or ‘In our opinion, the [appropriate party’s] statement that the entity has complied with XYZ law is, in all material respects, fairly stated’. Limited Assurance Engagements A limited assurance engagement provides less confidence to users than a reasonable assurance engage- ment as the engagement risk is greater. The Framework (para. 16) suggests that the assurance offered by a limited assurance engagement should be ‘meaningful’, and that meaningful is ‘clearly more than inconsequential’. Other than that, any judgment about the meaning of the terms ‘limited’ and ‘reasonable’ is left up to the practitioner’s judgment. For a limited assurance engagement, sufficient appropriate evidence includes obtaining an understanding of the subject matter information and other engagement circumstances, but the procedures are deliberately limited in comparison to a reasonable assurance engagement. The limited assurance engagement expresses a conclusion that conveys whether, based on procedures performed and evidence obtained, anything has come to the auditor’s attention to lead them to believe that the information has been materially misstated. For a review of the financial statements, the following conclusion is commonly reached: ‘Nothing has come to our attention that would lead us to believe that the financial statements are not fairly presented …’ Examples of conclusions provided in ISAE 3000 (Revised), paragraph A181 are: ‘Based on the procedures performed and evidence obtained, nothing has come to our attention that causes us to believe that [the entity] has not complied, in all material respects, with XYZ law.’ ‘Based on the procedures performed and evidence obtained, we are not aware of any material amendments that need to be made to the assessment of key performance indicators for them to be in accordance with XYZ criteria.’ ‘Based on the procedures performed and evidence obtained, nothing has come to our attention that causes us to believe that the [appropriate party’s] statement that [the entity] has complied with XYZ law, is not, in all material respects, fairly stated’. QUESTION 1.8 Explain in detail the extent to which reasonable and limited assurance engagements differ from one another. QUESTION 1.9 Can auditors provide absolute assurance? Discuss. SCOPE OF THE FRAMEWORK Practitioners perform engagements other than assurance engagements that are not covered by the Frame- work as mentioned earlier in this module. These engagements include: • engagements performed that are covered by ISRSs (e.g. agreed-upon procedures and compilation engagements) • the preparation of tax returns where no assurance conclusion is expressed • consulting or advisory engagements (e.g. management and tax consulting) (the Framework, para. 17) Pdf_Folio:27 MODULE 1 The Auditing and Assurance Framework 27
• engagements to testify in legal proceedings regarding accounting, auditing, taxation or other matters • engagements that include professional opinions if certain conditions apply (see the Framework, para. 19). When an assurance engagement is part of a larger engagement that includes consulting or advisory work, the Framework is only relevant to the assurance portion of the engagement. ELEMENTS OF AN ASSURANCE ENGAGEMENT Figure 1.4 illustrates the elements of a generic assurance engagement and the relationships between these elements. FIGURE 1.4 Elements of a generic assurance engagement Measurer/ evaluator Criteria Subject matter information Assurance report Intended users Practitioner Terms of the engagement Engaging party Responsible party Underlying subject matter Responsibility Measure/Evaluate Assure Source: International Auditing and Assurance Standards Board (IAASB) 2018, ISAE 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information, in Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018 ed, vol. 2, p. 204, accessed July 2019, available from: https://www.ifac.org/publications-resources/2018-handbook-international-quality-control-auditing-review-other-assurance The difference between the elements illustrated in figure 1.4 for a generic assurance engagement and a financial statement audit are depicted in table 1.4. TABLE 1.4 Comparison of the elements of a generic assurance engagement and a financial statement audit Generic assurance engagement Financial statement audit Responsible party Board of directors Measurer/evaluator Company accountant Engaging party Company audit committee Underlying subject matter The business Criteria Accounting standards Subject matter information Financial statements Terms of the engagement Auditing standards Practitioner Auditor Assurance report Auditor’s opinion Intended users Shareholders/investors Source: CPA Australia 2019. P df_Folio:28 28 Advanced Audit and Assurance
The final aspect of the Framework to be discussed is the elements of an assurance engagement, as listed: (a) a three-party relationship involving: – practitioner (the assurance practitioner) – responsible party (responsible for the underlying subject matter and the preparation of the subject matter information) – intended users (of the assurance report) (b) an appropriate underlying subject matter (e.g. a government department; a program; a system or a business) (note that ‘subject matter information’ means the outcome of an evaluation or measurement of a subject matter) (c) criteria (rules governing the preparation of the subject matter information) (d) sufficient appropriate evidence (providing the basis for the assurance report) (e) a written assurance report (Framework, para. 26). Refer to figure 1.4 as you go through these five elements in the following sections. Three-Party Relationship The three-party relationship involves the practitioner (professional accountant), the responsible party (the person(s) responsible for the underlying subject matter) and the intended users of the report. Practitioner The practitioner is the assurance practitioner. For example, the auditor is the practitioner in a financial statement audit. The practitioner is responsible for determining the nature, timing and extent of procedures, and must judge the fair presentation of the subject matter information. Responsible Party The responsible party is the party responsible for the underlying subject matter. For example, for a financial statement audit, the responsible party is normally the board of directors as they are responsible for the conduct of the business — the underlying subject matter. Their responsibility for the financial statements is evidenced by their signature on the Directors’ Statement. Employees who prepare the financial statements (the subject matter information) are usually headed by the company accountant/chief financial officer. The engaging party is usually the audit committee, which is a subcommittee of the board of directors. The responsible party may or may not be the party who engages the practitioner. For example, parliament may engage the Auditor-General to carry out a performance audit of a government program. In this case, the management of the public sector organisation responsible for the program is the responsible party, and the program is the underlying subject matter. Intended Users The intended users are the people or groups expected to read the assurance report. The aim of the assurance report is to increase users’ confidence in the subject matter information. Of course, the users of the report are also the users of the subject matter information. Table 1.5 provides examples of different types of engagements and their intended users. TABLE 1.5 Examples of intended users Engagement Examples of intended users Financial statement audit Suppliers of capital, such as existing shareholders, potential shareholders, creditors and financiers Assurance engagement that evaluates internal controls Management and the board of directors, audit committees Sustainability assurance engagement May include a broad range of intended users. For example, a local community may be interested in water usage, or a local conservation group may be interested in impacts on animal habitats. Source: CPA Australia 2019. Sometimes, an assurance engagement is performed for a specific purpose and there is only one user. For example: • a purchaser of a motorway may be interested in assurance regarding the number of cars that use the motorway each day • a bank may be interested in assurance on the cash budgets of a creditor • a board of directors may want assurance on the information provided to them by management. Pdf_Folio:29 MODULE 1 The Auditing and Assurance Framework 29
In such cases, the practitioner might include a restriction in the assurance report that limits its use to a specific user and for a specific purpose. QUESTION 1.10 Determine the responsible party and the intended users for each of the following engagements. 1. A financial statement audit. 2. An assurance report on the internal controls over sales required by the board of directors. 3. An assurance report on controls at a company that provides cloud-based accounting services to customers. Underlying Subject Matter The level of assurance does not impact on the appropriateness of an underlying subject matter. ‘An appropriate underlying subject matter is identifiable and capable of consistent measurement or evaluation against the identified criteria such that the resulting subject matter information can be subjected to procedures for obtaining sufficient appropriate evidence to support a reasonable assurance or limited assurance conclusion, as appropriate’ (The Framework, para. 41). Appropriate underlying subject matter is information, which may include: • data (e.g. historical or prospective financial information, CSR information, statistical information provided to boards, performance indicators) • reports on systems and processes (e.g. internal controls, information systems) • reports on behaviours (e.g. corporate governance, compliance with regulations, human resource practices). Non-financial information is often a mix of qualitative and quantitative data. Established measurement conventions for financial information (e.g. the accounting standards) are not normally available. The subject matter information may be of a subjective nature (particularly for qualitative information). Table 1.6 shows how the underlying subject matter of an assurance engagement can take many forms. TABLE 1.6 Subject matter of an assurance engagement Underlying subject matter Example Subject matter information Financial performance of a business Profitability of a bank Statement of comprehensive income A government program A public transport system Report on efficiency and effectiveness (e.g. percentage of late trains; customer satisfaction) Sustainability Greenhouse gas emissions Emissions report Systems An internal control system* An assertion about the effectiveness of internal controls Behaviour Compliance with debt covenants Statement of compliance * This type of assurance has become particularly important. Since 2002, US companies and their international subsidiaries have been required to have their internal control systems audited. Source: CPA Australia 2019. Criteria Criteria are the standards, rules or benchmarks used to prepare and evaluate the subject matter information of an assurance engagement. Criteria can be formal, for example in the preparation of financial statements, the criteria may be International Financial Reporting Standards or International Public Sector Accounting Standards; when reporting on the operating effectiveness of internal controls, the criteria may be based on an established internal control framework or individual control objectives specifically designed for the purpose; and when reporting on compliance, the criteria may be the applicable law, regulation or contract. Examples of less formal criteria are an internally developed code of conduct or an agreed level of performance (such as the number of times a particular committee is expected to meet in a year) (IAASB Framework, para. 42). P df_Folio:30 30 Advanced Audit and Assurance
The Framework suggests (but does not require) that the auditor considers a number of criteria in deciding what is reasonable or meaningful. These include: • the underlying subject matter (e.g. historical financial information, an internal control system, key indicators of the effectiveness of a process) • the criteria (e.g. International Financial Reporting Standards) • the needs of users (e.g. investors considering buying shares) • the responsible party and its environment (e.g. management and the economic conditions) • other matters, events, transactions, conditions and practices that may have a significant effect on the engagement. In some cases, specific criteria will be developed within an organisation by the responsible party. Alternatively, practitioners may develop suitable criteria to carry out an assurance engagement. A range of criteria can be drawn upon for assurance engagements. Figure 1.5 illustrates three criteria specifically developed for a report on customer satisfaction. FIGURE 1.5 Three criteria for a report on customer satisfaction Underlying subject matter: Customer satisfaction Responsible Party C Criteria: Number of new customers making purchases each month Responsible Party B Criteria: Number of repeat purchases in the three months following the initial purchase Responsible Party A Criteria: Percentage of customer complaints resolved to the satisfaction of the customer Source: Adapted from International Auditing and Assurance Standards Board (IAASB) 2018 International Framework for Assurance Engagements, para. 43, in Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018–19 ed., vol. 3, pp. 79-80, accessed July 2019, https://www.ifac.org/publications- resources/2018-handbook-international-quality-control-auditing-review-other-assurance Table 1.7 explains the characteristics of suitable criteria and provides an example for each. TABLE 1.7 Characteristics of suitable criteria Characteristic Description Example Relevance Relevant criteria help intended users make decisions. For a performance audit on a state rail corporation, relevant criteria could include the on-time running of trains. Intended users are more likely to be concerned with the number of trains more than five minutes late rather than one minute late. Completeness Criteria are sufficiently complete when all significant and relevant factors that could affect the conclusions of users are present. For the rail network, including on-time running but omitting the number of times trains miss their station would result in criteria that are incomplete. People want to know that the trains arrive on time and stop at their intended stations. Reliability Reliable criteria allow reasonably consistent evaluation or measurement of the subject matter. Measuring the number of trains that run late every day gives a more reliable measure than taking a sample of one day every three months. (continued) Pdf_Folio:31 MODULE 1 The Auditing and Assurance Framework 31
TABLE 1.7 (continued) Characteristic Description Example Neutrality Neutral criteria help draw conclusions that are free from bias. In many cases, management has an incentive to overstate performance because improved performance may lead to rewards (e.g. bonuses or promotion). Evidence provided by independent parties is more likely to be neutral than information provided by management. Understandability Understandable criteria help draw conclusions that are clear and not subject to significantly different interpretations. Criteria must be available to the intended users to allow them to understand how the subject matter has been evaluated or measured. Source: Adapted from International Auditing and Assurance Standards Board (IAASB) 2018, International Framework for Assurance Engagements, para. 44, in Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018–19 ed., vol. 3, p. 80, accessed July 2019, https://www.ifac.org/publications-resources/2018- handbook-international-quality-control-auditing-review-other-assurance Many standard-setting organisations have created frameworks to guide preparers and assurers of reports, which may form suitable criteria for an assurance engagement. For example, there are frameworks for financial reporting, sustainability reporting, internal control system design and water accounting. However, for some data, especially qualitative data, suitable criteria may be difficult to identify. It may also be difficult for all three parties to agree on criteria, and this becomes even more difficult where the range and identity of potential users is unclear. Table 1.8 lists some types of engagement with examples of suitable criteria. TABLE 1.8 Examples of criteria Engagement Examples of criteria Financial statement audit International financial reporting standards; international public sector accounting standards Assurance report on internal control Internal Control — Integrated Framework (COSO 2013); this document is an accepted standard for the design of an internal control system Risk management Enterprise Risk Management — Integrated Framework (COSO 2004); this document is an accepted standard for the design of a risk management system Compliance Applicable laws, regulations, policies or clauses in contracts Sustainability report Global Reporting Initiative (GRI) standards Source: CPA Australia 2019. Evidence The practitioner has to gather evidence that is both sufficient and appropriate to form an opinion about the subject matter’s compliance with the relevant criteria. ‘Sufficiency’ refers to the quantity of evidence and ‘appropriateness’ to its quality. High-quality evidence is both relevant and reliable. In situations of high risk, the practitioner is expected to gather a greater amount of evidence and to seek out evidence that is highly relevant and reliable. For example, in an examination of a year-end cash balance, statements obtained directly from the bank are considered more reliable than bank statements provided by management (which may have been altered). Similarly, a bank statement covering the year-end is more relevant than one for a previous month. Sufficient appropriate evidence for subject matter information can sometimes be difficult to obtain. For example, information can be proprietary and hence may not be shared by third parties with the practitioner. Sometimes, lack of market data makes it difficult to corroborate information. Internal controls over the preparation of non-financial information are generally not as strong as those for financial information preparation. According to the Framework, an assurance practitioner has to exercise professional scepticism in obtaining sufficient appropriate evidence before reaching conclusions on the assurance engagement against the criteria. In addition, the practitioner needs to exercise professional judgment ‘in considering materiality, P df_Folio:32 32 Advanced Audit and Assurance
engagement risk, and the quantity and quality of available evidence when … determining the nature, timing and extent of procedures’ (the Framework, para. 50). Professional Scepticism The Framework describes professional scepticism as an attribute that includes being alert to such issues as: • inconsistent evidence • information that indicates the need to question the reliability of documents and management responses to enquiries • the need to collect additional evidence beyond what is specified in the audit standards • conditions indicating likely misstatements (Framework, para. 51). According to Nolder and Kadous (2018), professional scepticism comprises a sceptical mindset and a sceptical attitude. The mindset component of professional scepticism captures the critical thinking and objective decision making reflected in the auditor’s judgments. However, the attitude component of professional scepticism captures the auditor’s feelings and beliefs about the evidence gathered, thereby informing their evaluations. As a result, a practitioner must make an assessment, with a questioning mind, of the validity of evidence obtained and is especially alert to evidence that contradicts or brings into question the reliability of documents or representations by the responsible party. An attitude of professional scepticism is necessary throughout the engagement process for the practitioner to reduce the risk of overlooking suspicious circumstances, of over-generalising when drawing conclusions from observations, and of using faulty assumptions in determining the nature, timing and extent of evidence-gathering procedures and evaluating the results. Professional scepticism means that the practitioner needs to make critical assessments with a questioning mind about the validity of evidence obtained and is also alert to evidence that contradicts the reliability of documents or representations by the responsible party (ISA 200, para. A21–A23). For example, if the auditor knows there is increasing competition in an industry, yet the client’s total sales and gross margins are increasing, professional scepticism would suggest the importance of further enquiry. Similarly, a long or close relationship with a client may pose a familiarity threat to professional scepticism because the practitioner may become too sympathetic to the client’s interests or too accepting of their work (the Code, para. 120.6 A3(d)). The importance of professional scepticism is also emphasised by regulatory bodies around the world. For example, in its latest audit inspection report, ASIC (2019) outlines that professional scepticism will continue to remain an area of focus for audit firms and ASIC’s future inspections. ASIC states that it will continue to focus on: Whether an appropriate level of professional scepticism is exercised by auditors, focusing on significant judgements about audit evidence, accounting estimates, going concern assumptions and accounting treatments (ASIC 2019, p. 25). In its 2019 ASIC inspection report, ASIC notes that, ‘auditors should deliver professional, high quality audits through a strong internal culture focused on quality audits and professional scepticism’ (ASIC 2019, p. 17). ASIC emphasises that it is important for firms to focus on professional scepticism, along with the sufficiency and appropriateness of audit evidence obtained and the appropriate use of the work of experts and other auditors (ASIC 2019, p. 10). Example 1.3 demonstrates the importance of professional scepticism in collecting and evaluating evidence. Review this example now. EXAMPLE 1.3 Toe Ltd Toe Ltd is a long-term audit client. The auditor has the highest regard for management integrity and honesty. Management has a long history of open communication with the auditor and willingness to accept all audit adjustments. In auditing the financial statements of Toe Ltd, the auditor has sent confirmation letters to debtors as part of the tests of existence for trade debtors. Most responses are mailed back and many have small changes noted on the invoices, which are all immaterial. However, three responses are handed to the Pdf_Folio:33 MODULE 1 The Auditing and Assurance Framework 33
Other documents randomly have different content
plant, of vrucht daarvan; adj. in ’t wild groeiend; Wildness = wildheid. Wilde, waild. Wile, wail, slimme streek of zet, list. Wilful, wilful, opzettelijk, moedwillig, eigenzinnig, halsstarrig; subst. Wilfulness. Wilhelmina, wilhelmînə. Wiliness, wailinəs, subst. v. Wily. Wilk, wilk = Whelk. Wilkes, wilks. Will, wil, subst. wil, wilskracht, willekeur, verlangen, testament; Will verb. zullen, willen, plegen, wenschen, begeeren, bevelen, vermaken: You may change it at will = naar welgevallen; To have all things at will = alles naar wensch hebben; He holds his power at the people’s will = ontleent zijne macht aan den wil des volks; Of your own free will = geheel vrijwillig; He fell (set) to work with a will = met lust en ijver; With good will = met goeden wil; She would have her will = haar zin; He had a will of his own = was eigenzinnig; To make one’s will = zijn laatsten wil (testament) maken; To work one’s will = zijn wil doorzetten; Goodwill = welwillendheid, klandizie: Goodwill to man = in menschen een welbehagen; He bears me a good (an ill) will = is mij welgezind (draagt mij een kwaad hart toe; Zie ook Way); He will get angry = is wel eens boos, wordt gauw boos; Boys will be boys = jongens zijn jongens; He will have me dine with him to-morrow = hij wil mij morgen te eten hebben; Will he nill he = of hij wil of niet, willens of onwillens; The Lord wills me to go = de Heer wil, dat ik
ga; His cousin wills the estate to his sister = vermaakt; You are free to will your property away to anybody = vrij uwe bezittingen aan wien ge wilt te vermaken; Will-power = wilskracht; You are a self-willed character = eigenzinnig, koppig. Zie Willing. Will, wil, verk. van William, wilj’m; Willie Winkle = Klaas Vaak. Willing, wiliŋ: I am willing = ik ben bereid, wil wel; God willing = indien God het wil; Willing or not willing = Willing or unwilling = hij mag willen of niet; Willingness = gewilligheid, genegenheid. Will-o’-the-wisp, wilədhəwisp, dwaallichtje. Willoughby, wiləbi. Willow, wilou, wilg, wilgentak(-hout), bat: He (she) is wearing the willow = treurt of rouwt over een verloren lief; To wield the willow = cricketen; Willow-garland = wilgenkrans; Willow-tree = wilgenboom; Willow-warbler = Willow-wren = fitis, hofzanger; Willowed = vol wilgen, met wilgen beplant; Willowy = vol wilgen, als wilgen, als eene wilg. [645] Willy-nilly = of hij wil of niet, weifelend, onbetrouwbaar. Willy, wili, Wim. Wilt, wilt, verwelken, slap worden, ontzenuwen. Wilton, wilt’n: Wilton carpet, soort. v. pluche of velours tapijt; Wiltshire, wiltšə. Wily, waili, sluw, slim. Wimble, wimb’l, subst. drilboor; Wimble verb. boren, drillen.
Wimbrel, wimbr’l. Zie Whimbrel. Wimple, wimp’l, subst. kap waarmede de priesters worden bekleed bij de aflegging der geloften; zwarte kap der nonnen; Wimple verb. met een kap bedekken, omsluieren, rimpelen, kronkelen: The wimpling waves = gerimpelde golven. Win, win, subst. overwinning, gewonnen partij, succes; Win verb. winnen, verkrijgen, behalen, overwinnen, zegevieren, bewegen, overreden: Win her and wear her = win haar en koester haar; Who wins loses = qui perd gagne; He could not win the ear of the audience = zijn gehoor niet boeien; To win one’s way = (langzaam) vorderingen maken; He has won me over = mij overgehaald; We have won through this dreary time by the help of illusions = zijn dezen naren tijd te boven gekomen; That has won upon the hearts of the people = het hart der menschen ingepakt; We have won upon the enemy = een voordeel behaald op; He so won upon me that .… = kreeg me zoover; Winner = winner; Winning = bekoorlijk, innemend (Wins = winst): To have a winning way with a person = zich bemind maken bij; Winning- post = eindpaal (bij wedrennen). Wince, wins, terugdeinzen (at), ineenkrimpen, uitvluchten zoeken: He winced from the very thought of death = ijsde bij; He winced under the blow = kromp ineen; Without wincing = zonder een spier te vertrekken. Winch, winš, subst. haspel, lier; Winch verb. ophijschen met een lier. Winchelsea, wintšəlsî; Winchester, wintšəstə: Winchester rifle = soort geweer.
Wind, wind, wind, tocht, lucht(druk), adem, opgeblazenheid, blaasinstrument; Wind verb. luchten, laten doorwaaien, achter adem brengen, afjakkeren, op adem laten komen: Wood-winds = houten blaasinstrumenten; The delicacy of the wind in the prelude = het fijn opgevatte gedeelte voor de blaasinstrumenten; Winds and strings = blaasen strijkinstrumenten; The four winds = streken van het kompas; Short wind = korte adem; Sound of wind and limb = gezond van lijf en leden; Before the wind = vóór; Close to the wind = scherp bij den wind; Down the wind = vóór, met den wind mee; Everything here is going down the wind = alles gaat te niet, naar de maan; We were steaming in the teeth of the wind (= in the wind’s eye) = vlak in den wind; There is something in the wind = aan de hand, er broeit wat; To have a thing in the wind = lucht van iets hebben; He was three sheets in the wind = aangeschoten; Near the wind = scherp bij: To sail near the wind = iets zeggen, dat “bij ’t kantje af” is; You must go as near the wind as you possibly can = het zoo zuinig mogelijk aanleggen; To preach to the winds = te vergeefs; To throw to the winds = zich niet bekommeren om; He sails with the wind = hij waait met alle winden; With the wind aft, ahead = met den wind van achteren, van voren in; I wish to ascertain how the wind blows = uit welken hoek de wind waait; Sits the wind in that corner? = waait de wind uit dien hoek; To break wind = een boer laten; The horse carries (the) wind = draagt zijn kop (neus) hoog; To change the wind = van koers veranderen; He got his second wind = kwam op adem; I got wind of it = kreeg er lucht van; The affair got wind = de zaak werd ruchtbaar; I have (take) the wind of you = ik ben je de baas; To raise the wind = geld los krijgen; I will take the wind out of his sails = de loef afsteken; (The part of a ship) between wind and water = het deel dat door het rollen van het vaartuig of den golfslag dikwijls boven het water uit komt; gevaarlijke plaats; wind and weather permitting = wind en weder dienende; Trade winds (= Trades)
= passaatwinden; Windbag = windzak, bluffer, praatjesmaker; Windbag sleeves = pofmouwen; Windbound = door tegenwind opgehouden; Wind-break = heining of hek om den wind te breken; Wind-broken = dampig (= Broken-winded); Wind- dropsy = trommelzucht (Med.); Wind-egg = windei; Windfall = wat door den wind af- of neergewaaid is, meevallertje, buitenkansje; Windfallen = door den wind afgewaaid; Wind-flower = gentiaan, paarsche anemoon; Wind-furnace = windoven; Wind-gall = gezwel onder aan de pooten van een paard; Wind-gauge = windmeter; Wind-gun = windroer; Wind-guard = vóórruit (van auto); Wind-hatch = mijnschacht waaruit het erts naar boven wordt gebracht; Wind-instrument = blaas- of windinstrument; Windmill = windmolen: You are tilting at windmills = vecht tegen windmolens; Windpipe = luchtpijp; Wind-rode = door den wind tegen den stroom in gedraaid (van een geankerd schip); Wind-row = zwad gras of een hoop turf (om te drogen); Wind- row verb. in regels leggen; Wind-sail = koelzeil (als ventilator beneden in het schip); Wind-side = windzijde; Wind-tight = ondoordringbaar voor den wind; Windage = luchtdruk, zuiging, speelruimte (kanon), invloed van den wind op de afwijking van een kogel; Winded: achter adem; vooral gebruikt in samenst.: Long- winded = van langen adem; Short-winded = kortademig; Windless = zonder wind of adem, glad, vlak; Windward, subst. loefzijde; adj. naar den wind: To windward = te loever; I have laid my anchor to the windward = heb tijdig mijne maatregelen genomen; I have got (to) the windward of him = hem de loef afgestoken; Windiness, subst. v. Windy = winderig, wind… (Wind side), opgeblazen. Wind, waind, winden, draaien, rollen, kronkelen, krom trekken, wikkelen, telkens veranderen; blazen: To wind a call = een [646]commando geven met het bootsmansfluitje; The horn was wound = er werd op den hoorn geblazen; To wind a ball of
worsted = opwinden; He cleverly wound it into his speech = vlocht dat in; The skein was wound off = werd afgewonden; He wound himself out of it = redde er zich uit, draaide er zich uit; He wound his way through all the intricacies of the debate = hij kwam goed en wel door het ingewikkelde debat heen; To wind up a letter = besluiten; The thread was wound up = werd opgewonden; Wind (up) your watch = wind uw horloge op; The band wound up with the national anthem = het orkest speelde het volkslied tot besluit; The business was wound up = werd gelikwideerd; If this sort of thing goes on any longer, I shall be wound up in the bankruptcy court = zal het einde van het liedje een failliet zijn; Wind-up = likwidatie: Wind-up sale = finale uitverkoop; Winding-up = slot (van een rede), uitverkoop, faillissement; Winder, subst. wie of wat windt, enz., haspel, slingerplant. Zie Winding. Windhover, windhɐvə, windhovə, torenvalk. Winding, waindiŋ, subst. bocht, kronkeling, draai; adj. draaiend, kronkelend, krom, draai…: Winding-engine = kraan; Winding- horn = waldhoorn; Winding-sheet = lijkwa; dief (aan een kaars); Winding-staircase = Winding-stairs = wenteltrap; Winding- tackle = hijschtakel. Windlass, windləs, lier, gangspil; Windlass verb. opwinden met een lier of gangspil. Windle-straw, wind’lstrô, boender-(struik-, kam-)gras. Window, windou, venster, loket; Have you got French windows or sash-windows in your room? = openslaande (ramen) deuren of schuiframen; The book was in the window at Green’s = lag voor het raam bij; He broke all the windows = sloeg alle ruiten in; He came in at the door and got out at the window = en ging weg
door het raam; He looked out at the window = hij keek door het raam naar buiten; He looked out of the window = hij keek uit het raam naar buiten; Window-blind = zonneblind, jalouzie, (rol) venstergordijn = Window-curtain = gordijn; Window-cleaning company = glazenwasscherij; Window-dresser = étaleur; Window-dressing; Window-duty = belasting op vensters; Window-frame = vensterkozijn; Window-glass = vensterglas; Window-pane = ruit; Window-sash = het op- en neergaande deel van een raam; Window-seat = vensterbank; Window-slot = venstergleuf; Window-tapper = porder; Window-tax = belasting op de vensters; Windowed = met (veel) vensters. Windsor, winzə, stad: Windsor-chair = met hoogen rug; Windsor-soap = soort toiletzeep. Wine, wain, wijn, dronkenschap, wijnfuif: Still wine = niet parelende wijn; Sparkling wines = parelende wijnen; Wine and water = grog van wijn; Spirit of wine = wijngeest, alcohol; It is a pity to dilute this wine = te verdunnen; He never mixes his wines = drinkt nooit door elkaar; Good wine needs no bush = behoeft geen krans; When wine is in, wit is out = als de wijn is in den man, is de wijsheid in de kan; When the wine is drawn it must be drunk = men moet het ijzer smeden als het heet is; Wine-bag = wijnzak; Wine-bibber = pimpelaar; Wine-bin = wijnkist; Wine-biscuit = wijnbeschuitje; Wine-bottle; Wine-cask = wijnvat; Wine-cellar = wijnkelder; Wine-cooler = koelvat (voor wijnen); Wine-decanter = karaf; Wine-glass = wijnglas; Wine- grower = wijnbouwer; Wine-growing; Wine-lees = wijnmoer; Wine-merchant = wijnkooper; Wine-press = wijnpers; Wine- shop = wijnhuis; Wine-skin = wijnzak; Wine-stone = wijnsteen; Wine-vault = groote wijnkelder; Wine-vaults = proeflokaal; Wine-vinegar = wijnazijn.
Winfred, winfred, Winfried. Wing, wiŋ, subst. vleugel, wiek, vlerk, vlucht, coulisse, épaulet, molenwiek; Wing verb. van vleugels voorzien, bevleugelen, vliegen, doorvliegen, onschadelijk maken (in den vleugel, arm of been treffen): Swallows on the wing = vliegende zwaluwen; We are on the wing = aan den arbeid; The general was on the left wing = aan den linker vleugel; She went there under the wing(s) of her mother = onder moeders vleugels; We went there upon the wings of the wind = op de vleugelen des winds; The bird beat its wings against its prison = sloeg met; To clip a person’s wings = iemand kortwieken; His soul has taken wing = is (het lichaam) ontvloden; They took wing = gingen aan den haal; The angel winged his flight (way) to the earth = richtte zijne vlucht naar de aarde; I doubt if I can wing the ruffian = onschadelijk kan maken; Wing-case = vleugelschild; Wing-shell = vleugelhoren; Wing-shot = schot op een vliegenden vogel; Wing-stroke = vleugelslag; Winged = ge- of bevleugeld, vlug: Winged words = gevleugelde woorden; Wingless = zonder vleugels, met rudimentaire vleugels; Winglet = vleugeltje. Wink, wiŋk, subst. knipoogje, wenk, oogenblikje, blink; Wink verb. knipoogen, wenken: I did not get a wink of sleep last night, I never slept a wink = heb geen oog dichtgedaan; To give (tip) a wink to a person = To tip a person the wink = een wenk geven; I will just take forty winks = ga even dutten; He winked at my shortcomings = zag door de vingers; Wink-a-peep = guichelheil; Winker = wimper, oog, oogklep; It was done like winkey, like winking = zeer snel en flink. Winkle, wiŋk’l, alikruik. Winkle-hawk, wiŋk’lhôk, winkelhaak, scheur (Amer.).
Winnipeg, winəpeg; Winipiseogee, winipisôkî. Winnow, winou, wannen, ziften, schiften; Winnower; Winnowing: Winnow-basket (-machine, -sieve). Winslow, winzlou. Winter, wintə, subst. winter; ook adj.; Winter verb. overwinteren, de winterkwartieren betrekken, gedurende den winter bewaren (vertoeven), overhouden (van planten, etc.): [647]It happened at (the) death of winter, in the depth of winter = in het hartje van den winter; Winter apple = winterappel; Winter barley = wintergerst; Winter citron = soort v. winterpeer; Winter cough = chronische bronchitis; Winter crop = winteroogst, wintervrucht; Winter moth = wintervlinder; Winter pear = winterpeer; Winter quarters = winterkwartieren; They went into winter quarters = betrokken de winterkwartieren; Winter solstice = winterzonnestilstand; Winter suit = winterpak; Winter-garden = wintertuin; Wintergreen = wintergroen; Winter-ground = eene plant tegen de koude met stroo bedekken; Winter-kill = door strenge koude dooden (Amer.); Winter-service = winterdienst; Winter-time = wintertijd; Winter-weather = winterweer; Winterly = wintersch, winterachtig, koud, somber = Wint(e)ry. Winy, waini, naar wijn smakend; dronken. Wipe, waip, subst. veeg, het vegen, slag; lik (fig.); Wipe verb. vegen, afvegen, afwisschen, uitwisschen, ranselen: To give a thing a wipe = afvegen; He gave me a wipe = gaf me een lik; I wiped his eye = stak hem de loef af; To wipe one’s feet (shoes) = voeten vegen; The past cannot be wiped away as we wipe writing from a slate; Everything was wiped off = afgeveegd, weggevaagd; To wipe off a score = een rekening vereffenen; To wipe out = het levenslicht uitblazen; He was wiped (out) of his watch = zijn
horloge werd hem ontfutseld; Wipe it out = veeg of wisch het uit; I have wiped up the floor with him = ik heb hem tegen den grond gesmakt; Wiper = veger, stoffer, wisscher; Wiping-cloth (Wiping-clout) = doek. Wire, waiə, subst. draad, ijzerdraad, telegraafdraad, telegram; Wire verb. met een metalen draad vastmaken, aan een draad rijgen, in een strik (van metaal) vangen, telegrapheeren, met ijzerdraad omringen: He replied by wire = per draad, telegrafisch; To manipulate (pull, work) the wires = de draden in handen hebben, in ’t geheim besturen; To send a wire = telegram; That boy seems to be all on wires = kan niet stil zitten, heeft kwik in zijn lijf; He has wired away (in) = is met kracht aan den arbeid gegaan; Wire back, please = antwoord per draad verzocht; Wire- blind = horretje; Wire-bridge = hangbrug; Wire-brush; Wiredraw = trekken of rekken van metaaldraden, uitspinnen, muggenziften; Wiredrawer = draadtrekker; Wiredrawing (fig.) = zaniken; Wire-edge = draad (van een pas geslepen mes, schaats, etc.); Wire-entanglement = draadversperring; Wire-grate = chassinet; Wire-gauze = fijn metaalgaas; Wire-puller = die de draden in handen heeft, (politieke) intrigant; Wire-pulling = geheime invloed, intrige(s); Wire-stitching = het hechten van de bladen met ijzerdraad; Wireless telegraphy (Wireless station); Wiriness, subst. v. Wiry = van of sterk als ijzerdraad, borstelig, mager en gespierd, taai, scherp: His wiry chin = zijn scherpe, puntige kin; I am rather wiry, and can stand a good deal of fatigue = ik ben nogal taai. Wisconsin, wiskonsin. Wisdom, wizd’m, wijsheid, wetenschap; Wisdom-tooth = verstandskies: Has he cut his wisdom-tooth yet? = heeft hij zijn verstandskies al.
Wise, waiz, wijs, verstandig, vroom (Bijb.), ernstig, ervaren, bekwaam: The three Wise men of the East = de Wijzen uit het Oosten; Wise woman = waarzegster; vroedvrouw; It is easy to be wise after the event = wie wist, die won; Why, man, take it, who is the wiser? = wie weet er wat van, wordt er wat van gewaar; A word to the wise is enough = een goed verstaander heeft maar een half woord noodig, Wiseacre, waizeikə, waanwijze, wijsneus; Wise-hearted = wijs, bekwaam; Wiseness = Wisdom. Wise, waiz, wijze: In any wise = op de een of andere manier; In no wise = op geenerlei manier, geenszins; On this wise = op deze manier. Wish, wiš, subst. wensch, verlangen, begeerte; Wish verb. wenschen, verlangen, hopen: To give a person his wish = iemands wensch vervullen; To have one’s wish = zijn wensch vervuld krijgen; I wish he may do it = ik wou dat .…; I wish you joy (of it) = ik feliciteer u (er mee); I wish you well = ik mag u graag, ben u goed gezind; To wish a person at the devil (Jericho); I wished for your return = verlangde naar; I wished him over the moon = wou dat hij op de Mookerhei zat; Wish(ing)-bone = borstbeen van een vogel: To divide a wish(ing)-bone, (gezegd van een jongen en een meisje, die ieder aan een eind trekken; die het langste stuk in de hand houdt, zal het eerst trouwen of een wensch vervuld zien); Wishing-cap (-rod) = tooverhoedje (roede); Wisher; Wishful = wenschend, verlangend, smachtend: To be wishful of; subst. Wishfulness. Wishart, wišət. Wish-wash, wišwoš, slap, waterig; ook subst.; Wishy-washy = slap, onbeduidend, sentimenteel.
Wisp, wisp, wisch, bosje of bundeltje, vegertje, dwaallicht; Wisp verb. afvegen: A wisp of a girl = een nietig, schraal meisje, klein ding; Wisp of hair; adj. Wispy. Wist, wist, oud imperf. van to wit. Wistful, wistful, peinzend, ernstig, droefgeestig, vol droef verlangen; subst. Wistfulness. Wistiti, wistiti, soort v. Z. Am. aap. Wistonwish, wist’nwiš, prairiehond. Wit, subst. kennis, verstand, vernuft, rede, scherpzinnigheid, grappigheid of geest(igheid), geestig man, humorist; ook verb. in: To wit = namelijk, te weten: Mother wit = natuurlijk gezond verstand; Ready wit = gevatheid; He is at his wit’s end, at his wits’ end = ten einde raad; Are you in your wits? = hebt gij “de vijf” bij elkander; He is out of his wits = is de kluts kwijt, gek; He has all his wits about him = al zijne zinnen goed bij elkaar; To come to one’s wits again = weer tot bezinning komen; To drive a person out of his wits = dol maken; You have [648]frightened them out of their wits = ze vreeselijk doen schrikken; To live by one’s wits only = op de een of andere manier zonder werken door de wereld komen; That will set your wits to work = u alle overleg doen gebruiken; Use your wits = gebruik uw verstand; Witless = dom, onverstandig, dwaas; subst. Witlessness; Witted: Dull- wited, Quick-witted = suf, scherpzinnig; Wittingly = voorbedachtelijk. Witch, witš, subst. heks; Witch verb. beheksen, betooveren: He is no witch = geen heksenmeester; Witchcraft = Witchery; Witch- elm = bergiep; Witch-hazel = hamamelis; Witch-meal = groote wolfsklauw; Witchery = betoovering, bekorting.
Witenagemot(e), witənagəmout, nationale vergadering (bij de Angel-Saksers). With, widh, met, mede, door, bij, van, etc.: Blind with fear; Frantic with despair = gek van wanhoop; Stiff with cold; Thirsty with walking; I have no power with him = invloed op hem; One year with another = het eene jaar door het andere; I am with you there = met u eens; Withal, widhôl, daarbij, bovendien, verder. Withdraw, widhdrô, terugtrekken, weggaan, onttrekken, terugnemen, inhouden (bij verkoop): He withdrew his support = onthield ons zijn steun; He withdrew from business = trad uit; Withdrawal = terugroeping, terugtrekking, terugneming, opvraging van inleg; Withdrawer; Withdrawing: Withdrawing-room = Drawing-room; Withdrawment = Withdrawal; Withdrawn, p.p. van Withdraw. Withe, w(a)idh, with, subst. wilgentwijgje, rijsje. Zie Withy. Wither, widhə, verwelken, verdorren, vernietigen: One of those mornings when it is hot and cold, wet and dry, bright and lowering, sad and cheerful, withering and genial, in the compass of an hour = akelig (guur) en lekker; Withered = verdord, uitgedroogd; Withering = vernietigend (fig.). Wither, widhə: Wither-lock = boschje haar, waaraan de ruiter bij het opstijgen zich vast grijpt; Wither-wrung = aan de schoft bezeerd of geschaafd; Withers = schoft van een paard: The wither are wrung = de schoft is stuk geschuurd; mijn geduld is ten einde; To press on the wrung wither = de gevoelige snaar aanroeren; My wither are unwrung = ik ben van alle werk ontslagen, vrij.
Withheld, widhheld, imp. en p.p. van Withhold, widhhould, weerhouden, onthouden, onttrekken: The permission was withheld from him = werd hem geweigerd; Withholder; Withholdment = onthouding, etc. Within, widhin, adv. en prep, binnen, in, van binnen, inwendig, niet te buiten gaande: His room is within mine = men komt in zijne kamer door de mijne; Within call = te beroepen; Within doors = binnenshuis; Within my memory = voor zoolang ik mij kan herinneren; Within a mile of = nog geen mijl; It is not within my power = in mijne macht; Within my price = in mijn prijs; Within a month’s time = binnen eene maand; The deer was within range = onder schot; Within sight; He was within a little of being killed = het scheelde maar weinig of; Who’s within = wie is daar? To live within one’s income = niet meer uitgeven dan men te verteren heeft; To think within oneself = by zich zelf. Without, widhaut, adv. en prep. zonder, buiten, van buiten, uitwendig, vrij, beroofd van, onafhankelijk van: Without day = zonder een dag te bepalen voor samenkomst of behandeling; geheel van de baan; Without doors = buitenshuis; Without funds in hand = zonder dekking; Without one’s reach = buiten bereik; The station is without the town = buiten de stad; I can get ready without you = zonder u; I can do without it = ik kan het missen, heb het niet noodig. Withsay, widhsei, tegenspreken, ontkennen. Withstand, widhstand, weerstaan, zich verzetten; Withstander = tegenstander, die zich verzet; Withstood, widstud, imp. en p.p. van to withstand. Withwind, widhwaind, akkerwinde, haagwinde.
Withy, withi, w(a)idhi, uit wilgentwijgen, taai, buigzaam. Witness, witnəs, subst. getuigenis, getuige, ooggetuige (= Ocular witness); Witness verb. getuige zijn van, als getuige teekenen, ondervinden, beleven: In witness whereof = ten bewijze waarvan; Witness for the crown, for the prosecution = getuige à charge; Witness for the defence, defendant (prisoner) = getuige à décharge; To bear witness to = getuigenis afleggen, betuigen; To call to witness = tot getuige roepen; When we turn to the art of education, the English educationist does not leave himself without witness = laat zich niet onbetuigd; I took him to witness = nam hem tot getuige; You have been romping, witness your hot face = getuige je vuurroode gezicht; The most violent storm I ever witnessed = dien ik ooit beleefd heb; Did you ever witness such a thing? = ooit zóó wat gezien; The signatures were witnessed = door getuigen gestaafd; Witness-box = getuigenbank. Witticism, witisizm, geestige zet; Wittiness, subst. v. Witty = geestig, scherp, snedig. Witwal, witwôl, groene specht. Wive, waiv, trouwen, tot vrouw nemen: Hanging and wiving goes by destiny = hangen en trouwen is eene loterij; This Hottentot chief is the most wived man (scherts.) = heeft de meeste vrouwen. Wiveliscombe, wilsk’m. Wivern, waivən; Zie Wyvern. Wizard, wizəd, subst. waarzegger, toovenaar.
Wizen, wiz’n, adj. dor, droog, verschrompeld; Wizen verb. verwelken, verschrompelen; Wizen-faced = met verschrompeld gelaat. Woad, woud, weede (plant); Woaded = met weede, blauw gekleurd. Wobble, wob’l, waggelen(d loopen); op en neer gaan (van effecten): “Quawk”, said the pig, and wobbled off; These pictures are wobbly = onzeker in prijs. Zie Wabble. [649] Woburn, wubən, woubən. Woe, wou, subst. smart, verdriet, wee: Woe is me = wee mij; Woe worth the chase = wee zij de jacht; Woe worth the day = wee den dag; Woebegone = naargeestig, in smart gedompeld; Woeful = treurig, ellendig, naargeestig, droevig; subst. Woefulness; Woe-worn = door smart verteerd; Woful = Woeful. Wolcot(t), wulkət. Wold, would, woud, bosch, heuvelland. Wolf, wulf, subst. wolf, harde wanklank, lupus; Wolf verb. op de wolvenjacht gaan, gulzig verslinden: A wolf in sheep’s clothing = een wolf in een schapevacht; He always cries wolf = maakt altijd valsch alarm; I have a wolf by the ears = ik heb mijn man gevonden; To have a wolf in the stomach = een razenden honger hebben; We could hardly keep the wolf from our door = nauwelijks den mond open houden; Wolf-dog = wolfshond; Wolf- fish = zeewolf; Wolf-net = wonderkuil (soort v. net); Wolf’s bane = gele monnikskap; Wolf’s-claw, Wolf’s foot = wolfsklauw; Wolf’s-peach = tomaat; Wolfish = wolfachtig, wreed, vraatzuchtig; Wolfkin, Wolfling = jonge wolf.
Wolfe, wulf; Wolfram, wulfram, Wolfram; wolframium; Wollaston, woləst’n; Wolstonecraft, wulst’nkrâft; Wolseley, wulzli; Wolsey, wulzi; Wolton, wult’n; Wolverhampton, wulvəramt’n. Wolverine, wulvərin, veelvraat. Wolves, wulvz, mv. v. Wolf. Woman, wum’n, vrouw, vrouwelijke bediende: Woman of the town = prostituée; Woman of the world = vrouw van de wereld; My good woman = vrouwtje; Kept women = maîtressen; Lady’s woman = kamenier; The New Woman = de (ultra) moderne vrouw; The Scarlet Woman = de moeder van alle ontucht en onheiligheid (Openb. XXII, 4 ); That frivolous Winsley woman = dat wijf (die meid) van die W.’s; He played (acted) the woman = speelde de rol der zwakke vrouw; There is a woman in the wind = daar zit eene vrouw achter; Woman-born = uit eene vrouw geboren; Woman-built = door vrouwen gebouwd; Woman- doctor = doctores; Woman-hater = vrouwenhater; Woman- saint; Woman-servant; Womanhood = vrouwelijke staat, vrouwelijkheid; Womanish = vrouwelijk, vrouwen…; (Woman tears), verwijfd; subst. Womanishness; Womankind = het vrouwelijk geslacht, de vrouwen, het vrouwvolk; Womanlike = vrouwelijk, zacht; Womanliness, subst. v. Womanly = Womanlike; Women, wim’n, vrouwen; Women-folk = vrouwvolk; Women’s rights = rechten der vrouw; Women’s (Woman’s, Woman-) suffrage = vrouwen-stemrecht; Womenkind = Womankind. Womb, wûm, subst. baarmoeder, schoot: Falling and displacement of the womb = uitzakken; Womb-fury (med.); Womb-passage = (hals der) scheede.
Won, wɐn, imp. en p.p. van to win. Wonder, wɐndə, subst. wonder, verbazing, bewondering; Wonder verb. verbaasd staan, zich verwonderen, nieuwsgierig zijn, benieuwd zijn: Wonders will never cease = de wonderen zijn de wereld nog niet uit; To do (perform, work) wonders = wonderen doen; To look all wonder = groote oogen opzetten; It caused considerable scandal, and remained a nine days’ wonder = en bleef een korten tijd de aandacht trekken; No article in a review is a nine days’ wonder = baart ooit lang opzien; In the name of wonder = om ’s hemels wil; It is no wonder he refused = het is heel natuurlijk; He is here, for a wonder = zoowaar (vreemd genoeg); The seven wonders of the world = de zeven wonderen der wereld; I wonder where he can have been = ik ben benieuwd; I wonder how much he left me = ik ben toch nieuwsgierig, ben benieuwd; Wonderland = land der wonderen; Wonder-stricken = Wonder-struck = verbaasd, door verwondering getroffen; Wonder-working = wonderdadig; Wonderer = wie zich verbaast, etc.; Wonderful = verwonderlijk, vreemd, verbazend; subst. Wonderfulness; Wonderment = verwondering, verbazing; Wondrous = verwonderlijk, vreemd. Won’t, wount, samentr. v. Will not: It won’t do = dat gaat niet. Wont, wount, wɐnt, gewend; subst. gewoonte, gebruik; Wont verb. gewend zijn, plegen; zich gewennen (Wont oneself): Wonted = gewoon, gewend; Wontless = ongewoon, niet gewend. Woo, wû, vrijen naar, dingen naar, het hof maken, trachten te winnen: They woo the battle = zoeken den strijd; Wooer; Wooing: To go a-wooing = uit vrijen gaan. Wood, wud, subst. woud, bosch, hout, vat, houtinstrument; Wood verb. met bosch bedekken, in bosch veranderen, hout innemen: It
was drawn from the wood = van het vat getapt; In a wood = verward, verlegen; The ale is in the wood = in het vat: The Palace in The Wood = Het Huis ten Bosch; I shall soon be out of the wood = buiten gevaar of de moeilijkheid te boven zijn; She is out of the wood again = is weer bij (kennis); Have you taken in your stock of wood yet? = al hout opgedaan; He doesn’t see the wood for trees = hij ziet wegens de boomen het bosch niet; Wood-ant = boschmier; Wood-ashes = houtasch; Wood-band = houtorkest, de blaasinstrumenten, “het hout”; Woodbine = wilde kamperfoelie; Wood-bird = boschvogel; Wood-bound = ingesloten door hooge en zware heggen; Wood-carver = houtsnijder; Wood-carving = houtsnijwerk; Woodchuck = soort v. marmot; Wood coal = bruinkool; Woodcock = houtsnip; sukkel; Woodcraft = bedrevenheid in boschcultuur of jacht; jachtvermaak; Woodcut = houtsnee(plaat); Wood-cutter = houthakker, maker van houtsneden; Wood-drink = afkooksel van medicinale planten; Wood-engraver = houtgraveur; Wood-engraving = houtgraveerkunst, houtgravure; Wood-fretter = houtworm; Wood-gear = raderwerk van hout; Wood-grouse = auerhaan; Wood-hole = Wood-house = houtloods; Wood-knife = hertsvanger; Woodland, subst. boschland, adj. bosch.., woud.., boschachtig; Woodlark = boomleeuwerik; Wood-lot = stuk land waarop brandhout wordt verbouwd (Amer.); Wood-louse = houtluis; Woodman = boschwachter, [650]boschbewoner, houthakker; Wood-mite = houtworm; Wood-mouse = boschmuis; Wood-nymph = boschnimf; Wood-paper = papier uit hout vervaardigd; Wood-pavement = houten bestrating; Woodpecker = specht; Wood-pigeon = houtduif; Wood-pile = houtmijt; Woodreeve = houtvester; Wood-rick = Wood-pile; Wood-rock = bergvlas, soort v. asbest; Wood-ruff = Lieve Vrouwe Bedstroo; Wood-sare = koekoekspog; Wood-screw = houtschroef; Woodshed = houtloods; Wood-skin = boot of kano van boombast (Guyana); Wood-soot = houtroet (bemesting);
Wood-sorrel = boschklaverzuring; Wood-spite = groene specht; Wood-tar = houtteer; Wood-vetch = soort lathyrus; Wood-wale = Woodpecker; Wood-wax(en) = verfbrem; Woodwork = houtwerk; Wood-worm = Wood-mite; Wooded = bedekt met bosch; Wooden = van hout, houterig, dom, suf: What are you so wooden about? = hoe ben je zoo suf; Wooden horse = paard (gymn.); ook strafmiddel (To ride the wooden horse); Wooden shoes = klompen, armoede, oude spotnaam voor de Fransche natie; Woodenness = houterigheid, stijfheid: That particular woodenness which has in all ages been characteristic of mere philologists; Woodiness, subst. v. Woody = houtachtig, boschrijk: Woody fibre (tissue) = houtvezels (weefsel). Woof, wûf, inslag, weefsel. Wool, wul, wol, bont: Great (Much) cry and little wool = veel geschreeuw en weinig wol = More squeak than wool; To draw (pull) the wool over a person’s eyes = iemand zand in de oogen strooien; Wool-ball = wolbal (in magen van dieren); Wool- bearing = woldragend; Wool-comber, wolkammer; Wool- combing = het wolkammen; Wool-cotton = boomwol; Wool- dyed = in de wol geverfd; Wool-gathering, subst. het vergaren van pluisjes wol; verstrooidheid; adj. verstrooid: His wits are a- wool-gathering = zijn verstand is op den loop, hij suft; Wool- grower = schapenfokker; Wool-man = wolkooper; Wool- market; Wool-merchant; Wool-mill = wolspinnerij; Woolpack = baal wol (± 108,826 K.G.); Woolsack = zitplaats van den Lord Chancellor in het House of Lords; Woolsorter = wolsorteerder = Wool-stapler, dit laatste ook wolhandelaar; Wool-staple = wolmarkt; lengte der wolharen; Wool-trade = wolhandel; Woollen = van wol, grof, lomp, boersch: Woollens = wollen stoffen, wollen goederen = Woollen articles of Woollen goods; Wool trade = wolhandel; Wool-draper = lakenkooper, handelaar in wollen
goederen; Wool-printer = woldrukker; Wool-scribbler = machine om wol te kaarden; Woolliness = wolligheid; Woolly = wollig, wolachtig, gedempt, dof, onduidelijk, prikkelbaar, knorrig; Woolly-haired; Woolly-head = neger; Woolly-minded men = suffers. Woolwich, wulidž. Woom, wûm, beverbont. Wootz, wûts, fijn Indisch gietstaal. Worcester, wustə. Word, wɐ̂ d, subst. woord, uitdrukking, mededeeling, bericht, bevel, wachtwoord, parool, motto; Word verb. onder woorden brengen: The Word = de H. Schrift; Money is the word = geld is de boodschap; He is as good as his word = houdt zijn woord = He has not been worse than his word; There were angry words between us = we hadden hooge woorden; At a word = met één woord; By good word = met goedheid; He communicated it to me by word of mouth = mondeling; I repeated it to him word for word = woord voor woord; In a (one) word = in één woord, kort en goed; There you have it in a word = met dat ééne woord is alles gezegd; He is a hero in word(s) = een held met den mond; To a word = woordelijk; Upon my word = op mijn woord; To come to words = woorden krijgen; He tried to get away from his word = van zijne belofte af te komen; I could not get in a word edgeways = er geen woord tusschen krijgen; To stick to one’s word = zijn woord houden; I take you at your word = houd je aan; To take up the word again = weer opvatten; To understand at half a word = met een half woord verstaan; To bring word = bericht brengen; You shall eat your words = terugnemen; He gave me many kind words = sprak zeer vriendelijk; I must have a word
with you = u even spreken; To have a few words = woorden (ruzie) hebben; To have the final word = het laatste woord hebben; I have your word = uw woord, verzekering; I won’t have any words about it = ik wil er niet van hooren; She hasn’t a good word to say of (for) anybody = zij heeft op iedereen wat te zeggen; To keep one’s word = houden; To leave word with the servant = boodschap achterlaten; I should like a word with you = je gaarne even spreken; To put in a good word for = een goed woordje doen voor = To say a good word for; He has not said his last word = zijn laatste woord nog niet gezegd (fig.); I’ll send you word = ik zal u eene boodschap zenden; To speak a good word for, Zie Put in; You may take my word for it = gij kunt erop aan; To take the word = het woord nemen; To write word = bericht zenden; Word-book = woordenlijst; Word-building = woordvorming; Word-catcher = woordenzifter, woordenvitter; Word-catching; Word-painter = woordkunstenaar; Word- painting = woordkunst; Word-picture = beeld of beschrijving; Word-spin = met woorden schermen: Journalists can Word-spin on occasion = verstaan de kunst om met veel woorden niets te zeggen; Word-spinner = redekunstenaar; Word-square = reeks v. woorden (in een vierkant) die hetzelfde woord opleveren hetzij naar beneden of van rechts naar links gelezen; Cautiously worded = voorzichtig gesteld; A well-worded letter = een goed gestelde brief; Wording = redactie, bewoordingen; Wordiness, subst. v. Wordy; Wordless = sprakeloos, niet uitgesproken; Wordy = woordenrijk, langdradig: Wordy warfare = woordentwist. Wordsworth, wɐ̂ dzwəth. [651] Wore, wö, imperf. van to wear. Work, wɐ̂ k, subst. werk, arbeid, bezigheid, bewerking, behandeling, etc.; Works = industrieele inrichting, fabriek, (uur)werk; goede
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  • 5. CPA PROGRAM ADVANCED AUDIT AND ASSURANCE FIFTH EDITION Pdf_Folio:i
  • 6. Published 2019 by John Wiley & Sons Australia, Ltd, 42 McDougall Street, Milton Qld 4064, on behalf of CPA Australia Ltd, ABN 64 008 392 452 First published January 2010, reprinted with amendments July 2010, Updated January 2011, reprinted July 2011, updated January 2012, reprinted July 2012, Updated January 2013, reprinted July 2013, updated January 2014, reprinted July 2014, Updated January 2015, updated January 2016 Second edition published November 2016 Third edition published January 2018 Fourth edition published January 2019 Fifth edition published November 2019 © 2010–2020 CPA Australia Ltd (ABN 64 008 392 452). All rights reserved. This material is owned or licensed by CPA Australia and is protected under Australian and international law. Except for personal and educational use in the CPA Program, this material may not be reproduced or used in any other manner whatsoever without the express written permission of CPA Australia. All reproduction requests should be made in writing and addressed to: Legal, CPA Australia, Level 20, 28 Freshwater Place, Southbank, VIC 3006, or legal@cpaaustralia.com.au. Edited and designed by John Wiley & Sons Australia, Ltd Printed by Blue Star Print ISBN 9780730381877 Authors Brian Clarke (Consultant) David Gilchrist (Professor, Accounting and Finance (UWA Business School), University of Western Australia) Dessalegn Mihret (Senior Lecturer, Faculty of Business and Law, Deakin University) Roger Simnett (Scientia Professor, School of Accounting, University of New South Wales/ Chair and CEO of the Australian Auditing and Assurance Standards Board) Caroline Spencer (Managing Partner, Vista Advisory) Tiffany Tan (CPA Australia) Ken Trotman (Scientia Professor, School of Accounting, University of New South Wales) Reviewers Kirsty Meredith (University of the Sunshine Coast) Prerana Agrawal (The University of Western Australia) Advisory panel Roger Simnett (AuASB, UNSW) Peter Carey (Deakin University) Claire Grayston (CPA Australia) David Gowland (CPA Australia) Brian Clarke (Independent Consultant) Susan Fraser (Independent Consultant) Dean Newlan (Independent Consultant) Ram Nagarajan (CPA Australia) Seng Thiem Teh (CPA Australia) Kenny Yeoh (Baker Tilly Monteiro Heng, Kuala Lumpur, Malaysia) Lee Li Tan, PwC (Kuala Lumpur, Malaysia) Jessey Chin, PwC (Kuala Lumpur, Malaysia) Pei Pei Chiam (Deloitte PLT, Kuala Lumpur, Malaysia) Zulkifflee Bin Mohamed (Universati Tun Abdul Razak, Kuala Lumpur) Uma Devi Uturaju (Sunway University Malaysia) Foo Yin Fah (Sunway University Malaysia) CPA Program team Yvette Absalom Adam Moretti Victoria Altomare Ram Nagarajan David Baird Venkat Narayanan Shubala Barclay Isha Nehru Nicola Drury Shari Serjeant Jeannette Dyet Paul Shantapriyan Yani Gouw Alisa Stephens Kristy Grady Zina Suyat Geraldine Howley Tiffany Tan Elise Literski Seng Thiam Teh Julie McArthur Helen Willoughby P df_Folio:ii
  • 7. ACKNOWLEDGEMENTS The Advanced Audit and Assurance 2019 edition includes the International Code of Ethics for Professional Accountants, 2018 Edition of the International Ethics Standards Board for Accountants (IESBA), published by the International Federation of Accountants (IFAC) in July 2018 and is used with permission of IFAC. Contact Permissions@ifac.org for permission to reproduce, store or transmit, or to make other similar uses of this document. The International Code of Ethics for Professional Accountants, 2018 Edition of the International Ethics Standards Board for Accountants (IESBA), published by the International Federation of Accountants (IFAC) in July 2018, is used by CPA Australia with permission of IFAC. Such use of IFAC’s copyrighted material in no way represents an endorsement or promotion by IFAC. Any views or opinions that may be included in the Advanced Audit and Assurance 2019 edition are solely those of CPA Australia, and do not express the views and opinions of IFAC or any independent standard setting board supported by IFAC. MODULE 1 Tables 1.1–1.5, 1.7 and 1.7; Figures 1.10 and 1.11: © CPA Australia; Figure 1.9: © Adapted from Rozario, A.M., 2019. Three essays on audit innovation: using social media information and disruptive technologies to enhance audit quality (Doctoral dissertation, Rutgers University-Graduate School-Newark). Figure 1.2: © Auditing and Assurance Standards Board, 2016; Table 1.2: © CPA Australia; Figure 1.9: © Adapted from Rozario A M, 2019. ‘Three essays on audit innovation: using social media information and disruptive technologies to enhance audit quality’ (Doctoral dissertation, Rutgers University-Graduate School-Newark); Figures 1.2 and 1.4: © Auditing and Assurance Standards Board, 2016; Extract: © Audit Office of New South Wales; Extracts: © External Reporting Board 2019; Extract: © Ernst & Young; Extracts: © John Wiley & Sons Australia Ltd. MODULE 2 Extract: © Association of Chartered Certified Accountants; Tables 2.5, 2.8 and 2.9; Figures 2.14 and 2.15: © CPA Australia; Figures 2.26 and 2.27: © CPA Canada; Figures 2.1, 2.5, 2.8, 2.10, 2.13, 2.22, 2.23, 2.24, 2.25, 2.28; Table 2.5; Extracts: © John Wiley & Sons Australia Ltd; Table 2.7: © Adapted from Knechel, W R & Salterio, S 2017, Auditing: Assurance and Risk, 4th edn, Taylor & Francis, New York, pp. 163–5. MODULE 3 Figure 3.5; Tables 3.3, 3.5 and 3.6: CPA Australia; Table 3.4, Figures 3.4 and 3.10; Extracts: © John Wiley & Sons Australia Ltd; Extract: © Adapted from Shabbir, M 2019, ‘Computer Assisted Audit Techniques (CAATs) © Modern Audit Tool’, Mayur Batra Group. MODULE 4 Extract: © Australian Securities & Investments Commission. Reproduced with permission; Extract: © AusGroup Ltd; Table 4.1; Figure 4.5: © CPA Australia; Extracts: © John Wiley and Sons Australia Ltd; Extract: © Qantas; Extract: © Simavita Ltd. MODULE 5 Figure 5.1; Table 5.2; Extracts: © Auditing and Assurance Standards Board, 2016; Figure 5.4; Extract: Internal Control—Integrated Framework © 2013, Committee of Sponsoring Organizations of the Treadway Commission 2013; Figures 5.5, 5.6, 5.11, 5.12: © CPA Australia; Figure 5.8; Extracts: © Commonwealth of Australia 2019; Extract: Copyright © by The Institute of Internal Auditors, Inc. All rights reserved; Extracts: © John Wiley and Sons Australia Ltd; Figure 5.3: © KPMG Pdf_Folio:iii ACKNOWLEDGEMENTS iii
  • 8. BRIEF CONTENTS Subject Outline vii Module 1: The Auditing and Assurance Framework 1 Module 2: Planning the Audit of Historical Financial Information 66 Module 3: Performing the Audit of Historical Financial Information 169 Module 4: Conclusions and Reporting Responsibilities for an Audit of Historical Financial Information 225 Module 5: Other Assurance Engagements 288 Glossary 374 Westerways Case Study 381 Suggested Answers 421 Index 489 P df_Folio:iv
  • 9. CONTENTS Subject Outline vii MODULE 1 The Auditing and Assurance Framework 1 Preview 4 1.1 Assurance environment 4 The internationalisation of auditing 5 Regulation of auditing in Australia 7 Regulation of auditing in New Zealand 10 1.2 Assurance engagement framework 11 Ethical principles 11 Quality control standards 18 Description of assurance engagements 25 Attestation and direct engagements 25 Reasonable and limited assurance engagements 26 Scope of the framework 27 Elements of an assurance engagement 28 1.3 Types of assurance engagements 39 Audits of financial statements 40 Audits of specialised areas 41 Review engagements 41 Historical non-financial reports assurance 41 Future-oriented information assurance 42 Assurance on systems and processes 42 Assurance on aspects of behaviour 43 Performance of an activity 44 1.4 Application of standards 45 Application of ISAs 45 Application of ISREs 51 Application of ISAEs 51 Application of ISRSs 52 Australian perspective 52 1.5 Changing environment 53 Evolving business models 54 Climate-risk disclosure 54 Technological innovations 55 Review 62 References 64 MODULE 2 Planning the Audit of Historical Financial Information 66 Preview 68 2.1 Objectives of an audit of financial statements 69 Overarching purpose 69 Legal, regulatory, professional and ethical requirements 72 2.2 Terms of engagements 83 Preconditions 83 Engagement terms and letter of engagement 84 Changes to terms 84 2.3 Audit planning procedures 86 Guidance materials for planning an audit of SMEs 86 Overall audit strategy 87 The audit plan 88 Financial statement assertions 91 Documentation 94 Materiality 95 Application of materiality concepts 96 Phases of an audit 99 2.4 Understanding the entity and its environment 102 The entity’s industry, regulatory and other external factors 102 Nature of the entity 103 The entity’s selection and application of accounting policies 105 The entity’s objectives, strategies and related business risks 105 Measurement and review of the entity’s financial performance 108 2.5 The entity’s internal controls 109 Components of internal control 110 Internal controls in SMEs 112 Controls in an IT environment 113 2.6 Risk assessments for specific matters 121 Fraud risk 121 Auditing accounting estimates 126 Related-party risk 128 Going concern risk 129 Climate-related risk 130 Non-compliance with laws and regulations (NOCLAR) 131 2.7 Risk assessment procedures 134 Methods used for risk assessment 134 2.8 Responding to assessed risks 159 Overall audit strategy 160 Approaches to assuring SMEs 163 Review 165 References 166 MODULE 3 Performing the Audit of Historical Financial Information 169 Preview 171 3.1 Key principles 171 Sufficient appropriate audit evidence 171 Financial statement assertions 172 Audit procedures 173 Pdf_Folio:v
  • 10. 3.2 Tests of controls 174 Objectives of tests of controls 175 Tests of controls procedures 176 Using CAATs for tests of controls 178 Sampling techniques for testing controls 184 3.3 Substantive audit procedures 186 Substantive analytical procedures 186 Relationship between substantive analytical procedures and other audit procedures 190 Tests of details 191 Using CAATs for substantive testing 197 Advanced audit data analytic techniques 200 Sampling techniques in substantive procedures 201 3.4 Evidence-gathering in an e-commerce environment 204 Tests of controls in an e-commerce environment 204 Substantive testing in an e-commerce environment 205 Using CAATs in an e-commerce environment 205 Advanced audit data analytic techniques and continuous audit in an e-commerce environment 205 3.5 Advanced evidence-gathering issues 207 Audit procedures for related parties 207 3.6 Using the work of other auditors and experts 210 Component auditors 210 Internal auditors 211 Using the work of an auditor’s expert 213 Using the work of management’s experts 213 3.7 Audit documentation 215 Security and confidentiality of client data 215 Audit file organisation 215 Examples of audit working papers 216 3.8 Evaluation of audit evidence 219 Misstatements identified during the audit 219 Sufficiency and appropriateness of evidence 221 Review 222 References 223 MODULE 4 Conclusions and Reporting Responsibilities for an Audit of Historical Financial Information 225 Preview 228 4.1 Completing the fieldwork 228 Significant areas 229 Litigation and claims 231 Going concern 232 Management representation letter 235 Subsequent events 236 Performing analytical procedures 239 4.2 Final review 242 Final evaluation of materiality and audit risk 243 Final review of working papers 245 Engagement quality control review 247 Final checklist 248 4.3 Preparing the audit report 251 Unmodified auditor’s report 251 Modified auditor’s report 262 4.4 Communication and reporting responsibilities 277 Communicating with the entity 277 Reporting responsibilities 280 Review 285 References 287 MODULE 5 Other Assurance Engagements 288 Preview 291 5.1 Audits of specialised areas 291 Special purpose financial statements 291 Single financial statements and specific financial statement components 293 Summary financial statements 293 5.2 Review engagements 295 Review of interim financial information performed by the auditor of the entity 296 Review where the assurance practitioner is not the auditor of the entity 298 Review of financial information for SMEs 298 Review of other historical financial information — an Australian perspective 299 5.3 Other assurance engagements — part 1 300 Overarching standard 300 Historical non-financial reports 303 Future-orientated information 311 5.4 Other assurance engagements — part 2 315 Systems and processes 315 Aspects of behaviour 327 5.5 Other assurance engagements — part 3 333 Performance of activity 333 5.6 Non-assurance services 366 Agreed-upon procedures 366 Compilation engagements 368 Review 370 References 371 Glossary 374 Westerways Case Study 381 Suggested Answers 421 Index 489 P df_Folio:vi vi CONTENTS
  • 11. SUBJECT OUTLINE INTRODUCTION The purpose of this subject outline is to: • provide important information to assist you in your studies • define the aims, content and structure of the subject • outline the learning materials and resources provided to support learning • provide information about the exam and its structure. The CPA Program is designed around five overarching learning objectives to produce future CPAs who will: • be technically skilled and solution driven • be strategic leaders and business partners in a global environment • be aware of the social impacts of accounting • be adaptable to change • be able to communicate and collaborate effectively. BEFORE YOU BEGIN Important Information Please refer to the CPA Australia website for dates, fees, rules and regulations, and additional learning support at www.cpaaustralia.com.au/cpaprogram. SUBJECT DESCRIPTION Advanced Audit and Assurance The Advanced Audit and Assurance subject provides a body of knowledge for you to understand the nature and diversity of audit and assurance engagements. The subject provides an insight on audit and assurance processes, methodologies and procedures. It also examines the objectives of assurance engagements and current and future developments in assurance engagements. The environment within which the auditor or assurance practitioner operates and the respective roles of the private and public sector auditors and internal audit are also discussed. In the CPA Program, the professional responsibilities of accountants are discussed in the Ethics and Governance subject. However, this subject emphasises the ethical and professional conduct of auditors. The strategic business analysis techniques in the Advanced Audit and Assurance subject are further discussed in the Strategic Management Accounting and Global Strategy and Leadership subjects in their respective context. This subject and the Contemporary Business Issues subject also cover sustainability reporting and assurance with an emphasis on businesses. Advanced topics in financial reporting that complement the accounting knowledge of audit professionals are covered in the Financial Reporting subject, and accounting for financial instruments is discussed in the Financial Risk Management subject. This subject will introduce you to international pronouncements including the international standards for audit, review and assurance engagements, the standard on quality control for audit firms and the code of ethics. You will be taken through case studies to illustrate the strategic approach in audit engagements. Contemporary developments in assurance engagements are discussed in this subject in the context of future practice management opportunities. Subject Aims The aims of the subject are to address concepts related to: • the foundational knowledge required to understand the nature and diversity of assurance engagements • audit planning, including understanding the entity, assessing risk, developing the overall audit strategy, developing the audit plan and application of information technology to planning of audit engagements • performing the audit, including gathering and evaluating evidence, and application of information technology to performance of audit engagements • the audit conclusions and auditor’s reporting responsibilities and application of information technology to concluding and reporting on audit engagements • engagements other than audits of historical financial information and application of information technology to other assurance engagements. Pdf_Folio:vii SUBJECT OUTLINE vii
  • 12. SUBJECT OVERVIEW General Objectives On completion of this subject, you should be able to: • understand and apply the framework for assurance engagements in audit and review engagements, and other assurance engagements, and discuss the elements of an assurance engagement • apply the standards to assurance engagements, and the fundamental ethical principles for the auditing profession • explain the responsibilities of management and the auditor in relation to an audit • evaluate historical financial information by applying professional scepticism and judgement • design audit processes and procedures to be undertaken by auditors in conducting audit and assurance engagements • evaluate the indicators of potential fraud and recommend a course of action • apply the relevant auditing standards to the assessment for fraud and going concern in an audit of financial statements • evaluate the sufficiency and appropriateness of the audit evidence gathered • apply the appropriate standards that relate to a range of engagement circumstances that impact the auditor’s report and the auditor’s opinion • evaluate circumstances that may give rise to modifications to the auditor’s report or the auditor’s opinion • describe the various types of assurance engagements. STUDY GUIDE Module Descriptions The subject is divided into five modules. A brief outline of each module is provided below. Module 1: The Auditing and Assurance Framework This module starts by providing an overview of the current assurance environment and outlining the structure of the Framework that shapes auditing and other assurance engagements. The key matters pertaining to an assurance engagement are introduced and the importance of professional scepticism and professional judgment in collecting and evaluating evidence is emphasised. The various types of assurance engagements are discussed and include references to the application of the relevant standards to these engagements for different types of entities, including private sector, public sector, and small- and medium-sized entities. This module concludes by outlining the impact a changing environment is having on auditing due to evolving business models, enhanced disclosure requirements related to climate risks and the incorporation of technological innovations, Module 2: Planning the Audit of Historical Financial Information This module outlines the general principles governing an audit of financial statements and discusses the responsibility of personnel within the audit firm for the quality control of audits. The terms of audit engagements and audit planning procedures are discussed including the overall audit strategy, financial statement assertions, materiality and audit documentation. The focus then turns to the audit planning procedures such as understanding the entity and its environment including the entity’s internal controls. Given the increased emphasis by the profession on the detection of fraud, the auditor’s responsibility to consider fraud in an audit of financial statements is discussed in some detail. Other risk assessments for specific matters that have the potential to be significant risks are discussed, along with a variety of techniques commonly used for conducting strategic analyses and analytical procedures to better understand business risk and the audit implications. This discussion includes an overview of contemporary tools such as data analytics and visualisations. The module concludes with a brief outline of how auditors may respond to the assessed risks identified during the planning stage of the audit, depending on the overall audit strategy determined by the auditor. Module 3: Performing the Audit of Historical Financial Information Module 3 considers the general principles underlying the evidence-gathering procedures in an audit. Emphasis is placed on the need for auditors to obtain sufficient appropriate audit evidence on which to base their opinion. Both tests of controls and substantive procedures are examined in detail. Examples are also provided to demonstrate the application of the international auditing standards covering different aspects of performing the audit to gather evidence. The use of audit data analytic techniques is also considered as is the need to maintain audit documentation in relation to the conduct of the audit. In addition, the P df_Folio:viii viii SUBJECT OUTLINE
  • 13. requirements relating to the security and confidentiality of the documents used in the audit are discussed. Finally, the auditor’s requirement to evaluate the audit evidence to ensure sufficient appropriate audit evidence is collected to inform their audit opinion is explained. Module 4: Conclusions and Reporting Responsibilities for an Audit of Historical Financial Information Module 4 begins by outlining the auditor’s responsibilities involved in completing the fieldwork. Reasons for obtaining a management representation letter is then discussed, before outlining the applicable audit procedures performed to identify subsequent events and the evaluation of management’s treatment thereof. Next, the use of analytical procedures to form an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity is explained and demonstrated. Next to be discussed is the final review of all the evidence in order to ensure sufficient appropriate audit evidence is obtained and to inform conclusions as to the truth and fairness of the financial statements. The types of auditor’s opinions that are issued, and the circumstances in which they are issued is also explained in detail and demonstrated through the use of examples. The final section covers a discussion of the the auditor’s communication and reporting responsibilities to shareholders, regulatory bodies and those charged with governance and management. Module 5: Other Assurance Engagements The module begins by describing some of the assurance services provided by auditors and includes a discussion of various examples of these assurance services. This discussion includes the potential for continuous assurance services due to the impact of information technology increasing the availability of data. The role of internal audit in the provision of assurance services is discussed. This module discusses how performance audits in the public sector are performed to comply with legislative requirements and to assist accountability and improved performance in public administration. This module concludes with a discussion on non-assurance services, including agreed-upon procedures, comfort letters and compilation engagements. Agreed-upon procedures are commonplace, as they are designed to reflect the individual circumstances of the clients and meet the needs of users, especially for SMEs that are not required to produce audited financial statements. Module Weightings and Study Time Requirements Total hours of study for this subject will vary depending on your prior knowledge and experience of the course content, your individual learning pace and style, and the degree to which your work commitments allow you to work intensively or intermittently on the materials. You will need to work systematically through the study guide, readings and case studies, attempt all the questions (including knowledge checks), and revise the learning materials for the exam. The workload for this subject is the equivalent of that for a one-semester postgraduate unit. An estimated 15 hours of study per week through the semester will be required for an average candidate. Additional time may be required for revision. The ‘Weighting’ column in the following table provides an indication of the emphasis placed on each module in the exam, while the ‘Recommended proportion of study time’ column is a guide for you to allocate your study time for each module. Do not underestimate the amount of time it will take to complete the subject. TABLE 1 Module weightings and study time Module Recommended proportion of study time (%) Weighting (%) 1. The Auditing and Assurance Framework 20 20 2. Planning the Audit of Historical Financial Information 20 20 3. Performing the Audit of Historical Financial Information 20 20 4. Conclusions and Reporting Responsibilities for an Audit of Historical Financial Information 20 20 5. Other Assurance Engagements 20 20 Pdf_Folio:ix SUBJECT OUTLINE ix
  • 14. Exam Structure The Advanced Audit and Assurance exam is comprised of multiple-choice questions. Multiple-choice questions include knowledge, application and problem-solving questions that are designed to assess understanding of Audit and Assurance principles. LEARNING MATERIALS Module Structure These study materials form your central reference in the Advanced Audit and Assurance subject. Where advised, relevant sections of the CPA Australia Members’ Handbook and legislation are also examinable. Module Map A module map is at the beginning of each module. The module map outlines the topics covered in each module and how this relates to the other modules. Learning Objectives A set of learning objectives is included for each module in the study guide. These learning objectives provide a framework for the learning materials and identify the main focus of the module. The objectives also describe what candidates should be able to do after completing the module. Relevant Standards and Guidance Materials The relevant standards and guidance materials table is at the beginning of each module and details both the International and Australian Standards covered in each module. Preview The preview outlines what will be covered in the module and how it relates to other modules in the subject. Study Material The study material is divided into sections that will help you conceptualise the content and study it in manageable portions. It is also important to appreciate the cumulative nature of the subject and to follow the given sequence as closely as possible. Examples Examples are included throughout the study materials to demonstrate how concepts are applied to real- world scenarios. Study Material Activities Question activities are included throughout the study materials to provide you with the opportunity, as you progress through the subject, to assess your understanding of significant points and to stimulate further thinking on particular issues. These questions are an integral part of your study and they should be fully utilised to support your learning of the module content throughout the semester. Completing the question activities should also form one part of your revision for the exam. It is evident that candidates who achieve good results in the program and in their careers are those who are able to think, review and analyse situations, and solve problems. The question activities will assist you to develop these skills. The question activities in the study materials are numbered and require you to prepare answers and to compare those answers with the suggested answers at the end of the study guide. They test your comprehension of specific sections of a module and provide immediate feedback on your performance in comprehending the materials covered. Your answers to these questions do not contribute to your final result, and you are not required to submit your answers for marking. Key Points The key points feature provides a summary of the main learning objectives covered in the part and details the relevant content in this regard. Review The review section places the module in context of the other modules studied and summarises the main points. References The reference list details all sources cited in the study guide. You are not expected to follow up this source material. P df_Folio:x x SUBJECT OUTLINE
  • 15. Suggested Answers These are located at the end of the Study Guide and provide important feedback on the questions, examples and case study activities included in the module learning materials. Consider them as model answers for your reference. To assess how well you have understood and applied the material supplied in the text, it is important to write your answer before you compare it with the suggested answer. My Online Learning and your eBook My Online Learning is CPA Australia’s online learning platform, which provides you with access to a variety of resources to help you with your study. We suggest you view the video ‘Insights for a great semester of study’ on My Online Learning, which will provide you with some insights on how to plan your semester. It will also take you on a guided tour of My Online Learning to show you how (and when) to access the range of resources available. You will find a wide range of subject-level and module-level resources on My Online Learning. Subject- level resources are those that apply to the entire subject. These resources can be used at any time but are most useful when you’ve completed all the modules for the entire subject — whereas module-level resources should be used while you work through a particular module in the Study guide. You should refer to the journey map located on My Online Learning to see what module resources you can access and in what order you should use them. You can access My Online Learning from the CPA Australia website: cpaaustralia.com.au/myonline learning. Help Desk For help when accessing My Online Learning, either: • email MemberServices@cpaaustralia.com.au, or • telephone 1300 73 73 73 (Australia) or +61 3 9606 9677 (international) between 8.30 am and 5.00 pm (AEST) Monday to Friday during the semester. eBook An interactive eBook version of the study guide will be available through My Online Learning. The eBook contains the full study guide and features instructional media and interactive questions embedded at the point of learning. The media content includes animations of key diagrams from the study guide and video interviews with leading business practitioners. GENERAL EXAM INFORMATION The Advanced Audit and Assurance exam is three hours and 15 minutes in duration. The Study Guide is your central examinable resource. Where advised, relevant sections of the CPA Australia Members’ Handbook and legislation are also examinable. For information on you what you can take into your exam, as well as your exam structure and mark allocations, please refer to ‘Study Companion and Exam Mark Allocations’ in My Online Learning. Pdf_Folio:xi SUBJECT OUTLINE xi
  • 17. MODULE 1 THE AUDITING AND ASSURANCE FRAMEWORK Module 1 The Auditing and Assurance Framework Assurance environment Assurance engagement framework Types of assurance engagements Application of standards Changing environment Audits of historical financial information • The internationalisation of auditing • Regulation of auditing in Australia • Ethical principles • Quality control standards • Description of an assurance engagement • Scope of the Framework • Elements of an assurance engagement • Audits • Reviews • Historical non-financial reports • Future-oriented information • Systems and process • Aspects of behaviour • Performance of an activity • Application of ISAs, ISREs, ISAEs and ISRSs • Australian perspective • Evolving business models • Climate-risk disclosure • Technological innovations Module 5 Other assurance engagements Module 2 Planning the audit Module 3 Performing the audit Module 4 Conclusions and reporting responsibilities Pdf_Folio:1
  • 18. LEARNING OBJECTIVES After completing this module, you should be able to: 1.1 apply the International Framework for Assurance Engagements (the Framework) and the related standards and other guidance to assurance engagements 1.2 apply the Code of Ethics for Professional Accountants to assurance engagements. RELEVANT STANDARDS AND GUIDANCE MATERIALS International standards Australian standards IESBA International Code of Ethics for Professional Accountants (including International Independence Standards) APES 110 Code of Ethics for Professional Accountants (including Independence Standards) International Framework for Assurance Engagements Framework for Assurance Engagements n/a ASA 101 Preamble to Australian Auditing Standards n/a ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards (Compiled) ISA 220 Quality Control for an Audit of Financial Statements ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information (Compiled) ISA 230 Audit Documentation ASA 230 Audit Documentation (Compiled) ISA 300 Planning an Audit of Financial Statements ASA 300 Planning an Audit of a Financial Report (Compiled) ISA 315 (Revised) Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment (Compiled) ISA 402 Audit Considerations Relating to an Entity Using a Service Organization ASA 402 Audit Considerations Relating to an Entity Using a Service Organisation (Compiled) ISA 510 Initial Audit Engagements — Opening Balances ASA 510 Initial Audit Engagements — Opening Balances (Compiled) ISA 540 (Revised) Auditing Accounting Estimates, and Related Disclosures ASA 540 Auditing Accounting Estimates and Related Disclosures ISA 600 Special Considerations — Audits of Group Financial Statements (including the Work of Component Auditors) ASA 600 Special Considerations — Audits of a Group Financial Report (Compiled) ISA 610 (Revised) Using the Work of Internal Auditors ASA 610 Using the Work of Internal Auditors ISA 800 (Revised) Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks ASA 800 Special Considerations — Audits of Financial Reports Prepared in Accordance with Special Purpose Frameworks (Compiled) ISA 805 (Revised) Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement ASA 805 Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement (Compiled) ISA 810 (Revised) Engagements to Report on Summary Financial Statements ASA 810 Engagements to Report on Summary Financial Statements ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, Other Assurance Engagements and Related Services Engagements P df_Folio:2 2 Advanced Audit and Assurance
  • 19. ISRE 2400 (Revised) Engagements to Review Historical Financial Statements ASRE 2400 Review of a Financial Report Performed by an Assurance Practitioner Who is Not the Auditor of the Entity ISRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity (Compiled) n/a ASRE 2415 Review of a Financial Report: Company Limited by Guarantee or an Entity Reporting under the ACNC Act or Other Applicable Legislation or Regulation (Compiled) ISAE 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information n/a ASAE 3100 Compliance Engagements n/a ASAE 3150 Assurance Engagements on Controls ISAE 3400 The Examination of Prospective Financial Information n/a ISAE 3402 Assurance Reports on Controls at a Service Organization ASAE 3402 Assurance Reports on Controls at a Service Organisation ISAE 3410 Assurance Engagements on Greenhouse Gas Statements ASAE 3410 Assurance Engagements on Greenhouse Gas Statements ISAE 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus ASAE 3420 Assurance Engagements to Report on the Compilation Of Pro Forma Financial Information Included in a Prospectus n/a ASAE 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective Financial Information n/a ASAE 3500 Performance Engagements n/a ASAE 3610/AWAS 2 Assurance Engagements on General Purpose Water Accounting Reports ISRS 4400 Engagements to Perform Agreed-Upon Procedures Regarding Financial Information ASRS 4400 Agreed-Upon Procedures Engagements to Report Factual Findings ISRS 4410 (Revised) Compilation Engagements n/a n/a ASRS 4450 Comfort Letter Engagements n/a APES 310 Client Monies Pdf_Folio:3 MODULE 1 The Auditing and Assurance Framework 3
  • 20. PREVIEW This module begins by describing the assurance environment. The institutions behind the development of the International Framework for Assurance Engagements (the Framework), which shapes auditing and other assurance engagements, are introduced. The regulation of auditing in Australia is also outlined. Next, the following key requirements of the assurance engagement framework are discussed: • ethical principles • quality control standards • description of assurance engagements • attestation and direct engagements • reasonable and limited assurance engagements • scope of the Framework • elements of an assurance engagement. The audit profession has developed its reputation, methodology and expertise through financial state- ment audits and reviews and, in the public sector, on performance engagements. More recently, the profession has expanded its range of assurance services to cover numerous situations where there is a desire to have the credibility of a report enhanced for users. Some of the common types of assurance engagements are discussed, including: • audits and reviews of historical financial information • other assurance engagements – non-financial information (e.g. sustainability or business performance reports) – future-oriented information (e.g. prospectuses) – systems and processes (e.g. internal control) – aspects of behaviour (e.g. compliance with regulations) – performance of an activity. Next, the module discusses the application of the standards, including: • auditing standards that are applied to audits of historical financial information (i.e. audits of financial statements) • review engagement standards • other assurance engagement standards • related services engagement standards. Lastly, this module introduces material to be covered in subsequent modules, discusses how the business and regulatory environment is evolving and highlights potential impacts on the auditing profession largely due to technological innovations. 1.1 ASSURANCE ENVIRONMENT Assurance services are independent professional services that aim to improve the quality, relevance and reliability of information necessary for decision making. The terms ‘auditing’ and ‘assurance’ are sometimes confused. An audit is a specific type of assurance engagement that focuses on historical financial information. That is, an audit is a subset of assurance engagements. As shown in table 1.1, assurance services are divided between: • audits of historical financial information • reviews of historical financial information • assurance engagements other than audits and reviews of historical financial information. Further information on the structure and hierarchy of assurance standards is provided later in this module. The International Framework for Assurance Engagements (para. 7) defines assurance engagements as: an engagement in which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the measurement or evaluation of an underlying subject matter against criteria. This definition provides five essential elements of an assurance engagement. For an audit of financial statements, an auditor evaluates the presentation of the financial statements against criteria (e.g. accounting standards) and expresses a conclusion (audit report) based on their findings. The audit is designed to provide users (such as shareholders) with a reasonable level of confidence about the truth and fairness of the financial statements. P df_Folio:4 4 Advanced Audit and Assurance
  • 21. TABLE 1.1 Population of assurance services Types of information Historical financial information All other information Level of assurance provided Reasonable Limited Reasonable or limited Examples Audit of financial statements Review of financial statements • Corporate social responsibility (CSR) reports • Greenhouse gas statements (GHG) • Sustainability reports • Water accounting reports • Business performance measurement • Integrated reports • Future-oriented information • Systems and processes • Aspects of behaviour • Performance of an activity International standards ISAs 100–999 International Standards on Auditing ISREs 2000–2699 International Standards on Review Engagements ISAEs 3000–3699 International Standards on Assurance Engagements Source: CPA Australia 2019. Auditing and assurance are governed by two separate but closely related sets of standards: auditing standards that are concerned with audits of historical financial information; and assurance standards that are concerned with all other types of assurance engagements. Both the International Standards on Auditing and International Standards on Review Engagements continually evolve to keep pace with changes in business and social expectations. The demand for assurance services continues to grow and so does the range of assurance services offered by public accountants. As a result, the role of regulators and regulation in maintaining the quality of the assurance services is pivotal. Assurance engagement providers operate in a complex environment that is subject to a number of important influences, such as the internationalisation of auditing and regulation. This section will explain these influences on the provision of assurance services. THE INTERNATIONALISATION OF AUDITING Auditing has become an international market with a large increase in the number of multinational corpora- tions as audit clients. The auditing profession, the auditing standard-setting process and the regulatory process have also become internationalised. This internationalisation has led to the promulgation of international assurance pronouncements to harmonise auditing practices across jurisdictions. Figure 1.1 shows the structure and hierarchy of the international pronouncements, including the Inter- national Standards on Quality Control and the International Framework for Assurance Engagements. The Framework and Standards on Quality Control will be discussed in section 1.2. The types of assurance engagements will be discussed in section 1.3, and the application of the standards will be discussed in section 1.4. The pronouncements shown in figure 1.1 govern assurance engagements conducted in accordance with International Standards. However, they do not override the local laws and regulations that govern historical financial statement audits or assurance engagements on other information that are required to be followed in a particular country. Regulatory agencies implement and enforce laws and regulations. Globally, regulators want greater consistency in the delivery of quality audit services (Deloitte 2019). This includes increasing coordination through the International Forum of Independent Audit Regulators (IFIAR) by ‘sharing knowledge, collaborating and promoting consistency in the way auditing is regulated’ (Deloitte 2019). The main regulatory agencies that have an impact on auditing and assurance engagements in a global setting include: • International Federation of Accountants (IFAC) • International Forum of Independent Audit Regulators (IFIAR) • International Ethics Standards Board for Accountants (IESBA) • International Auditing and Assurance Standards Board (IAASB). Pdf_Folio:5 MODULE 1 The Auditing and Assurance Framework 5
  • 22. FIGURE 1.1 Pronouncements issued by the IAASB IESBA Code of Ethics for Professional Accountants ISQCs 1–99 International Standards on Quality Control International Framework for Assurance Engagements Audits and Reviews of Historical Financial Information ISAs 100–999 International Standards on Auditing ISAEs 3000–3699 International Standards on Assurance Engagements Related Services ISRSs 4000–4699 International Standards on Related Services ISREs 2000–2699 International Standards on Review Engagements Other Assurance Engagements Engagements Governed by the Standards of the IAASB Source: International Auditing and Assurance Standards Board (IAASB) 2018, Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018 ed., vol. 1, p. 4, accessed July 2019, https://www.ifac.org/publications-resources/2018-handbook-international-quality-control-auditing-review-other-assurance International Federation of Accountants (IFAC) The International Federation of Accountants (IFAC) is the global organisation for the accountancy profession dedicated to serving the public interest by strengthening the profession. With headquarters in New York, IFAC’s members are the associations of professional accountants from around the world. CPA Australia, for example, is a member of IFAC. The IFAC council comprises one representative of each member body. In 2019, IFAC had over 175 members from 130 countries and jurisdictions (IFAC 2019). International Forum of Independent Audit Regulators (IFIAR) There has been increased oversight of the auditing profession by independent audit regulatory authorities, resulting in the formation in 2006 of the International Forum of Independent Audit Regulators (IFIAR), which in 2018 had a membership of 55 independent public oversight bodies (such as the Australian Securities and Investments Commission (ASIC) in Australia) from different countries (IFIAR 2019). International Ethics Standards Board for Accountants (IESBA) The International Ethics Standards Board for Accountants (IESBA’s) restructured code of ethics, the International Code of Ethics for Professional Accountants (including International Independence Stan- dards) (the Code), which was issued in April 2018, is the fundamental pronouncement for assurance practitioners. The Code was developed with a view to enhancing ease of navigation, use and enforcement. The Code states that ‘a professional accountant shall comply with the code’ (the Code, para. R100.3) except for parts where laws and regulations in a specific jurisdiction preclude compliance. All other standards and related guidance issued by the IAASB shall be applied in the context of the ethical framework presented in the Code. Similarly, all standards other than the Code shall be applied in the context of the International Standards on Quality Control (i.e. ISQC 1). It is not possible for a practitioner to comply with the standards without first complying with the Code. P df_Folio:6 6 Advanced Audit and Assurance
  • 23. You should look through the Code now to familiarise yourself with its content. The Code is available online at https://www.ifac.org/system/files/publications/files/Final-Pronouncement-The-Restructured- Code_0.pdf. However, it will be discussed further in section 1.2. International Auditing and Assurance Standards Board (IAASB) The International Auditing and Assurance Standards Board (IAASB) is: an independent standard-setting body that serves the public interest by setting high-quality international standards for auditing, quality control, review, other assurance, and related services, and by facilitating the convergence of international and national standards (IAASB 2019). The convergence of international and national standards enhances the quality and consistency of practice throughout the world and strengthens the public’s confidence in the global auditing and assurance profession. The IAASB develops and issues standards for three types of assurance engagements: audits, review engagements and other assurance engagements. 1. International Standards on Auditing (ISAs) — to be applied to the audit of historical financial information. 2. International Standards on Review Engagements (ISREs) — to be applied to the review of historical financial information. 3. International Standards on Assurance Engagements (ISAEs) — to be applied in assurance engagements dealing with information other than historical financial information (e.g. prospectuses, sustainability reports). Information that is ‘other than historical financial’ may be future oriented and/or non-financial. The application of these standards will be discussed later in this module. As shown in figure 1.1, the IAASB also issues International Standards on Related Services (ISRSs), which are not assurance engagements (in that they are not designed to offer a degree of assurance), but which do utilise assurance- type, evidence-gathering procedures (e.g. agreed procedures engagements to report factual findings). This will be discussed in more detail in module 5. In addition, the IAASB issue other pronouncements such as the International Framework for Assurance Engagements and A Framework for Audit Quality. Both of these frameworks are discussed in section 1.2. REGULATION OF AUDITING IN AUSTRALIA This section describes Australian institutional arrangements surrounding the Australian auditing pro- nouncements, which are based on the international pronouncements. There are a number of regulators and institutions that have an impact on the audit process, either directly or indirectly. They include the: • Financial Reporting Council (FRC) • Australian Securities and Investments Commission (ASIC) • Accounting Professional and Ethical Standards Board (APESB) • Auditing and Assurance Standards Board (AUASB) • Companies Auditors and Liquidators Disciplinary Board (CALDB) • Australian Securities Exchange (ASX) • professional accounting bodies: – CPA Australia – Chartered Accountants Australia and New Zealand (CAANZ) – Institute of Public Accountants (IPA). Financial Reporting Council (FRC) The Financial Reporting Council (FRC) is an independent statutory agency that was established in 1999 to oversee the accounting standards-setting process. Its duties were expanded in 2005 to include the oversight of the auditing standard-setting process and the monitoring of auditor independence. Its responsibilities include appointing the members of the AUASB. Australian Securities and Investments Commission (ASIC) The Australian Securities and Investments Commission (ASIC) is an independent Commonwealth body that was set up under the Australian Securities and Investments Commission Act 2001 (Cwlth) (ASIC Act). ASIC carries out most of its work under the Corporations Act 2001 (Cwlth) (Corporations Act). ASIC regulates the corporate markets and financial services sectors in Australia by overseeing activities to protect investors. Their aim is to ensure investors have access to adequate information, are treated fairly Pdf_Folio:7 MODULE 1 The Auditing and Assurance Framework 7
  • 24. and have adequate avenues for redress. Of particular interest to auditors is the expanded role of ASIC in recent years to include responsibility for reviewing the quality of audit work performed (Leung et al. 2019). Its responsibilities with regard to the oversight of the auditing profession include registration of auditors, enforcement of rules regarding auditor independence and use of auditing standards, and inspection of audit firms. Accounting Professional and Ethical Standards Board (APESB) The Accounting Professional and Ethical Standards Board (APESB) is responsible for setting ethical standards in Australia. It is funded by the professional accounting bodies in Australia (however, its members are independent). It is responsible for setting standards on quality control, ethical conduct and compliance with auditing and assurance standards. Australian Auditing and Assurance Standards Board (AUASB) The Australian Auditing and Assurance Standards Board (AUASB) was established in Australia as an independent statutory agency under the ASIC Act. The AUASB’s mandate requires it to consider revisions and improvements to the pronouncements initiated by the IAASB. The Australian Framework for Assurance Engagements (Australian Framework) conforms with the International Framework for Assurance Engagements (the Framework) with only minor differences. Pronouncements are issued in Australia by the AUASB and are, in general, the same as the pronounce- ments of the IAASB. However, they are not identical to the international pronouncements and differences mainly arise to accommodate the requirements of Australian legislation. Differences also arise because the Australian Auditing Standards (ASAs) include a small number of paragraphs that are not found in the ISAs. These paragraphs are labelled Aus (e.g. Aus 14), and in most cases, Aus paragraphs impose requirements on Australian auditors that are additional to those found in the international standards. Figure 1.2 illustrates the AUASB standard-setting process and identifies the procedures followed when International or Australian technical issues are identified and research and consultation with stakeholders are undertaken prior to issuing a standard or other pronouncement. FIGURE 1.2 The AUASB standard-setting process Submission to IAASB Identify international technical issue Add topic to the agenda Research and consider issue Consult with stakeholders Comments from stakeholders Implementation and compliance Identify Australian technical issue Australian stakeholders International Issue standard or other pronouncement Source: AUASB 2019, The Standard-Setting Process’, accessed August 2019, https://www.auasb.gov.au/About-the-AUASB/The- standard-setting-process.aspx P df_Folio:8 8 Advanced Audit and Assurance
  • 25. Table 1.2 shows the equivalent Australian pronouncements to the International pronouncements cover- ing various aspects of audit and assurance engagements. TABLE 1.2 Equivalent Australian pronouncements IAASB (International) pronouncements AUASB (Australian) pronouncements ISQC ASQC ISA ASA ISRE ASRE ISAE ASAE Source: CPA Australia 2019. The Companies Auditors Disciplinary Board (CADB) The CADB is a statutory body initially established as the Companies Auditors and Liquidators Disciplinary Board (CALDB) in 1990. It hears applications from ASIC to determine whether auditors or liquidators have breached the Corporations Act. It also has the power to impose a penalty if it determines that a registered auditor or liquidator has failed to carry out duties properly or is not a fit and proper person to be registered. Penalties include the cancellation or suspension of registration, an imposition of restrictions on conduct, or an admonition (Leung et al. 2019). CADB members are appointed by the Treasurer based on the requirements of the ASIC Act and have a breadth of knowledge and experience encompassing the law, accounting and business (Leung et al. 2019). The Australian Securities Exchange (ASX) The ASX is also an important participant in the market, but it is not a regulator. The ASX became a public company in 1998 and operates as the main national securities exchange for equities, derivatives and fixed- interest securities. It facilitates capital raisings and trading for listed companies, settlement and capital matching, and provides comprehensive market data and information to a range of users. The ASX describes itself as ‘an integrated exchange’ offering ‘listings, trading, technology, data and post-trade services for a wide range of asset classes, including equities, fixed income, commodities and energy’ (ASX 2018). To list a company on the ASX, there are a number of Listing Rules designed to protect investors. The Listing Rules are enforceable against listed entities under the requirements of the Corporations Act. Listing Rules create obligations that are additional and complementary to the statutory obligations under the Corporations Act. One particular example of the enhanced requirements under the Listing Rules is Listing Rule 4.10.3, which requires an entity to make a statement of the extent to which their corporate governance practices have followed the best practice recommendations of the ASX Corporate Governance Council and disclose reasons for any non-conformity. Another example of enhanced requirements is in relation to continuous disclosure, where Listing Rule 3.1 requires that once a company becomes aware of any information that a reasonable person would expect to have a material effect on the price or value of its securities, it should inform the market. The ASX has a role in maintaining the integrity of the capital market. Professional Accounting Bodies Professional accounting bodies represent the interests of their members by lobbying governments and provide the framework for self-regulation, where permitted by statute. Professional bodies also administer training and examinations for students and members. There are three professional accounting bodies in Australia. They are: • CPA Australia • Chartered Accountants Australia New Zealand • Institute of Public Accountants (IPA). CPA Australia CPA Australia is a professional body with more than 164 000 members working as finance, accounting and business professionals, academics, and public servants in Australia and around the world. CPA Australia’s core services to their members include education, training, technical support and advocacy. To become a CPA it is necessary to undertake the CPA Program and have three years of work experience mentored by a member of CPA Australia. Pdf_Folio:9 MODULE 1 The Auditing and Assurance Framework 9
  • 26. Chartered Accountants Australia and New Zealand (CAANZ) CAANZ is a professional body with more than 120 000 members working in public practice (including the Big-4 and mid-tier chartered accounting firms), industry, academia and government. Its members work in Australia, New Zealand and more than 100 other countries. To become a chartered accountant it is necessary to undertake the Chartered Accountants (CA) Program, which combines study and mentored work experience. Institute of Public Accountants (IPA) The IPA is a professional body with more than 35 000 members working in industry, commerce, government, academia and public practice. To become an IPA member it is necessary to meet eligible accounting qualifications equivalent to the IPA Program Stage 1 and industry experience equivalent to the Mentored Experience Program. An alternative path is available for those who have a current membership with an IFAC Member level body. QUESTION 1.1 Several private and public sector organisations are associated with the public accounting profes- sion. The following are functions pertaining to these organisations. 1. Hear applications from ASIC to determine whether auditors have breached the Corporations Act. 2. Oversee the accounting standards-setting process. 3. Formulate auditing standards and audit guidance statements. 4. Regulate the distribution and trading of securities offered for public sale. 5. Establish a code of professional ethics. 6. Oversee the Australian Auditing and Assurance Standards Board. 7. Issue auditing standards. 8. Take punitive action against an independent auditor. 9. Establish quality control standards for audit work. 10. Undertake investigation of perceived breaches of the Corporations Act. Indicate the organisation associated with each activity. REGULATION OF AUDITING IN NEW ZEALAND In the previous two sections we have described the regulation of auditors and institutional arrangements around auditing pronouncements in the international setting and then some specific Australian differences. Here we consider the New Zealand environment. The External Reporting Board (XRB) is an independent Crown entity established under the Financial Reporting Act 1993 with the following functions: 1. developing and implementing an overall strategy for financial reporting standards and auditing and assurance standards (including developing and implementing tiers of financial reporting and assurance); 2. preparing and issuing accounting standards; 3. preparing and issuing auditing and assurance standards, including the professional and ethical standards that will govern the professional conduct of auditors; and 4. liaising with national and international organisations that exercise functions that correspond with, or are similar to, those conferred on the XRB (XRB 2019a). The XRB consists of the New Zealand Accounting Standards Board (NZASB) and the New Zealand Auditing and Assurance Standards Board (NZAuASB). The auditing and assurance standards issued by the NZAuASB consist of four suites of standards: 1. Professional and Ethical Standards: these are the professional and ethical standards applying to assurance practitioners issued by the XRB Board/NZAuASB. 2. International Standards on Auditing (NZ): apply to the conduct of audit engagements (reasonable assurance) undertaken by assurance practitioners. 3. Review Engagement Standards: apply to the conduct of review engagements (limited assurance) undertaken by assurance practitioners (XRB 2019c). 4. Other Assurance Engagement Standards: apply to the conduct of assurance engagements (other than on historical financial information) undertaken by assurance practitioners. P df_Folio:10 10 Advanced Audit and Assurance
  • 27. The XRB Board has set key strategic objectives for the NZAuASB related to harmonisation as follows: 1. the adoption of international auditing and assurance standards as applying in New Zealand unless there are compelling reasons not to; and 2. working with the Australian Auditing and Assurance Standards Board (AUASB) towards the establish- ment of harmonised standards based on international standards (XRB 2019b). The equivalent of the Australian regulator (ASIC) in New Zealand is the Financial Markets Author- ity (FMA), which is an independent Crown authority responsible for ensuring public confidence in New Zealand financial markets. Its responsibilities include: • the licensing of New Zealand and overseas auditors and audit firms • monitoring the audit firm performance • performing quality reviews of New Zealand audit firms and auditors • overseeing and monitoring accredited bodies to make sure they carry out their statutory duties. Further details of the FMA’s role can be obtained from the Auditor Regulation and Oversight Plan 2019–2022 (FMA 2019). The key points covered in this part, and the learning objectives they align to, are below. KEY POINTS 1.1 Apply the International Framework for Assurance Engagements (the Framework) and the related standards and other guidance to assurance engagements. • The International Framework for Assurance Engagements distinguishes assurance engagements from other engagements and provides a hierarchy of standards applicable to different engagements. 1.2 Apply the Code of Ethics for Professional Accountants to assurance engagements. • All professional accountants have to comply with the fundamental ethical principles set out in the Code. 1.2 ASSURANCE ENGAGEMENT FRAMEWORK The International Framework for Assurance Engagements (the Framework) issued by the IAASB applies to all assurance engagements. It helps in understanding the engagements to which ISAs, ISREs and ISAEs apply. Engagements for non-assurance and related services including consulting engagements are outside the scope of this Framework, but accountants undertaking such engagements must also adhere to the IESBA Code of Ethics for Professional Accountants (the Code). The Framework is not a standard and does not include any requirements for performance. The Framework refers to the applicable assurance standards and the Code where requirements are prescribed. As such, this section will outline information contained in the Framework as well as requirements of the Code and applicable standards. Matters contained in the Framework that will be discussed in this section include: • ethical principles • quality control standards • description of assurance engagements • attestation and direct engagements • reasonable and limited assurance engagements • scope of the Framework • elements of an assurance engagement: – three-party relationship – underlying subject matter – criteria – evidence – assurance report. ETHICAL PRINCIPLES The Framework specifies that firms that perform assurance engagements must comply with the fun- damental ethical principles outlined in IESBA’s Code. The Code’s conceptual framework (the Code, s. 120) outlines circumstances in which threats to compliance with the fundamental principles may occur. Pdf_Folio:11 MODULE 1 The Auditing and Assurance Framework 11
  • 28. The Code’s conceptual framework also specifies how accountants may identify, evaluate and address the threats by eliminating them or reducing them to an acceptable level. The Code IFAC established the IESBA to develop ethical principles for accountants. IESBA’s Code is the central standard. The Ethics and Governance subject of the CPA Program examines the Code in depth. The aspects of the Code that are of particular interest to assurance practitioners are discussed next. The Code is divided into four parts. • Part 1 introduces and describes the fundamental principles and conceptual framework. • Part 2 applies to professional accountants in business. • Part 3 applies to professional accountants in public practice. • Part 4 covers independence standards for: – 4A audits and review engagements – 4B other assurance and non-assurance engagements. After providing an overview of the fundamental principles included in Part 1 of the Code, this section will focus on Part 3 ‘Professional accountants in public practice’, which includes professional accountants in the auditing and assurance profession. Part 3 is extensive and describes many of the circumstances and relationships that could be encountered by an assurance practitioner and the associated threats to compliance with the fundamental ethical principles. This will be followed by a review of the independence requirements outlined in Part 4 of the Code. Part 2 is outside the scope of this study guide as it concentrates on the Code that relates to professional accountants in business. Fundamental Principles The Code begins by establishing the fundamental principles of professional conduct and outlining the requirements and application of the conceptual framework to identify, evaluate and address the threats to compliance with the fundamental principles set out in the Code. The following topics are discussed next. • Fundamental principles (the Code, s. 110): – integrity – objectivity – professional competence and due care – confidentiality – professional behaviour. • Conceptual framework (the Code, s. 120): – threats and safeguards. Integrity The principle of integrity imposes an obligation on professional accountants to be straightforward and honest (the Code, para. R111.1). Objectivity Accountants, and in particular auditors, may be exposed to numerous situations that could reduce objectivity in their professional judgments. Therefore, they have a duty to avoid relationships or situations that allow prejudice, bias, conflict of interest or the undue influence of others, which might compromise their professional and business judgments (the Code, para. R112.1). Professional Competence and Due Care The principle of professional competence and due care (the Code, para. R113.1) is an obligation that has two distinct parts: (a) Attaining and maintaining professional knowledge and skills necessary to provide competent profes- sional service to the client. (b) To act ‘diligently and in accordance with applicable technical and professional standards’ (the Code, para. R113.1(b)). This obligation requires continuing awareness of relevant technical, professional and business devel- opments, which can be obtained through continuing professional development (the Code, para. 113.1 A2). The Code explains that ‘diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis’ (the Code, para. 113.1 A3). Professional accountants are required to decline a job unless they possess the necessary skills to perform it properly. P df_Folio:12 12 Advanced Audit and Assurance
  • 29. QUESTION 1.2 Brenda Jones is a newly qualified accountant who is carrying out her first audit as the in-charge auditor for a construction company client that is engaged in a range of long-term contracts. Brenda has little experience of these types of clients and the accounting requirements in relation to long- term contracts. John Bull is the CFO of the client — he is a busy man and has a notorious reputation for being unfriendly to auditors. It has become apparent that Brenda has not fully understood the accounting issues involved and has avoided asking the necessary questions of John Bull to gain an understanding of the company’s transactions and the necessary audit work required to obtain evidence on the long-term contract transactions. As Brenda’s supervisor, how would you explain to her the importance of professionalism, using the International Code of Ethics for Professional Accountants (including International Indepen- dence Standards) and particularly referring to its guidance on competence? What advice would you give as to how she should proceed? Confidentiality A professional accountant must respect the confidentiality of information acquired as a result of professional and business relationships. They must not: • use the information for the personal advantage of themselves or third parties • disclose any such information to third parties without proper and specific authority, unless there are responsibilities under law, regulation or relevant ethical requirements to disclose (the Code, para. R114.1). Circumstances where disclosure of confidential information may be required or appropriate (the Code, para. 114.1 A1) include: (a) Disclosure is required by law, for example: (i) Production of documents or other provision of evidence in the course of legal proceedings; or (ii) Disclosure to the appropriate public authorities of infringements of the law that come to light; (b) Disclosure is permitted by law and is authorized by the client or the employing organization; (c) There is a professional duty or right to disclose, when not prohibited by law: (i) To comply with the quality review of a professional body; (ii) To respond to an inquiry or investigation by a professional or regulatory body; (iii) To protect the professional interests of a professional accountant in legal proceedings; or (iv) To comply with technical and professional standards, including ethics requirements (the Code, para. 114.1 A1). Professional Behaviour An accountant must demonstrate professional behaviour by complying with relevant laws and regulations and avoid any conduct that discredits the profession (the Code, para. R115.1). They must act in a way that promotes the good reputation of the profession. Threats and Safeguards Using the conceptual framework approach recommended by the Code, members must identify any threats to compliance with the fundamental principles, evaluate those threats and address threats to compliance with the fundamental principles in section 110 of the Code. Where the threats are significant, members must apply safeguards to eliminate them or reduce them to an acceptable level (i.e. so that compliance with the fundamental principles is no longer compromised). If members cannot implement appropriate safeguards, they must either decline or discontinue the specific professional service, or consider resigning from the client or employer. Compliance with the fundamental ethical principles can be jeopardised by a range of threats. • Self-interest threat may occur as a result of the financial or other interests of a professional accountant. • Self-review threat may occur when the assurance team needs to form an opinion on their work or work performed by others in their firm. • Advocacy may occur when an auditor is asked to promote or represent their client in some particular way. This could happen when a client asks the auditor to promote their shares on the stock exchange, argue their client’s position on a proposed accounting disclosure or represent them in a court case. The auditor’s objectivity may be impaired. Further, the auditor’s independence of mind and in appearance could be compromised. • Familiarity may occur when, because of a long or close relationship with a client, a professional accountant becomes too sympathetic to their interests or too accepting of their work. Pdf_Folio:13 MODULE 1 The Auditing and Assurance Framework 13
  • 30. • Intimidation may occur when a professional accountant is deterred from acting objectively because of actual or perceived threats (the Code, para. 120.6 A3). Many of the safeguards that eliminate or reduce threats are discussed in the Code. Safeguards may be created by the following. • The profession, legislation or regulation — for example: – the issue of quality standards, member education, establishment of a code of ethics, and the enactment of legislation such as the Corporations Act and the ASIC Act. • In the work environment of the assurance client — for example: – when the client’s management appoints the auditor, people other than management ratifying or approving the appointment – the client having competent employees to make managerial decisions – policies and procedures emphasising the client’s commitment to fair financial reporting – internal procedures ensuring objective choices in commissioning non-audit work – strong corporate governance, including an effective audit committee. • In the work environment of the audit firm — for example: – systems and procedures to ensure compliance with ethical standards (e.g. rules on share ownership, relationship with clients, client acceptance procedures) – partner rotation policies to enhance audit partner independence – peer review policies to provide other partners with feedback. In exercising judgment on the significance of threats and safeguards, accountants must consider what a reasonable and informed third party would likely conclude on whether compliance with the fundamental principles has been compromised. You should now read paragraphs 200.1–200.8 of Part 2 of the Code, ‘Professional accountants in business’, which provide guidance on identifying, evaluating and addressing threats. Professional Accountants in Public Practice Part 3 of the Code, ‘Professional accountants in public practice’, provides guidance on applying the conceptual framework from Part 1. In this section, we consider specific issues relevant to public practitioners, including: • conflicts of interest • professional appointments • second opinions • fees and other types of remuneration • inducements (including gifts and hospitality) • custody of client assets • responding to non-compliance with laws and regulations. You should now read paragraphs 300.6–310.13 of Part 3 of the Code, ‘Professional accountants in public practice’, which provide many examples of the various threats and safeguards for professional accountants in public practice. Conflicts of Interest A professional accountant should not allow a conflict of interest to compromise their professional judgment. ‘A conflict of interest creates threats to compliance with the principle of objectivity and might create threats to compliance with other fundamental principles’ (the Code, para. 310.2). Such threats may be created, for example, when the interests of the client and the professional accountant conflict or when a professional accountant in public practice performs services for two or more clients whose interests are in conflict. In these circumstances, it is the responsibility of the professional accountant to notify the relevant parties that they are acting for two or more parties whose respective interests are in conflict and obtain their consent to so act. Safeguards to address threats created by a conflict of interest include: 1. Having separate engagement teams who are provided with clear policies and procedures on maintaining confidentiality. 2. Having an appropriate reviewer, who is not involved in providing the service or otherwise affected by the conflict, review the work performed to assess whether the key judgments and conclusions are appropriate (the Code, para. 310.8 A3). Professional Appointments Before accepting a new client, a professional accountant in public practice must determine whether acceptance would create any threats to compliance with the fundamental principles. P df_Folio:14 14 Advanced Audit and Assurance
  • 31. • A threat to integrity or professional behaviour may be created from behaviours of the ‘client (its owners, management or activities)’, such as ‘illegal activities, dishonesty, questionable financial reporting practices or unethical behaviour’ (the Code, para. 320.3 A1). The professional accountant can safeguard against this threat by obtaining knowledge and understanding of the client or securing the client’s commitment to address the questionable behaviours. • A threat to professional competence and due care arises if the engagement team does not possess the competencies necessary to properly carry out the engagement. In these circumstances, an obvious safeguard would be for the practitioner to acquire knowledge of the relevant industry and its regulatory requirements. In Australia, there are additional requirements that apply to the appointment of auditors. If the auditor has been an officer or audit-critical employee of the proposed client within the 12 months immediately before the proposed audit period, accepting an appointment is not permitted (Corporations Act, s. 324). In respect of a change of auditor, an accountant who is asked to replace an existing auditor will generally need to obtain the prospective client’s permission to communicate with the existing auditor. On receipt of permission, they should request the necessary information to enable a decision to be made as to whether the audit engagement should be accepted. If permission is not granted, the accountant must carefully consider if the appointment should be declined. In this situation, the accountant must take reasonable steps to obtain information by other means about the circumstances of the change of appointment and any possible threats. These steps include enquiries of third parties or background investigations of senior management or those charged with governance of the prospective client (the Code, paras 320.4–320.5 A1). Second Opinions In accounting, an intimidation threat arises when a client succeeds in obtaining a second opinion favourable to their position — for example, an opinion on the use of particular accounting policies — and uses this to apply pressure on the existing accountant. The fundamental principle threatened is objectivity. Safeguards include the accountant who is asked to provide the second opinion seeking client permission to contact the existing accountant, as well as providing the existing accountant with a copy of the second opinion (the Code, para. 321.3 A3). Fees and Other Types of Remuneration Even though auditors, may quote whatever fee they consider as appropriate, quoting fees that are too low may make it difficult for the auditor to perform the assurance engagement in accordance with the applicable technical and professional standards. This is likely to impact on the principle of professional competence and due care. Safeguards to address this type of self-interest threat include: • adjusting the level of fees or the scope of the engagement • having an appropriate reviewer review the work performed (the Code, para. 330.3 A4). Additionally, contingent fees may create a threat to compliance with the principle of objectivity. Having an appropriate reviewer review the work performed or obtaining a written agreement with the client on the basis of remuneration prior to commencement of work may address such self-interest risks (the Code, para. 330.4 A3). A self-interest threat ‘with the principles of objectivity and professional competence and due care is created if a professional accountant pays or receives a referral fee or commission relating to a client’ (the Code, para. 330.5 A1). Such self-interest threats can be addressed by having the client outline commission arrangements prior to commencing work or ‘disclosing to clients any referral fees or commission arrangements’ with other professional accountants (the Code, para. 330.5 A2). Inducements — Gifts and Hospitality Professional accountants may find themselves in situations where they, or their immediate or close family members, are offered inducements to influence their behaviour, such as: • gifts • hospitality • entertainment • political or charitable donations • appeals to friendship and loyalty • employment or other commercial opportunities • preferential treatment, rights or privileges (the Code, para. 340.4 A1). Pdf_Folio:15 MODULE 1 The Auditing and Assurance Framework 15
  • 32. Offers of inducements may create self-interest, familiarity or intimidation threats to the principles of integrity, objectivity or professional behaviour (the Code, para. 340.2). Professional accountants need to understand and comply with the relevant laws and regulations as offering or accepting inducements are prohibited in many jurisdictions. Custody of Client Assets A professional accountant should not take ‘custody of client money or other assets unless permitted to do so by law’ because doing so may create a self-interest threat to the principles of professional behaviour and objectivity (the Code, para. R350.3). Before taking custody, a professional accountant should make enquiries about the source of the assets as they may be derived from illegal activities such as money laundering. After taking custody of client money or other assets, a professional accountant must comply with the relevant laws and regulations, keep the assets separate from personal or firm assets, use them only for the intended purpose and be ready to account for them at all times (the Code, para. R350.5). Responding to Non-Compliance with Laws and Regulations The Code incorporates the IESBA’s standard, Responding to Non-Compliance with Laws and Regulations (NOCLAR), which became effective in July 2017. The Code sets out an approach to guide professional accountants who encounter or become aware of a potential NOCLAR committed by a client (the Code, s. 360). Section 360 of the Code outlines provisions relevant to professionals in public practice, which are also reflected in auditing standards, as explained in module 2. While providing professional services to a client, a professional accountant may encounter or be made aware of non-compliance or suspected non-compliance with laws and regulations. Regardless of the nature of the client, including whether or not it is a public-interest entity, the accountant has a responsibility to act in the public interest. If they encounter, or are made aware of NOCLAR, their objectives are: (a) To comply with the principles of integrity and professional behavior; (b) By alerting management or, where appropriate, those charged with governance of the client, to seek to: (i) Enable them to rectify, remediate or mitigate the consequences of identified or suspected non- compliance; or (ii) Deter the commission of the non-compliance where it has not yet occurred; and (c) To take such further action as appropriate in the public interest (the Code, para. 360.4). QUESTION 1.3 The following circumstances raise questions about an auditor’s ethical conduct. • An auditor accepts an engagement knowing that they do not have the specialist knowledge required. • An auditor discloses confidential information about a client to a successor auditor. • A public accountant pays a commission to a solicitor to obtain a client. • A public accountant agrees to be the committee chairperson for a local fundraising activity. • An auditor accepts a Christmas gift from a client. • An auditor accepts a commission from an insurance company for recommending the company to one of its audit clients. • An auditor has a bank loan with a bank that is an audit client. • An auditor retains a client’s records as a means of enforcing payment of an overdue audit fee. 1. Discuss the fundamental principles of the International Code of Ethics for Professional Accoun- tants (including International Independence Standards) in relation to each of the above. 2. Indicate, in each of the above circumstances, whether the effect on professional ethics is (i) a violation, (ii) not a violation or (iii) indeterminate, and explain. Independence Independence is generally considered to be the cornerstone of the auditing and assurance profession. The definition of independence in the Code stresses that the accountant must be independent both of mind and in appearance (refer also Glossary, APES 110). Accordingly, the accountant must act with integrity, and exercise objectivity, professional judgment and professional scepticism. In addition, the accountant must remain alert for new information, changes in facts and circumstances and avoid circumstances that a reasonable and informed third party might think indicate that a member’s integrity, objectivity or professional scepticism has been compromised. The reasonable person must P df_Folio:16 16 Advanced Audit and Assurance
  • 33. perceive that the accountant is impartial and free of bias. When fraudulent practices and large business failures occur without apparent warning, the independence of the profession is questioned. As a result, the Code establishes a conceptual framework that requires a member to identify, evaluate and address threats to compliance with the fundamental principles (the Code, para. 120.2). The Code provides extensive application material in Part 4A describing numerous circumstances of threats to independence and safeguards to reduce these threats. One of the major features of the Code is the independence requirements in relation to long association of personnel with an audit client, in particular the audit partner rotation requirements (the Code, s. 540). Audit partner rotation and independence requirements in relation to the conduct of an audit are discussed further in module 2. Under the Corporations Act, ASIC has responsibility for the surveillance, investigation and enforcement of auditor independence. EXAMPLE 1.1 Principles of Professional Conduct Identify the fundamental principles of professional conduct outlined in the Code that are under threat for each of the situations below. ............................................................................................................................................................................ (a) You become aware that one of your clients is involved in illegal activities. (b) Your largest client (and the related fees) is growing at a much quicker rate than the rest of your business. The client’s fees have increased from 10% to 16% of your firm’s total fees. (c) You are the auditor of a client whose CEO is your long-time next-door neighbour. (d) In the past, you have not carried out audits of credit unions. Most of your clients are clubs and small local businesses. You decide to take on a credit union as a new client and hope there is a professional development program available to update your staff on specialised issues for this industry. (e) The audit assistant is asked to randomly select ten items from a stock list, then sight and count the relevant inventory. The assistant selects the ten items, finds nine, and is told the tenth item is in the loft. The assistant is wearing new clothes and, knowing how dusty the loft is, instead randomly selects and locates another item. (f) A partner received a loan from an audit client that is an Australian credit union. (g) A member of your assurance team is considering resigning to take up a job offer with the assurance client during the year. (h) A prospective client asks for an audit to be completed within a month to meet bank requirements. It offers a fixed fee plus a bonus for completing the audit on time. (i) A current client, for whom you have provided consulting services that involved hiring financial accounting staff and designing an information system, asks for an audit to be completed within a month to meet bank requirements. It offers a fixed fee for completing the audit on time but there is no bonus attached. (j) An audit manager is concerned that their client is not investing their funds wisely by having large amounts of cash in the bank. To help the client without offending the bank manager, the audit manager explains this issue to a friend who is a qualified financial adviser, who then sends the relevant information to the client. (k) The audit firm places an advertisement stating they have had fewer legal suits than any other firm of accountants in Australia or Asia. Check your response against the suggested answer at the end of the book. EXAMPLE 1.2 Independence Policies and Procedures Audit firms are required to comply with independence requirements. ............................................................................................................................................................................ For each of the three listed audit firm requirements, describe practical policies and procedures a firm could implement to ensure compliance. 1. Audit firms must have policies and procedures to provide reasonable assurance that the firm and its personnel maintain independence. 2. Audit firms must communicate with and educate partners and professional staff, including non-audit personnel, to ensure they understand the independence policies that relate to their activities. 3. Audit firms must maintain adequate records to identify, communicate and monitor compliance with specific independence requirements (e.g. prohibited investment lists). Check your response against the suggested answer at the end of the book. Pdf_Folio:17 MODULE 1 The Auditing and Assurance Framework 17
  • 34. Australian Perspective Note that in Australia, the APESB issued APES 110 Code of Ethics for Professional Accountants (including Independence Standards) in November 2018, which is based on the Code in both structure and content. The updated APES 110 code is effective from 1 January 2020. You should now read the Preface section of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) on the application of APES 110 to members of CPA Australia and auditors who conduct audits in Australia. ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assur- ance Engagements states that the auditor, assurance practitioner, engagement quality control reviewer, and firm shall comply with the Code. ASA 102 was designed to suit Australian law so there is no equivalent ISA. It allows references to ethical requirements in other AUASB standards to remain current. Whenever APES 110 is amended, the AUASB amends ASA 102, thereby eliminating the need to amend other AUASB standards. QUALITY CONTROL STANDARDS The Framework specifies that ethical principles, independence requirements and quality control (QC) within firms are widely recognised as being in the public interest and are an integral part of high-quality assurance engagements. The Framework outlines that professional accountants performing assurance engagements are subject to ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements. An auditing standard ISA 220 Quality Control for an Audit of Financial Statements discusses specific engagement matters. Much of the content of ISQC 1 is repeated in ISA 220, but as indicated, the difference is that ISA 220 relates to the specific engagement while ISQC 1 is broader and relates to the audit firm as a whole. In February 2019, the IAASB issued a suite of proposed international standards on quality management. The proposals change the way professional accounting firms will be expected to manage quality for audits, reviews and other assurance and related services engagements. Quality management is being addressed to: • more proactively manage quality to address stakeholder expectations and concerns • improve the scalability of the standards • modernise the standards and keep them fit for purpose. For more details of these proposals, see https://www.iaasb.org/quality-management. ISQC 1 establishes basic principles and essential procedures for firms to establish and maintain a system of QC for assurance engagements. Each of the elements of quality control will be discussed, followed by an overview of the Framework for Quality Control. Elements of Quality Control There are six areas where firms should have QC policies in place: 1. leadership responsibilities for quality within the firm 2. relevant ethical requirements 3. acceptance and continuance of client relationships and specific engagements 4. human resources 5. engagement performance: (a) engagement support materials (b) supervision and review (c) consultation (d) an engagement QC review 6. monitoring (ISCQ 1, para. 16). Leadership Responsibility Leadership culture underpins all other elements of QC, so it is important for a firm to have a strong QC culture established by the leadership of the firm and the examples it sets. Operational responsibility for the firm’s QC system must rest with a person with appropriate experience and ability, as well as the necessary authority. In all likelihood, this will be one of the most senior partners. An assurance firm should develop, document and implement appropriate QC procedures and a formal code of conduct. Perhaps most challengingly, its leadership should demonstrate the firm’s overriding commitment to quality above commercial considerations. This means that the work done in an assurance P df_Folio:18 18 Advanced Audit and Assurance
  • 35. engagement cannot be limited by the budget or by the fee, but must be determined by the assessed risk and the procedures thought necessary to address that risk. Read ISQC 1, paragraphs 18–19 and A4–A6 for discussions on these responsibilities. Ethical Requirements The assurance firm should develop, document and implement policies and procedures to guide and reinforce ethical behaviour. These include independence policies describing permitted and prohibited behaviour reflecting the advice in the Code, and independence consultations that allow staff and partners to refer independence threats to relevant partners so that timely action can be taken. Systems that support ethical behaviour include databases to match staff disclosures with a prohibited securities list, and (in Australia) tracking the firm’s management of the auditor rotation requirements of the Corporations Act. Read ISQC 1, paragraphs 20–25 for discussions on these responsibilities. ISA 220 explains the ethical requirements, including independence, of the engagement team in relation to audit engagements. In particular, the engagement partner shall consider whether members of the engagement team have complied with relevant ethical requirements relating to audit engagements. The engagement partner must remain alert for evidence of non-compliance with the ethical requirements relating to the audit engagement. With respect to independence, it is mandatory that the engagement partner: (a) obtain relevant information from the firm and, where applicable, network firms, to identify and evaluate circumstances and relationships that create threats to independence; (b) evaluate information on identified breaches, if any, of the firm’s independence policies and procedures to determine whether they create a threat to independence for the audit engagement; and (c) take appropriate action to eliminate such threats or reduce them to an acceptable level by applying safeguards … The engagement partner shall promptly report to the firm any inability to resolve the matter for appropriate action (ISA 220, para. 11). Non-compliance can be at the firm level (e.g. the control system to monitor employee ownership of shares in listed companies is not adequate) or at the individual client level (e.g. the audit manager and the CFO are related). In most firms, senior personnel (e.g. risk management partners) will be assigned to look after these issues at the firm level. However, individual partners are responsible at the engagement level. ASIC’s 2019 audit inspection report discusses compliance with these independence requirements. It states that most firms have established policies and processes to facilitate compliance with the auditor independence requirements of the Corporations Act and professional standards. However, there were some instances of non-compliance. • Three larger firms provided non-audit services to audit clients that compromised the appearance of independence. • One small firm failed to send partners and staff an annual independence questionnaire to confirm compliance with independence (ASIC 2019, p. 40). Examples such as these can undermine actual or apparent independence of auditors. Acceptance and Continuance of Client Relationships An assurance firm must: • consider the integrity of each client, including potential issues associated with the client (e.g. client involvement in illegal activity, questionable financial reporting practices or unethical behaviour) • determine that it is competent to perform the engagement • determine that it can comply with the Code, including, in particular, those matters related to independence. One approach taken by practitioners to assess the integrity of a client is a risk checklist. The client’s risk score is used to determine whether the audit engagement should be accepted or continued. The risk assessment can affect: • the choice of an appropriate engagement team • the extent of consultation required • the audit approach • the calculation of an appropriate audit fee. The acceptance and continuance decisions should focus on independence considerations, possible conflicts of interest and the ability to provide requisite skills to conduct the audit (e.g. whether the firm has staff with the required expertise to do this audit). Pdf_Folio:19 MODULE 1 The Auditing and Assurance Framework 19
  • 36. For each engagement, the engagement partner is required to make the acceptance or continuance decision prior to commencing the audit, and this decision needs to be documented. Prior to accepting the engagement, the auditor may be required by law, regulations or relevant ethical requirements to request the predecessor auditor to provide known information regarding any facts or circumstances that, in the predecessor auditor’s judgment, the auditor needs to be aware of before deciding whether to accept the engagement (ISA 220, para. A9). Thereafter, if the engagement partner obtains information that would have caused the firm to decline the audit engagement (had that information been available earlier), this information needs to be promptly communicated to the firm so that ‘necessary action’ can be taken (ISA 220, para. 13). The auditing standard is not clear on what this appropriate action should be, but it is likely to depend on what stage of the audit has been reached. During the audit, it is unlikely that the firm would withdraw from the audit, although this could happen. Read ISQC 1, paragraphs 26–28 and A18–A23 for discussions on these responsibilities. QUESTION 1.4 List four factors that may indicate additional client evaluation procedures are necessary when evaluating the continuance of an audit client. Human Resources An assurance firm’s human resource policies must apply at both the staff and partner levels. Important personnel issues include: 1. recruitment 2. performance evaluation 3. capabilities, including time to perform assignments 4. competence 5. career development 6. promotion 7. compensation 8. the estimation of personnel needs (ISQC 1, para. A24). ‘Effective recruitment processes and procedures help the firm select individuals of integrity who have the capacity to … perform competently’ (ISQC 1, para. A24). Human resources policies should demonstrate that adherence to QC policies and ethical principles are criteria for promotion and remuneration decisions. Non-compliance should result in disciplinary action (including financial penalties) and other follow-up procedures such as training. For audit firms, it is also important that partner evaluations and promotions are documented and that the documentation covers quality controls and independence. Assignment of Engagement Teams A firm should establish policies and procedures to assign appropriate personnel with the necessary competence and capabilities to an engagement (ISQC 1, para. 31). The firm should have systems in place to monitor the workload and availability of engagement partners. This will ensure that engagement partners assigned to an engagement ‘have sufficient time to adequately discharge their responsibilities’ (ISQC 1, para. A30). ISA 220 requires an engagement partner to be satisfied that the engagement team collectively has the appropriate capabilities and competence to perform the audit engagement (ISA 220, para. 14). Note that these requirements apply to the engagement team as a whole. Therefore, it is possible to put a staff member on an audit without all of the required capabilities and competencies, provided there is adequate supervision and review. In most firms these issues will be handled through staff training and on-the-job training. Knowledge of relevant industries can sometimes provide additional challenges and require using resources from outside the firm. If the auditor becomes particularly aware of specific risk areas or areas requiring specialist skills, the engagement partner may include more senior staff and specialists on the audit and carry out additional reviews of the work done. Engagement Performance Engagement performance means completing assurance engagements in accordance with professional standards, and legal and regulatory requirements. P df_Folio:20 20 Advanced Audit and Assurance
  • 37. Important policies and procedures that relate to engagement performance are: • consistency in the quality of engagement performance • supervision and review of work • consultation • engagement quality control review. Consistency in the Quality of Engagement Performance Most audit firms promote consistency in the quality of engagement performance through written or electronic manuals, software tools or other forms of documentation and materials. Supervision and Review The engagement review process has long been accepted as a critical QC process within auditing firms. A hierarchy of review is established within the audit team. Seniors review the work of juniors, managers review seniors, and partners review managers. These reviews are ongoing throughout the engagement. They ensure that sufficient evidence has been collected, the conclusions reached are consistent with the results of the work performed, and documentation is appropriate. Additionally, the review process provides training for all members of the audit team. Read ISQC 1, paragraphs A34 and A35 for further details of the supervision and review processes. The engagement partner takes responsibility for the direction, supervision and performance of the audit engagement (ISA 220, para. 15). Direction to other members of the audit engagement team would normally include informing them of: • their responsibilities • risk-related issues • problems that may arise • the detailed approach to the performance of the engagement. Supervision of members of the engagement team is also an important aspect of engagement perfor- mance. ISA 220, paragraph A16, provides the following examples of supervision: • tracking the progress of the audit engagement • considering the capabilities, competence, time availability and understanding of instructions of team members, and whether the work is being carried out consistent with the planned audit approach • addressing significant issues that arise during the audit and modifying the planned approach where appropriate • identifying matters for consultation with more experienced engagement members. An important part of the supervision responsibility includes the review process, where more experienced team members review work performed by less experienced team members. Reviewers will consider whether, for example: (a) the work has been performed in accordance with professional standards and applicable legal and regulatory requirements; (b) significant matters have been raised for further consideration; (c) appropriate consultations have taken place and the resulting conclusions have been documented and implemented; (d) there is a need to revise the nature, timing and extent of work performed; (e) the work performed supports the conclusions reached and is appropriately documented; (f) the evidence obtained is sufficient and appropriate to support the auditor’s report; and (g) the objectives of the engagement procedures have been achieved (ISQC 1, para. A35; ISA 220, para. A18). Consultation Consultation is an important responsibility of the engagement partner. This includes the requirements to: (a) take responsibility for the engagement team undertaking appropriate consultation on difficult or contentious matters; (b) be satisfied that members of the engagement team have undertaken appropriate consultation during the course of the engagement, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm; (c) be satisfied that the nature and scope of, and conclusions resulting from, such consultations are agreed with the party consulted; and (d) determine that conclusions resulting from such consultations have been implemented (ISQC 1, para. 34; ISA 220, para. 18). Pdf_Folio:21 MODULE 1 The Auditing and Assurance Framework 21
  • 38. In most assurance firms, specialist partners are available for consultation on technical or complex aspects of auditing and accounting issues, tax, systems and legal matters. Often, a technical query database is compiled and firms designate partners to consult on conflict of interest and independence issues. In addition, many firms have a mentoring scheme in place where audit staff are assigned to a mentor who is a more senior auditor. The mentor provides the staff member with career planning and can be another source of consultation when needed. It is common for the larger firms to emphasise their culture of consultation. For example, Ernst and Young states that their: consultation policies are built upon a culture of collaboration, whereby audit professionals are encouraged to share perspectives on complex accounting, auditing and reporting issues. Consultation requirements and related policies are designed to involve the right resources so that audit teams reach appropriate conclusions (Ernst & Young Australia 2018, p. 11). Read ISQC 1, paragraphs 34 and A36–A40 for further details of the consultation processes. Engagement Quality Control Review On completion of the audit of listed entities and other public interest entities, assurance firms must perform an engagement quality control review (EQCR). The EQCR provides an objective and independent evaluation of the significant judgments made and the conclusions reached by the audit team and the audit partner. The EQCR is in addition to the ongoing ‘review of audit working papers’ (see module 4) performed by the engagement team and the engagement partner, discussed in the previous section, ‘Supervision and review’. EQCR reviewers are experienced audit partners who are not otherwise involved in the audit engagement. They carry out a second (or concurring) independent review of the engagement, including the quality of the work performed and the appropriateness of the auditor’s opinion. An EQCR policy should identify: • the nature, timing and extent of an EQCR • criteria for eligibility of an EQCR reviewer • documentation required of an EQCR • how differences of opinion are to be resolved. Read ISQC 1, paragraphs 35–42 for further details on engagement quality control reviews. QUESTION 1.5 What are the main attributes of an effective audit quality review program (i.e. quality review processes within audit firms) in an audit engagement? Monitoring ‘Monitoring’ refers to the ongoing examination of QC systems and procedures to ensure that they are appropriate and are carried out consistently and properly. Monitoring systems should ensure that any identified problems are communicated to the partner responsible for the firm’s QC and that appropriate responses to problems are implemented. These responses might include additional training, counselling or disciplinary action for individuals, or a revision of the firm’s QC policy. ASIC (2019) continues to emphasise that effective firm quality review processes are important for improving audit quality. Such monitoring of audit quality involves regular reviews within firms of a sample of completed audits. These reviews are usually carried out by senior staff from a different location (e.g. interstate). ASIC also released Information Sheet 222 ‘Improving and maintaining audit quality’ (INFO 222) in June 2017 to outline considerations for auditors to improve and maintain audit quality. Some of the considerations raised in INFO 222 for effective audit firm quality reviews include: • suitability of reviewers • review coverage • review and reporting • remedial action. For more details, read INFO 222 at https://asic.gov.au/regulatory-resources/financial-reporting-and- audit/auditors/improving-and-maintaining-audit-quality. P df_Folio:22 22 Advanced Audit and Assurance
  • 39. You can also refer to ISQC 1, paragraphs 48–56 for further details on monitoring. As mentioned previously, in addition to an audit firm’s internal monitoring process, external monitoring also takes place. In Australia, for example, in order to review compliance with audit quality and auditor independence requirements, ASIC started an audit firm inspection program in 2004. The purpose of the inspection program is to focus on audit quality and promote compliance with the requirements of the Corporations Act, auditing standards, and professional and ethical standards. The audit firms to be inspected are selected based on a number of criteria, but there is an emphasis on audit firms that audit publicly listed or public interest entities. With auditing moving beyond national borders, there is a need for effective global auditor oversight. ASIC, through its membership of IFIAR, has sought arrangements with other international audit oversight bodies with the intention of conducting work either jointly or on their behalf. ASIC regularly releases a report of its inspection program. At the time of writing, the most recent report released was in January 2019 for ASIC’s audit inspection program in the 18 months to 30 June 2018 (ASIC 2019). ASIC continued to find deficiencies in quality control systems and the audit evidence obtained. It concluded: In our view, in 20% of the key audit areas that we reviewed, auditors did not obtain reasonable assurance that the financial report as a whole was free of material misstatement. This compares to 23% in the previous 18-month period ended 31 December 2016 and represents a welcome reduction in the level of findings for the largest six firms. (ASIC 2019, p. 4). ASIC stated that its findings did not necessarily mean the financial reports audited were materially misstated, but rather that the auditor did not have a sufficient basis to support its opinion on the financial report. It also noted that the level and nature of the findings were consistent with those found by inspectors in other countries. As further evidence of monitoring, in 2013, Australia mandated the preparation and release of transparency reports by the larger audit firms of significant entities, with a focus on the disclosure of their internal governance systems. Under section 322 of the Corporations Act, all audit firms must publish a transparency report on their website if they have conducted audits under the Corporations Act of ten or more significant entities. Just over 20 audit firms in Australia are required to publish such reports. The information to be published includes: • a description of the firm or company’s legal structure and ownership • a description of the auditor’s governance structure and internal quality control system • a statement by the management body on the effectiveness of the functioning of the internal quality control system • information concerning the basis for remuneration of the audit firm’s partners or the authorised audit company’s directors. The KPMG Auditor Transparency Report 2018 can be viewed at https://home.kpmg/au/en/home/ insights/2018/10/transparency-report.html. QUESTION 1.6 Outline procedures that a firm could implement to demonstrate its commitment to quality above commercial considerations. A Framework for Audit Quality Identifying the drivers of high-quality audits has been the subject of extensive discussion. In 2014, the IAASB published A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality (2014a), which describes, in a holistic manner, the different elements that create the environment for audit quality at the engagement, firm and national levels, as well as relevant interactions and contextual factors. There are three parts to the audit quality framework. As outlined diagrammatically in figure 1.3, these are the input, process and output stages of the audit, with each of these capable of being identified at the engagement, firm and national level. Figure 1.3 illustrates the main contextual factors impacting on audit quality as identified in A Framework for Audit Quality (IAASB 2014a). Pdf_Folio:23 MODULE 1 The Auditing and Assurance Framework 23
  • 40. FIGURE 1.3 A framework for audit quality Financial reporting timetable A t t r a c t i n g t a l e n t L i t i g a t i o n e n v i r o n m e n t A u d i t r e g u l a tion Broader cultural factors Corporate governance Inform a t i o n s y s t e m s A p p l i c a b l e fi n a n c i a l r e p o r t i n g f r a m e w o r k L a w s a n d r e g u l a t i o n s fi n a n c i a l r e p o r t i n g Business practices and commercial law Contextual factors Those charged with governance Management Inputs Auditor Audit quality Regulators Process Outputs Users Source: International Auditing and Assurance Standards Board (IAASB) 2014, A Framework for Audit Quality: Key Elements That Create an Environment for Audit Quality, in Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018 ed., vol. 3, p. 6, accessed August 2019, available from: https://www.ifac.org/ publications-resources/2018-handbook-international-quality-control-auditing-review-other-assurance The inputs to quality audits include auditors: • exhibiting appropriate values, ethics and attitudes • being sufficiently knowledgeable, skilled and experienced, and having sufficient time allocated to them to perform the audit work. A quality audit process involves auditors applying a rigorous audit process and appropriate quality control procedures that comply with laws, regulations and applicable firm and national standards. Quality audit outputs are those that are useful and timely to the report users and include outputs from the auditor, the audit firm, the entity and audit regulators. These include the independent auditor’s report at the individual engagement level or the audit firm’s transparency report at the national level, which in Australia are both publicly available. The outputs also include those that arise from the auditing process but that are generally not available to those outside the audited organisation, including the management letter provided by the auditor to the audit committee at completion of the audit. The second part of the audit quality framework covers the interactions between the various participants in the financial reporting supply chain. The participants identified in the audit quality framework include management, those charged with governance, regulators, users and auditors. While the primary P df_Folio:24 24 Advanced Audit and Assurance
  • 41. responsibility for performing quality audits rests with auditors, audit quality is best achieved in an environment where there is support from the other participants. The way the stakeholders interact may affect audit quality, and increased interaction is promoted in the audit quality framework. Recently there has been much greater emphasis on communication between the auditors and the audit committee. The third level outlines the contextual factors, as shown in the circle around the audit quality framework (see figure 1.3). The ten contextual factors identified in the audit quality framework are: 1. business practices and commercial law 2. laws and regulations relating to financial reporting 3. the applicable financial reporting framework 4. information systems 5. corporate governance 6. broader cultural factors 7. audit regulation 8. litigation environment 9. attracting talent 10. financial reporting timetable. Collectively, the contextual factors have the potential to affect the nature and quality of financial reporting and, directly or indirectly, audit quality. Where appropriate, auditors respond to these factors when determining how best to obtain sufficient appropriate audit evidence. Notwithstanding the publication of A Framework for Audit Quality (IAASB 2014a), it is recognised that the concept of audit quality is elusive, because it is only when financial statements are restated or companies fail that a misstatement in the financial statements is discovered, and this is often long after the period under audit. DESCRIPTION OF ASSURANCE ENGAGEMENTS Assurance engagements are described in the Framework for Assurance Engagements (para. 10) as an engagement in which a practitioner obtains sufficient appropriate evidence in order to express a conclusion aimed at enhancing the degree of confidence the intended users will have about the evaluation of the underlying subject matter against criteria. The outcome of the measurement or evaluation is ‘the subject matter information about which the practitioner gathers sufficient appropriate evidence as the basis’ for their conclusion (Framework, para. 11). Examples of assurance engagements are provided in table 1.3 and will be discussed further later in this module and again in module 5. TABLE 1.3 Examples of assurance engagements Underlying subject matter Criteria Outcome Financial position, financial performance and cash flows Financial reporting framework Financial statements Entity’s internal control process Relevant criteria Internal control effectiveness Various aspects of performance Relevant measurement methodologies Entity-specific performance measures Entity’s greenhouse emissions Recognition, measurement and presentation protocols Greenhouse gas statement Entity’s compliance Law and regulation Compliance statement Source: The Framework, para. 11. ATTESTATION AND DIRECT ENGAGEMENTS Assurance engagements include the following. • Attestation engagements (where attest means affirm, verify or corroborate the work of others), where a party other than the assurance practitioner (normally management) measures or evaluates the underlying subject matter against the criteria (i.e. prepares the financial statements in accordance with the accounting standards) (Framework, para. 12). For this type of engagement, the preparers of the subject matter assert in the report that it is in accordance with a stated framework. The auditor’s role is to attest to whether (in their opinion) that is the case. Pdf_Folio:25 MODULE 1 The Auditing and Assurance Framework 25
  • 42. • Direct engagements where the assurance practitioner directly ‘measures or evaluates the underlying subject matter against the criteria’ (Framework, para. 13). In this type of engagement, as there are no such assertions made regarding the subject matter, the auditors must directly test the content themselves. There is no overlap between attestation and direct engagements: an assurance engagement is either an attestation engagement or a direct engagement. The key distinction is who measures or evaluates the under- lying subject matter against the criteria. In the Framework definition, ‘measure or evaluates the underlying subject matter’ essentially means ‘prepares a report’. In an attestation engagement, management prepares the report and the practitioner examines that report to provide assurance to readers. In a direct engagement, the report and the assurance on that report are both provided by the practitioner. Audits and reviews of financial statements are structured as attestation engagements (i.e. financial statements are prepared by management in accordance with the accounting standards and relevant legislation). Auditors and reviewers are not permitted to prepare the financial statements that they audit. In contrast, an assurance engagement examining the efficiency of an internal control system (the under- lying subject matter) against, for example, COSO (2013) (the criteria) could be carried out as either an attestation engagement or a direct engagement. • It is an attestation engagement if management evaluates the internal control system against the criteria and the assurers attest to the credibility of their report. • It is a direct engagement if the assurers undertake the evaluation of the internal control system against the criteria and report on this. The main advantage of a direct engagement is that an independent assurer undertakes the measurement and prepares the information. This approach reduces the appearance of any bias or measurement error that management can, either deliberately or not, incorporate in the report. Direct engagements can, in this sense, offer an additional level of assurance to users. QUESTION 1.7 For a report on internal controls, select whether the following are attestation or direct engagements. (a) Management provides an assessment of the effectiveness of the internal control system and the practitioner provides a conclusion on that assertion. (b) The practitioner evaluates and measures the internal control system and reports their findings to the intended users of the assurance report. REASONABLE AND LIMITED ASSURANCE ENGAGEMENTS The Framework sets out the distinction between reasonable and limited assurance engagements. An audit is an example of a reasonable assurance engagement, and a review is an example of a limited assurance engagement. The following descriptions of the two types of engagements are derived from the Framework. Reasonable Assurance Engagements In a reasonable assurance engagement, the practitioner reduces engagement risk to an acceptably low level in the circumstances of the engagement as the basis for their conclusion. The practitioner’s conclusion is expressed in a form that conveys their opinion on the outcome of the measurement or evaluation of the underlying subject matter against criteria (Framework, para. 14). The term ‘reasonable assurance’ is a high level of assurance but not an absolute level of assurance. The latter is not feasible because of the inherent limitations of an audit, where most of the evidence obtained by the auditor is persuasive rather than conclusive. The auditor needs to obtain reasonable assurance about whether the financial statements, as a whole, are free of material misstatement. Reasonable assurance arises when the auditor obtains sufficient appropriate audit evidence to reduce audit risk to an acceptably low level (ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing, para. 5). Sufficient appropriate audit evidence includes: • obtaining an understanding of the engagement circumstances • assessing risks • responding to these risks • performing further procedures, including substantive procedures • evaluating the evidence obtained. P df_Folio:26 26 Advanced Audit and Assurance
  • 43. The entire audit process is geared towards an expression of opinion on the financial statements. The assurance report for a reasonable assurance engagement conveys the practitioner’s opinion on the outcome of the assessment of the subject matter information against the criteria. For an audit of the financial statements, the following opinion is commonly used: ‘In our opinion, the financial statements are fairly presented …’ Examples of conclusions provided in ISAE 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information, paragraph A179 are: ‘In our opinion, the entity has complied, in all material respects, with XYZ law.’ ‘In our opinion, the forecast of the entity’s financial performance is properly prepared, in all material respects, based on XYZ criteria.’ or ‘In our opinion, the [appropriate party’s] statement that the entity has complied with XYZ law is, in all material respects, fairly stated’. Limited Assurance Engagements A limited assurance engagement provides less confidence to users than a reasonable assurance engage- ment as the engagement risk is greater. The Framework (para. 16) suggests that the assurance offered by a limited assurance engagement should be ‘meaningful’, and that meaningful is ‘clearly more than inconsequential’. Other than that, any judgment about the meaning of the terms ‘limited’ and ‘reasonable’ is left up to the practitioner’s judgment. For a limited assurance engagement, sufficient appropriate evidence includes obtaining an understanding of the subject matter information and other engagement circumstances, but the procedures are deliberately limited in comparison to a reasonable assurance engagement. The limited assurance engagement expresses a conclusion that conveys whether, based on procedures performed and evidence obtained, anything has come to the auditor’s attention to lead them to believe that the information has been materially misstated. For a review of the financial statements, the following conclusion is commonly reached: ‘Nothing has come to our attention that would lead us to believe that the financial statements are not fairly presented …’ Examples of conclusions provided in ISAE 3000 (Revised), paragraph A181 are: ‘Based on the procedures performed and evidence obtained, nothing has come to our attention that causes us to believe that [the entity] has not complied, in all material respects, with XYZ law.’ ‘Based on the procedures performed and evidence obtained, we are not aware of any material amendments that need to be made to the assessment of key performance indicators for them to be in accordance with XYZ criteria.’ ‘Based on the procedures performed and evidence obtained, nothing has come to our attention that causes us to believe that the [appropriate party’s] statement that [the entity] has complied with XYZ law, is not, in all material respects, fairly stated’. QUESTION 1.8 Explain in detail the extent to which reasonable and limited assurance engagements differ from one another. QUESTION 1.9 Can auditors provide absolute assurance? Discuss. SCOPE OF THE FRAMEWORK Practitioners perform engagements other than assurance engagements that are not covered by the Frame- work as mentioned earlier in this module. These engagements include: • engagements performed that are covered by ISRSs (e.g. agreed-upon procedures and compilation engagements) • the preparation of tax returns where no assurance conclusion is expressed • consulting or advisory engagements (e.g. management and tax consulting) (the Framework, para. 17) Pdf_Folio:27 MODULE 1 The Auditing and Assurance Framework 27
  • 44. • engagements to testify in legal proceedings regarding accounting, auditing, taxation or other matters • engagements that include professional opinions if certain conditions apply (see the Framework, para. 19). When an assurance engagement is part of a larger engagement that includes consulting or advisory work, the Framework is only relevant to the assurance portion of the engagement. ELEMENTS OF AN ASSURANCE ENGAGEMENT Figure 1.4 illustrates the elements of a generic assurance engagement and the relationships between these elements. FIGURE 1.4 Elements of a generic assurance engagement Measurer/ evaluator Criteria Subject matter information Assurance report Intended users Practitioner Terms of the engagement Engaging party Responsible party Underlying subject matter Responsibility Measure/Evaluate Assure Source: International Auditing and Assurance Standards Board (IAASB) 2018, ISAE 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information, in Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018 ed, vol. 2, p. 204, accessed July 2019, available from: https://www.ifac.org/publications-resources/2018-handbook-international-quality-control-auditing-review-other-assurance The difference between the elements illustrated in figure 1.4 for a generic assurance engagement and a financial statement audit are depicted in table 1.4. TABLE 1.4 Comparison of the elements of a generic assurance engagement and a financial statement audit Generic assurance engagement Financial statement audit Responsible party Board of directors Measurer/evaluator Company accountant Engaging party Company audit committee Underlying subject matter The business Criteria Accounting standards Subject matter information Financial statements Terms of the engagement Auditing standards Practitioner Auditor Assurance report Auditor’s opinion Intended users Shareholders/investors Source: CPA Australia 2019. P df_Folio:28 28 Advanced Audit and Assurance
  • 45. The final aspect of the Framework to be discussed is the elements of an assurance engagement, as listed: (a) a three-party relationship involving: – practitioner (the assurance practitioner) – responsible party (responsible for the underlying subject matter and the preparation of the subject matter information) – intended users (of the assurance report) (b) an appropriate underlying subject matter (e.g. a government department; a program; a system or a business) (note that ‘subject matter information’ means the outcome of an evaluation or measurement of a subject matter) (c) criteria (rules governing the preparation of the subject matter information) (d) sufficient appropriate evidence (providing the basis for the assurance report) (e) a written assurance report (Framework, para. 26). Refer to figure 1.4 as you go through these five elements in the following sections. Three-Party Relationship The three-party relationship involves the practitioner (professional accountant), the responsible party (the person(s) responsible for the underlying subject matter) and the intended users of the report. Practitioner The practitioner is the assurance practitioner. For example, the auditor is the practitioner in a financial statement audit. The practitioner is responsible for determining the nature, timing and extent of procedures, and must judge the fair presentation of the subject matter information. Responsible Party The responsible party is the party responsible for the underlying subject matter. For example, for a financial statement audit, the responsible party is normally the board of directors as they are responsible for the conduct of the business — the underlying subject matter. Their responsibility for the financial statements is evidenced by their signature on the Directors’ Statement. Employees who prepare the financial statements (the subject matter information) are usually headed by the company accountant/chief financial officer. The engaging party is usually the audit committee, which is a subcommittee of the board of directors. The responsible party may or may not be the party who engages the practitioner. For example, parliament may engage the Auditor-General to carry out a performance audit of a government program. In this case, the management of the public sector organisation responsible for the program is the responsible party, and the program is the underlying subject matter. Intended Users The intended users are the people or groups expected to read the assurance report. The aim of the assurance report is to increase users’ confidence in the subject matter information. Of course, the users of the report are also the users of the subject matter information. Table 1.5 provides examples of different types of engagements and their intended users. TABLE 1.5 Examples of intended users Engagement Examples of intended users Financial statement audit Suppliers of capital, such as existing shareholders, potential shareholders, creditors and financiers Assurance engagement that evaluates internal controls Management and the board of directors, audit committees Sustainability assurance engagement May include a broad range of intended users. For example, a local community may be interested in water usage, or a local conservation group may be interested in impacts on animal habitats. Source: CPA Australia 2019. Sometimes, an assurance engagement is performed for a specific purpose and there is only one user. For example: • a purchaser of a motorway may be interested in assurance regarding the number of cars that use the motorway each day • a bank may be interested in assurance on the cash budgets of a creditor • a board of directors may want assurance on the information provided to them by management. Pdf_Folio:29 MODULE 1 The Auditing and Assurance Framework 29
  • 46. In such cases, the practitioner might include a restriction in the assurance report that limits its use to a specific user and for a specific purpose. QUESTION 1.10 Determine the responsible party and the intended users for each of the following engagements. 1. A financial statement audit. 2. An assurance report on the internal controls over sales required by the board of directors. 3. An assurance report on controls at a company that provides cloud-based accounting services to customers. Underlying Subject Matter The level of assurance does not impact on the appropriateness of an underlying subject matter. ‘An appropriate underlying subject matter is identifiable and capable of consistent measurement or evaluation against the identified criteria such that the resulting subject matter information can be subjected to procedures for obtaining sufficient appropriate evidence to support a reasonable assurance or limited assurance conclusion, as appropriate’ (The Framework, para. 41). Appropriate underlying subject matter is information, which may include: • data (e.g. historical or prospective financial information, CSR information, statistical information provided to boards, performance indicators) • reports on systems and processes (e.g. internal controls, information systems) • reports on behaviours (e.g. corporate governance, compliance with regulations, human resource practices). Non-financial information is often a mix of qualitative and quantitative data. Established measurement conventions for financial information (e.g. the accounting standards) are not normally available. The subject matter information may be of a subjective nature (particularly for qualitative information). Table 1.6 shows how the underlying subject matter of an assurance engagement can take many forms. TABLE 1.6 Subject matter of an assurance engagement Underlying subject matter Example Subject matter information Financial performance of a business Profitability of a bank Statement of comprehensive income A government program A public transport system Report on efficiency and effectiveness (e.g. percentage of late trains; customer satisfaction) Sustainability Greenhouse gas emissions Emissions report Systems An internal control system* An assertion about the effectiveness of internal controls Behaviour Compliance with debt covenants Statement of compliance * This type of assurance has become particularly important. Since 2002, US companies and their international subsidiaries have been required to have their internal control systems audited. Source: CPA Australia 2019. Criteria Criteria are the standards, rules or benchmarks used to prepare and evaluate the subject matter information of an assurance engagement. Criteria can be formal, for example in the preparation of financial statements, the criteria may be International Financial Reporting Standards or International Public Sector Accounting Standards; when reporting on the operating effectiveness of internal controls, the criteria may be based on an established internal control framework or individual control objectives specifically designed for the purpose; and when reporting on compliance, the criteria may be the applicable law, regulation or contract. Examples of less formal criteria are an internally developed code of conduct or an agreed level of performance (such as the number of times a particular committee is expected to meet in a year) (IAASB Framework, para. 42). P df_Folio:30 30 Advanced Audit and Assurance
  • 47. The Framework suggests (but does not require) that the auditor considers a number of criteria in deciding what is reasonable or meaningful. These include: • the underlying subject matter (e.g. historical financial information, an internal control system, key indicators of the effectiveness of a process) • the criteria (e.g. International Financial Reporting Standards) • the needs of users (e.g. investors considering buying shares) • the responsible party and its environment (e.g. management and the economic conditions) • other matters, events, transactions, conditions and practices that may have a significant effect on the engagement. In some cases, specific criteria will be developed within an organisation by the responsible party. Alternatively, practitioners may develop suitable criteria to carry out an assurance engagement. A range of criteria can be drawn upon for assurance engagements. Figure 1.5 illustrates three criteria specifically developed for a report on customer satisfaction. FIGURE 1.5 Three criteria for a report on customer satisfaction Underlying subject matter: Customer satisfaction Responsible Party C Criteria: Number of new customers making purchases each month Responsible Party B Criteria: Number of repeat purchases in the three months following the initial purchase Responsible Party A Criteria: Percentage of customer complaints resolved to the satisfaction of the customer Source: Adapted from International Auditing and Assurance Standards Board (IAASB) 2018 International Framework for Assurance Engagements, para. 43, in Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018–19 ed., vol. 3, pp. 79-80, accessed July 2019, https://www.ifac.org/publications- resources/2018-handbook-international-quality-control-auditing-review-other-assurance Table 1.7 explains the characteristics of suitable criteria and provides an example for each. TABLE 1.7 Characteristics of suitable criteria Characteristic Description Example Relevance Relevant criteria help intended users make decisions. For a performance audit on a state rail corporation, relevant criteria could include the on-time running of trains. Intended users are more likely to be concerned with the number of trains more than five minutes late rather than one minute late. Completeness Criteria are sufficiently complete when all significant and relevant factors that could affect the conclusions of users are present. For the rail network, including on-time running but omitting the number of times trains miss their station would result in criteria that are incomplete. People want to know that the trains arrive on time and stop at their intended stations. Reliability Reliable criteria allow reasonably consistent evaluation or measurement of the subject matter. Measuring the number of trains that run late every day gives a more reliable measure than taking a sample of one day every three months. (continued) Pdf_Folio:31 MODULE 1 The Auditing and Assurance Framework 31
  • 48. TABLE 1.7 (continued) Characteristic Description Example Neutrality Neutral criteria help draw conclusions that are free from bias. In many cases, management has an incentive to overstate performance because improved performance may lead to rewards (e.g. bonuses or promotion). Evidence provided by independent parties is more likely to be neutral than information provided by management. Understandability Understandable criteria help draw conclusions that are clear and not subject to significantly different interpretations. Criteria must be available to the intended users to allow them to understand how the subject matter has been evaluated or measured. Source: Adapted from International Auditing and Assurance Standards Board (IAASB) 2018, International Framework for Assurance Engagements, para. 44, in Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements, 2018–19 ed., vol. 3, p. 80, accessed July 2019, https://www.ifac.org/publications-resources/2018- handbook-international-quality-control-auditing-review-other-assurance Many standard-setting organisations have created frameworks to guide preparers and assurers of reports, which may form suitable criteria for an assurance engagement. For example, there are frameworks for financial reporting, sustainability reporting, internal control system design and water accounting. However, for some data, especially qualitative data, suitable criteria may be difficult to identify. It may also be difficult for all three parties to agree on criteria, and this becomes even more difficult where the range and identity of potential users is unclear. Table 1.8 lists some types of engagement with examples of suitable criteria. TABLE 1.8 Examples of criteria Engagement Examples of criteria Financial statement audit International financial reporting standards; international public sector accounting standards Assurance report on internal control Internal Control — Integrated Framework (COSO 2013); this document is an accepted standard for the design of an internal control system Risk management Enterprise Risk Management — Integrated Framework (COSO 2004); this document is an accepted standard for the design of a risk management system Compliance Applicable laws, regulations, policies or clauses in contracts Sustainability report Global Reporting Initiative (GRI) standards Source: CPA Australia 2019. Evidence The practitioner has to gather evidence that is both sufficient and appropriate to form an opinion about the subject matter’s compliance with the relevant criteria. ‘Sufficiency’ refers to the quantity of evidence and ‘appropriateness’ to its quality. High-quality evidence is both relevant and reliable. In situations of high risk, the practitioner is expected to gather a greater amount of evidence and to seek out evidence that is highly relevant and reliable. For example, in an examination of a year-end cash balance, statements obtained directly from the bank are considered more reliable than bank statements provided by management (which may have been altered). Similarly, a bank statement covering the year-end is more relevant than one for a previous month. Sufficient appropriate evidence for subject matter information can sometimes be difficult to obtain. For example, information can be proprietary and hence may not be shared by third parties with the practitioner. Sometimes, lack of market data makes it difficult to corroborate information. Internal controls over the preparation of non-financial information are generally not as strong as those for financial information preparation. According to the Framework, an assurance practitioner has to exercise professional scepticism in obtaining sufficient appropriate evidence before reaching conclusions on the assurance engagement against the criteria. In addition, the practitioner needs to exercise professional judgment ‘in considering materiality, P df_Folio:32 32 Advanced Audit and Assurance
  • 49. engagement risk, and the quantity and quality of available evidence when … determining the nature, timing and extent of procedures’ (the Framework, para. 50). Professional Scepticism The Framework describes professional scepticism as an attribute that includes being alert to such issues as: • inconsistent evidence • information that indicates the need to question the reliability of documents and management responses to enquiries • the need to collect additional evidence beyond what is specified in the audit standards • conditions indicating likely misstatements (Framework, para. 51). According to Nolder and Kadous (2018), professional scepticism comprises a sceptical mindset and a sceptical attitude. The mindset component of professional scepticism captures the critical thinking and objective decision making reflected in the auditor’s judgments. However, the attitude component of professional scepticism captures the auditor’s feelings and beliefs about the evidence gathered, thereby informing their evaluations. As a result, a practitioner must make an assessment, with a questioning mind, of the validity of evidence obtained and is especially alert to evidence that contradicts or brings into question the reliability of documents or representations by the responsible party. An attitude of professional scepticism is necessary throughout the engagement process for the practitioner to reduce the risk of overlooking suspicious circumstances, of over-generalising when drawing conclusions from observations, and of using faulty assumptions in determining the nature, timing and extent of evidence-gathering procedures and evaluating the results. Professional scepticism means that the practitioner needs to make critical assessments with a questioning mind about the validity of evidence obtained and is also alert to evidence that contradicts the reliability of documents or representations by the responsible party (ISA 200, para. A21–A23). For example, if the auditor knows there is increasing competition in an industry, yet the client’s total sales and gross margins are increasing, professional scepticism would suggest the importance of further enquiry. Similarly, a long or close relationship with a client may pose a familiarity threat to professional scepticism because the practitioner may become too sympathetic to the client’s interests or too accepting of their work (the Code, para. 120.6 A3(d)). The importance of professional scepticism is also emphasised by regulatory bodies around the world. For example, in its latest audit inspection report, ASIC (2019) outlines that professional scepticism will continue to remain an area of focus for audit firms and ASIC’s future inspections. ASIC states that it will continue to focus on: Whether an appropriate level of professional scepticism is exercised by auditors, focusing on significant judgements about audit evidence, accounting estimates, going concern assumptions and accounting treatments (ASIC 2019, p. 25). In its 2019 ASIC inspection report, ASIC notes that, ‘auditors should deliver professional, high quality audits through a strong internal culture focused on quality audits and professional scepticism’ (ASIC 2019, p. 17). ASIC emphasises that it is important for firms to focus on professional scepticism, along with the sufficiency and appropriateness of audit evidence obtained and the appropriate use of the work of experts and other auditors (ASIC 2019, p. 10). Example 1.3 demonstrates the importance of professional scepticism in collecting and evaluating evidence. Review this example now. EXAMPLE 1.3 Toe Ltd Toe Ltd is a long-term audit client. The auditor has the highest regard for management integrity and honesty. Management has a long history of open communication with the auditor and willingness to accept all audit adjustments. In auditing the financial statements of Toe Ltd, the auditor has sent confirmation letters to debtors as part of the tests of existence for trade debtors. Most responses are mailed back and many have small changes noted on the invoices, which are all immaterial. However, three responses are handed to the Pdf_Folio:33 MODULE 1 The Auditing and Assurance Framework 33
  • 50. Other documents randomly have different content
  • 51. plant, of vrucht daarvan; adj. in ’t wild groeiend; Wildness = wildheid. Wilde, waild. Wile, wail, slimme streek of zet, list. Wilful, wilful, opzettelijk, moedwillig, eigenzinnig, halsstarrig; subst. Wilfulness. Wilhelmina, wilhelmînə. Wiliness, wailinəs, subst. v. Wily. Wilk, wilk = Whelk. Wilkes, wilks. Will, wil, subst. wil, wilskracht, willekeur, verlangen, testament; Will verb. zullen, willen, plegen, wenschen, begeeren, bevelen, vermaken: You may change it at will = naar welgevallen; To have all things at will = alles naar wensch hebben; He holds his power at the people’s will = ontleent zijne macht aan den wil des volks; Of your own free will = geheel vrijwillig; He fell (set) to work with a will = met lust en ijver; With good will = met goeden wil; She would have her will = haar zin; He had a will of his own = was eigenzinnig; To make one’s will = zijn laatsten wil (testament) maken; To work one’s will = zijn wil doorzetten; Goodwill = welwillendheid, klandizie: Goodwill to man = in menschen een welbehagen; He bears me a good (an ill) will = is mij welgezind (draagt mij een kwaad hart toe; Zie ook Way); He will get angry = is wel eens boos, wordt gauw boos; Boys will be boys = jongens zijn jongens; He will have me dine with him to-morrow = hij wil mij morgen te eten hebben; Will he nill he = of hij wil of niet, willens of onwillens; The Lord wills me to go = de Heer wil, dat ik
  • 52. ga; His cousin wills the estate to his sister = vermaakt; You are free to will your property away to anybody = vrij uwe bezittingen aan wien ge wilt te vermaken; Will-power = wilskracht; You are a self-willed character = eigenzinnig, koppig. Zie Willing. Will, wil, verk. van William, wilj’m; Willie Winkle = Klaas Vaak. Willing, wiliŋ: I am willing = ik ben bereid, wil wel; God willing = indien God het wil; Willing or not willing = Willing or unwilling = hij mag willen of niet; Willingness = gewilligheid, genegenheid. Will-o’-the-wisp, wilədhəwisp, dwaallichtje. Willoughby, wiləbi. Willow, wilou, wilg, wilgentak(-hout), bat: He (she) is wearing the willow = treurt of rouwt over een verloren lief; To wield the willow = cricketen; Willow-garland = wilgenkrans; Willow-tree = wilgenboom; Willow-warbler = Willow-wren = fitis, hofzanger; Willowed = vol wilgen, met wilgen beplant; Willowy = vol wilgen, als wilgen, als eene wilg. [645] Willy-nilly = of hij wil of niet, weifelend, onbetrouwbaar. Willy, wili, Wim. Wilt, wilt, verwelken, slap worden, ontzenuwen. Wilton, wilt’n: Wilton carpet, soort. v. pluche of velours tapijt; Wiltshire, wiltšə. Wily, waili, sluw, slim. Wimble, wimb’l, subst. drilboor; Wimble verb. boren, drillen.
  • 53. Wimbrel, wimbr’l. Zie Whimbrel. Wimple, wimp’l, subst. kap waarmede de priesters worden bekleed bij de aflegging der geloften; zwarte kap der nonnen; Wimple verb. met een kap bedekken, omsluieren, rimpelen, kronkelen: The wimpling waves = gerimpelde golven. Win, win, subst. overwinning, gewonnen partij, succes; Win verb. winnen, verkrijgen, behalen, overwinnen, zegevieren, bewegen, overreden: Win her and wear her = win haar en koester haar; Who wins loses = qui perd gagne; He could not win the ear of the audience = zijn gehoor niet boeien; To win one’s way = (langzaam) vorderingen maken; He has won me over = mij overgehaald; We have won through this dreary time by the help of illusions = zijn dezen naren tijd te boven gekomen; That has won upon the hearts of the people = het hart der menschen ingepakt; We have won upon the enemy = een voordeel behaald op; He so won upon me that .… = kreeg me zoover; Winner = winner; Winning = bekoorlijk, innemend (Wins = winst): To have a winning way with a person = zich bemind maken bij; Winning- post = eindpaal (bij wedrennen). Wince, wins, terugdeinzen (at), ineenkrimpen, uitvluchten zoeken: He winced from the very thought of death = ijsde bij; He winced under the blow = kromp ineen; Without wincing = zonder een spier te vertrekken. Winch, winš, subst. haspel, lier; Winch verb. ophijschen met een lier. Winchelsea, wintšəlsî; Winchester, wintšəstə: Winchester rifle = soort geweer.
  • 54. Wind, wind, wind, tocht, lucht(druk), adem, opgeblazenheid, blaasinstrument; Wind verb. luchten, laten doorwaaien, achter adem brengen, afjakkeren, op adem laten komen: Wood-winds = houten blaasinstrumenten; The delicacy of the wind in the prelude = het fijn opgevatte gedeelte voor de blaasinstrumenten; Winds and strings = blaasen strijkinstrumenten; The four winds = streken van het kompas; Short wind = korte adem; Sound of wind and limb = gezond van lijf en leden; Before the wind = vóór; Close to the wind = scherp bij den wind; Down the wind = vóór, met den wind mee; Everything here is going down the wind = alles gaat te niet, naar de maan; We were steaming in the teeth of the wind (= in the wind’s eye) = vlak in den wind; There is something in the wind = aan de hand, er broeit wat; To have a thing in the wind = lucht van iets hebben; He was three sheets in the wind = aangeschoten; Near the wind = scherp bij: To sail near the wind = iets zeggen, dat “bij ’t kantje af” is; You must go as near the wind as you possibly can = het zoo zuinig mogelijk aanleggen; To preach to the winds = te vergeefs; To throw to the winds = zich niet bekommeren om; He sails with the wind = hij waait met alle winden; With the wind aft, ahead = met den wind van achteren, van voren in; I wish to ascertain how the wind blows = uit welken hoek de wind waait; Sits the wind in that corner? = waait de wind uit dien hoek; To break wind = een boer laten; The horse carries (the) wind = draagt zijn kop (neus) hoog; To change the wind = van koers veranderen; He got his second wind = kwam op adem; I got wind of it = kreeg er lucht van; The affair got wind = de zaak werd ruchtbaar; I have (take) the wind of you = ik ben je de baas; To raise the wind = geld los krijgen; I will take the wind out of his sails = de loef afsteken; (The part of a ship) between wind and water = het deel dat door het rollen van het vaartuig of den golfslag dikwijls boven het water uit komt; gevaarlijke plaats; wind and weather permitting = wind en weder dienende; Trade winds (= Trades)
  • 55. = passaatwinden; Windbag = windzak, bluffer, praatjesmaker; Windbag sleeves = pofmouwen; Windbound = door tegenwind opgehouden; Wind-break = heining of hek om den wind te breken; Wind-broken = dampig (= Broken-winded); Wind- dropsy = trommelzucht (Med.); Wind-egg = windei; Windfall = wat door den wind af- of neergewaaid is, meevallertje, buitenkansje; Windfallen = door den wind afgewaaid; Wind-flower = gentiaan, paarsche anemoon; Wind-furnace = windoven; Wind-gall = gezwel onder aan de pooten van een paard; Wind-gauge = windmeter; Wind-gun = windroer; Wind-guard = vóórruit (van auto); Wind-hatch = mijnschacht waaruit het erts naar boven wordt gebracht; Wind-instrument = blaas- of windinstrument; Windmill = windmolen: You are tilting at windmills = vecht tegen windmolens; Windpipe = luchtpijp; Wind-rode = door den wind tegen den stroom in gedraaid (van een geankerd schip); Wind-row = zwad gras of een hoop turf (om te drogen); Wind- row verb. in regels leggen; Wind-sail = koelzeil (als ventilator beneden in het schip); Wind-side = windzijde; Wind-tight = ondoordringbaar voor den wind; Windage = luchtdruk, zuiging, speelruimte (kanon), invloed van den wind op de afwijking van een kogel; Winded: achter adem; vooral gebruikt in samenst.: Long- winded = van langen adem; Short-winded = kortademig; Windless = zonder wind of adem, glad, vlak; Windward, subst. loefzijde; adj. naar den wind: To windward = te loever; I have laid my anchor to the windward = heb tijdig mijne maatregelen genomen; I have got (to) the windward of him = hem de loef afgestoken; Windiness, subst. v. Windy = winderig, wind… (Wind side), opgeblazen. Wind, waind, winden, draaien, rollen, kronkelen, krom trekken, wikkelen, telkens veranderen; blazen: To wind a call = een [646]commando geven met het bootsmansfluitje; The horn was wound = er werd op den hoorn geblazen; To wind a ball of
  • 56. worsted = opwinden; He cleverly wound it into his speech = vlocht dat in; The skein was wound off = werd afgewonden; He wound himself out of it = redde er zich uit, draaide er zich uit; He wound his way through all the intricacies of the debate = hij kwam goed en wel door het ingewikkelde debat heen; To wind up a letter = besluiten; The thread was wound up = werd opgewonden; Wind (up) your watch = wind uw horloge op; The band wound up with the national anthem = het orkest speelde het volkslied tot besluit; The business was wound up = werd gelikwideerd; If this sort of thing goes on any longer, I shall be wound up in the bankruptcy court = zal het einde van het liedje een failliet zijn; Wind-up = likwidatie: Wind-up sale = finale uitverkoop; Winding-up = slot (van een rede), uitverkoop, faillissement; Winder, subst. wie of wat windt, enz., haspel, slingerplant. Zie Winding. Windhover, windhɐvə, windhovə, torenvalk. Winding, waindiŋ, subst. bocht, kronkeling, draai; adj. draaiend, kronkelend, krom, draai…: Winding-engine = kraan; Winding- horn = waldhoorn; Winding-sheet = lijkwa; dief (aan een kaars); Winding-staircase = Winding-stairs = wenteltrap; Winding- tackle = hijschtakel. Windlass, windləs, lier, gangspil; Windlass verb. opwinden met een lier of gangspil. Windle-straw, wind’lstrô, boender-(struik-, kam-)gras. Window, windou, venster, loket; Have you got French windows or sash-windows in your room? = openslaande (ramen) deuren of schuiframen; The book was in the window at Green’s = lag voor het raam bij; He broke all the windows = sloeg alle ruiten in; He came in at the door and got out at the window = en ging weg
  • 57. door het raam; He looked out at the window = hij keek door het raam naar buiten; He looked out of the window = hij keek uit het raam naar buiten; Window-blind = zonneblind, jalouzie, (rol) venstergordijn = Window-curtain = gordijn; Window-cleaning company = glazenwasscherij; Window-dresser = étaleur; Window-dressing; Window-duty = belasting op vensters; Window-frame = vensterkozijn; Window-glass = vensterglas; Window-pane = ruit; Window-sash = het op- en neergaande deel van een raam; Window-seat = vensterbank; Window-slot = venstergleuf; Window-tapper = porder; Window-tax = belasting op de vensters; Windowed = met (veel) vensters. Windsor, winzə, stad: Windsor-chair = met hoogen rug; Windsor-soap = soort toiletzeep. Wine, wain, wijn, dronkenschap, wijnfuif: Still wine = niet parelende wijn; Sparkling wines = parelende wijnen; Wine and water = grog van wijn; Spirit of wine = wijngeest, alcohol; It is a pity to dilute this wine = te verdunnen; He never mixes his wines = drinkt nooit door elkaar; Good wine needs no bush = behoeft geen krans; When wine is in, wit is out = als de wijn is in den man, is de wijsheid in de kan; When the wine is drawn it must be drunk = men moet het ijzer smeden als het heet is; Wine-bag = wijnzak; Wine-bibber = pimpelaar; Wine-bin = wijnkist; Wine-biscuit = wijnbeschuitje; Wine-bottle; Wine-cask = wijnvat; Wine-cellar = wijnkelder; Wine-cooler = koelvat (voor wijnen); Wine-decanter = karaf; Wine-glass = wijnglas; Wine- grower = wijnbouwer; Wine-growing; Wine-lees = wijnmoer; Wine-merchant = wijnkooper; Wine-press = wijnpers; Wine- shop = wijnhuis; Wine-skin = wijnzak; Wine-stone = wijnsteen; Wine-vault = groote wijnkelder; Wine-vaults = proeflokaal; Wine-vinegar = wijnazijn.
  • 58. Winfred, winfred, Winfried. Wing, wiŋ, subst. vleugel, wiek, vlerk, vlucht, coulisse, épaulet, molenwiek; Wing verb. van vleugels voorzien, bevleugelen, vliegen, doorvliegen, onschadelijk maken (in den vleugel, arm of been treffen): Swallows on the wing = vliegende zwaluwen; We are on the wing = aan den arbeid; The general was on the left wing = aan den linker vleugel; She went there under the wing(s) of her mother = onder moeders vleugels; We went there upon the wings of the wind = op de vleugelen des winds; The bird beat its wings against its prison = sloeg met; To clip a person’s wings = iemand kortwieken; His soul has taken wing = is (het lichaam) ontvloden; They took wing = gingen aan den haal; The angel winged his flight (way) to the earth = richtte zijne vlucht naar de aarde; I doubt if I can wing the ruffian = onschadelijk kan maken; Wing-case = vleugelschild; Wing-shell = vleugelhoren; Wing-shot = schot op een vliegenden vogel; Wing-stroke = vleugelslag; Winged = ge- of bevleugeld, vlug: Winged words = gevleugelde woorden; Wingless = zonder vleugels, met rudimentaire vleugels; Winglet = vleugeltje. Wink, wiŋk, subst. knipoogje, wenk, oogenblikje, blink; Wink verb. knipoogen, wenken: I did not get a wink of sleep last night, I never slept a wink = heb geen oog dichtgedaan; To give (tip) a wink to a person = To tip a person the wink = een wenk geven; I will just take forty winks = ga even dutten; He winked at my shortcomings = zag door de vingers; Wink-a-peep = guichelheil; Winker = wimper, oog, oogklep; It was done like winkey, like winking = zeer snel en flink. Winkle, wiŋk’l, alikruik. Winkle-hawk, wiŋk’lhôk, winkelhaak, scheur (Amer.).
  • 59. Winnipeg, winəpeg; Winipiseogee, winipisôkî. Winnow, winou, wannen, ziften, schiften; Winnower; Winnowing: Winnow-basket (-machine, -sieve). Winslow, winzlou. Winter, wintə, subst. winter; ook adj.; Winter verb. overwinteren, de winterkwartieren betrekken, gedurende den winter bewaren (vertoeven), overhouden (van planten, etc.): [647]It happened at (the) death of winter, in the depth of winter = in het hartje van den winter; Winter apple = winterappel; Winter barley = wintergerst; Winter citron = soort v. winterpeer; Winter cough = chronische bronchitis; Winter crop = winteroogst, wintervrucht; Winter moth = wintervlinder; Winter pear = winterpeer; Winter quarters = winterkwartieren; They went into winter quarters = betrokken de winterkwartieren; Winter solstice = winterzonnestilstand; Winter suit = winterpak; Winter-garden = wintertuin; Wintergreen = wintergroen; Winter-ground = eene plant tegen de koude met stroo bedekken; Winter-kill = door strenge koude dooden (Amer.); Winter-service = winterdienst; Winter-time = wintertijd; Winter-weather = winterweer; Winterly = wintersch, winterachtig, koud, somber = Wint(e)ry. Winy, waini, naar wijn smakend; dronken. Wipe, waip, subst. veeg, het vegen, slag; lik (fig.); Wipe verb. vegen, afvegen, afwisschen, uitwisschen, ranselen: To give a thing a wipe = afvegen; He gave me a wipe = gaf me een lik; I wiped his eye = stak hem de loef af; To wipe one’s feet (shoes) = voeten vegen; The past cannot be wiped away as we wipe writing from a slate; Everything was wiped off = afgeveegd, weggevaagd; To wipe off a score = een rekening vereffenen; To wipe out = het levenslicht uitblazen; He was wiped (out) of his watch = zijn
  • 60. horloge werd hem ontfutseld; Wipe it out = veeg of wisch het uit; I have wiped up the floor with him = ik heb hem tegen den grond gesmakt; Wiper = veger, stoffer, wisscher; Wiping-cloth (Wiping-clout) = doek. Wire, waiə, subst. draad, ijzerdraad, telegraafdraad, telegram; Wire verb. met een metalen draad vastmaken, aan een draad rijgen, in een strik (van metaal) vangen, telegrapheeren, met ijzerdraad omringen: He replied by wire = per draad, telegrafisch; To manipulate (pull, work) the wires = de draden in handen hebben, in ’t geheim besturen; To send a wire = telegram; That boy seems to be all on wires = kan niet stil zitten, heeft kwik in zijn lijf; He has wired away (in) = is met kracht aan den arbeid gegaan; Wire back, please = antwoord per draad verzocht; Wire- blind = horretje; Wire-bridge = hangbrug; Wire-brush; Wiredraw = trekken of rekken van metaaldraden, uitspinnen, muggenziften; Wiredrawer = draadtrekker; Wiredrawing (fig.) = zaniken; Wire-edge = draad (van een pas geslepen mes, schaats, etc.); Wire-entanglement = draadversperring; Wire-grate = chassinet; Wire-gauze = fijn metaalgaas; Wire-puller = die de draden in handen heeft, (politieke) intrigant; Wire-pulling = geheime invloed, intrige(s); Wire-stitching = het hechten van de bladen met ijzerdraad; Wireless telegraphy (Wireless station); Wiriness, subst. v. Wiry = van of sterk als ijzerdraad, borstelig, mager en gespierd, taai, scherp: His wiry chin = zijn scherpe, puntige kin; I am rather wiry, and can stand a good deal of fatigue = ik ben nogal taai. Wisconsin, wiskonsin. Wisdom, wizd’m, wijsheid, wetenschap; Wisdom-tooth = verstandskies: Has he cut his wisdom-tooth yet? = heeft hij zijn verstandskies al.
  • 61. Wise, waiz, wijs, verstandig, vroom (Bijb.), ernstig, ervaren, bekwaam: The three Wise men of the East = de Wijzen uit het Oosten; Wise woman = waarzegster; vroedvrouw; It is easy to be wise after the event = wie wist, die won; Why, man, take it, who is the wiser? = wie weet er wat van, wordt er wat van gewaar; A word to the wise is enough = een goed verstaander heeft maar een half woord noodig, Wiseacre, waizeikə, waanwijze, wijsneus; Wise-hearted = wijs, bekwaam; Wiseness = Wisdom. Wise, waiz, wijze: In any wise = op de een of andere manier; In no wise = op geenerlei manier, geenszins; On this wise = op deze manier. Wish, wiš, subst. wensch, verlangen, begeerte; Wish verb. wenschen, verlangen, hopen: To give a person his wish = iemands wensch vervullen; To have one’s wish = zijn wensch vervuld krijgen; I wish he may do it = ik wou dat .…; I wish you joy (of it) = ik feliciteer u (er mee); I wish you well = ik mag u graag, ben u goed gezind; To wish a person at the devil (Jericho); I wished for your return = verlangde naar; I wished him over the moon = wou dat hij op de Mookerhei zat; Wish(ing)-bone = borstbeen van een vogel: To divide a wish(ing)-bone, (gezegd van een jongen en een meisje, die ieder aan een eind trekken; die het langste stuk in de hand houdt, zal het eerst trouwen of een wensch vervuld zien); Wishing-cap (-rod) = tooverhoedje (roede); Wisher; Wishful = wenschend, verlangend, smachtend: To be wishful of; subst. Wishfulness. Wishart, wišət. Wish-wash, wišwoš, slap, waterig; ook subst.; Wishy-washy = slap, onbeduidend, sentimenteel.
  • 62. Wisp, wisp, wisch, bosje of bundeltje, vegertje, dwaallicht; Wisp verb. afvegen: A wisp of a girl = een nietig, schraal meisje, klein ding; Wisp of hair; adj. Wispy. Wist, wist, oud imperf. van to wit. Wistful, wistful, peinzend, ernstig, droefgeestig, vol droef verlangen; subst. Wistfulness. Wistiti, wistiti, soort v. Z. Am. aap. Wistonwish, wist’nwiš, prairiehond. Wit, subst. kennis, verstand, vernuft, rede, scherpzinnigheid, grappigheid of geest(igheid), geestig man, humorist; ook verb. in: To wit = namelijk, te weten: Mother wit = natuurlijk gezond verstand; Ready wit = gevatheid; He is at his wit’s end, at his wits’ end = ten einde raad; Are you in your wits? = hebt gij “de vijf” bij elkander; He is out of his wits = is de kluts kwijt, gek; He has all his wits about him = al zijne zinnen goed bij elkaar; To come to one’s wits again = weer tot bezinning komen; To drive a person out of his wits = dol maken; You have [648]frightened them out of their wits = ze vreeselijk doen schrikken; To live by one’s wits only = op de een of andere manier zonder werken door de wereld komen; That will set your wits to work = u alle overleg doen gebruiken; Use your wits = gebruik uw verstand; Witless = dom, onverstandig, dwaas; subst. Witlessness; Witted: Dull- wited, Quick-witted = suf, scherpzinnig; Wittingly = voorbedachtelijk. Witch, witš, subst. heks; Witch verb. beheksen, betooveren: He is no witch = geen heksenmeester; Witchcraft = Witchery; Witch- elm = bergiep; Witch-hazel = hamamelis; Witch-meal = groote wolfsklauw; Witchery = betoovering, bekorting.
  • 63. Witenagemot(e), witənagəmout, nationale vergadering (bij de Angel-Saksers). With, widh, met, mede, door, bij, van, etc.: Blind with fear; Frantic with despair = gek van wanhoop; Stiff with cold; Thirsty with walking; I have no power with him = invloed op hem; One year with another = het eene jaar door het andere; I am with you there = met u eens; Withal, widhôl, daarbij, bovendien, verder. Withdraw, widhdrô, terugtrekken, weggaan, onttrekken, terugnemen, inhouden (bij verkoop): He withdrew his support = onthield ons zijn steun; He withdrew from business = trad uit; Withdrawal = terugroeping, terugtrekking, terugneming, opvraging van inleg; Withdrawer; Withdrawing: Withdrawing-room = Drawing-room; Withdrawment = Withdrawal; Withdrawn, p.p. van Withdraw. Withe, w(a)idh, with, subst. wilgentwijgje, rijsje. Zie Withy. Wither, widhə, verwelken, verdorren, vernietigen: One of those mornings when it is hot and cold, wet and dry, bright and lowering, sad and cheerful, withering and genial, in the compass of an hour = akelig (guur) en lekker; Withered = verdord, uitgedroogd; Withering = vernietigend (fig.). Wither, widhə: Wither-lock = boschje haar, waaraan de ruiter bij het opstijgen zich vast grijpt; Wither-wrung = aan de schoft bezeerd of geschaafd; Withers = schoft van een paard: The wither are wrung = de schoft is stuk geschuurd; mijn geduld is ten einde; To press on the wrung wither = de gevoelige snaar aanroeren; My wither are unwrung = ik ben van alle werk ontslagen, vrij.
  • 64. Withheld, widhheld, imp. en p.p. van Withhold, widhhould, weerhouden, onthouden, onttrekken: The permission was withheld from him = werd hem geweigerd; Withholder; Withholdment = onthouding, etc. Within, widhin, adv. en prep, binnen, in, van binnen, inwendig, niet te buiten gaande: His room is within mine = men komt in zijne kamer door de mijne; Within call = te beroepen; Within doors = binnenshuis; Within my memory = voor zoolang ik mij kan herinneren; Within a mile of = nog geen mijl; It is not within my power = in mijne macht; Within my price = in mijn prijs; Within a month’s time = binnen eene maand; The deer was within range = onder schot; Within sight; He was within a little of being killed = het scheelde maar weinig of; Who’s within = wie is daar? To live within one’s income = niet meer uitgeven dan men te verteren heeft; To think within oneself = by zich zelf. Without, widhaut, adv. en prep. zonder, buiten, van buiten, uitwendig, vrij, beroofd van, onafhankelijk van: Without day = zonder een dag te bepalen voor samenkomst of behandeling; geheel van de baan; Without doors = buitenshuis; Without funds in hand = zonder dekking; Without one’s reach = buiten bereik; The station is without the town = buiten de stad; I can get ready without you = zonder u; I can do without it = ik kan het missen, heb het niet noodig. Withsay, widhsei, tegenspreken, ontkennen. Withstand, widhstand, weerstaan, zich verzetten; Withstander = tegenstander, die zich verzet; Withstood, widstud, imp. en p.p. van to withstand. Withwind, widhwaind, akkerwinde, haagwinde.
  • 65. Withy, withi, w(a)idhi, uit wilgentwijgen, taai, buigzaam. Witness, witnəs, subst. getuigenis, getuige, ooggetuige (= Ocular witness); Witness verb. getuige zijn van, als getuige teekenen, ondervinden, beleven: In witness whereof = ten bewijze waarvan; Witness for the crown, for the prosecution = getuige à charge; Witness for the defence, defendant (prisoner) = getuige à décharge; To bear witness to = getuigenis afleggen, betuigen; To call to witness = tot getuige roepen; When we turn to the art of education, the English educationist does not leave himself without witness = laat zich niet onbetuigd; I took him to witness = nam hem tot getuige; You have been romping, witness your hot face = getuige je vuurroode gezicht; The most violent storm I ever witnessed = dien ik ooit beleefd heb; Did you ever witness such a thing? = ooit zóó wat gezien; The signatures were witnessed = door getuigen gestaafd; Witness-box = getuigenbank. Witticism, witisizm, geestige zet; Wittiness, subst. v. Witty = geestig, scherp, snedig. Witwal, witwôl, groene specht. Wive, waiv, trouwen, tot vrouw nemen: Hanging and wiving goes by destiny = hangen en trouwen is eene loterij; This Hottentot chief is the most wived man (scherts.) = heeft de meeste vrouwen. Wiveliscombe, wilsk’m. Wivern, waivən; Zie Wyvern. Wizard, wizəd, subst. waarzegger, toovenaar.
  • 66. Wizen, wiz’n, adj. dor, droog, verschrompeld; Wizen verb. verwelken, verschrompelen; Wizen-faced = met verschrompeld gelaat. Woad, woud, weede (plant); Woaded = met weede, blauw gekleurd. Wobble, wob’l, waggelen(d loopen); op en neer gaan (van effecten): “Quawk”, said the pig, and wobbled off; These pictures are wobbly = onzeker in prijs. Zie Wabble. [649] Woburn, wubən, woubən. Woe, wou, subst. smart, verdriet, wee: Woe is me = wee mij; Woe worth the chase = wee zij de jacht; Woe worth the day = wee den dag; Woebegone = naargeestig, in smart gedompeld; Woeful = treurig, ellendig, naargeestig, droevig; subst. Woefulness; Woe-worn = door smart verteerd; Woful = Woeful. Wolcot(t), wulkət. Wold, would, woud, bosch, heuvelland. Wolf, wulf, subst. wolf, harde wanklank, lupus; Wolf verb. op de wolvenjacht gaan, gulzig verslinden: A wolf in sheep’s clothing = een wolf in een schapevacht; He always cries wolf = maakt altijd valsch alarm; I have a wolf by the ears = ik heb mijn man gevonden; To have a wolf in the stomach = een razenden honger hebben; We could hardly keep the wolf from our door = nauwelijks den mond open houden; Wolf-dog = wolfshond; Wolf- fish = zeewolf; Wolf-net = wonderkuil (soort v. net); Wolf’s bane = gele monnikskap; Wolf’s-claw, Wolf’s foot = wolfsklauw; Wolf’s-peach = tomaat; Wolfish = wolfachtig, wreed, vraatzuchtig; Wolfkin, Wolfling = jonge wolf.
  • 67. Wolfe, wulf; Wolfram, wulfram, Wolfram; wolframium; Wollaston, woləst’n; Wolstonecraft, wulst’nkrâft; Wolseley, wulzli; Wolsey, wulzi; Wolton, wult’n; Wolverhampton, wulvəramt’n. Wolverine, wulvərin, veelvraat. Wolves, wulvz, mv. v. Wolf. Woman, wum’n, vrouw, vrouwelijke bediende: Woman of the town = prostituée; Woman of the world = vrouw van de wereld; My good woman = vrouwtje; Kept women = maîtressen; Lady’s woman = kamenier; The New Woman = de (ultra) moderne vrouw; The Scarlet Woman = de moeder van alle ontucht en onheiligheid (Openb. XXII, 4 ); That frivolous Winsley woman = dat wijf (die meid) van die W.’s; He played (acted) the woman = speelde de rol der zwakke vrouw; There is a woman in the wind = daar zit eene vrouw achter; Woman-born = uit eene vrouw geboren; Woman-built = door vrouwen gebouwd; Woman- doctor = doctores; Woman-hater = vrouwenhater; Woman- saint; Woman-servant; Womanhood = vrouwelijke staat, vrouwelijkheid; Womanish = vrouwelijk, vrouwen…; (Woman tears), verwijfd; subst. Womanishness; Womankind = het vrouwelijk geslacht, de vrouwen, het vrouwvolk; Womanlike = vrouwelijk, zacht; Womanliness, subst. v. Womanly = Womanlike; Women, wim’n, vrouwen; Women-folk = vrouwvolk; Women’s rights = rechten der vrouw; Women’s (Woman’s, Woman-) suffrage = vrouwen-stemrecht; Womenkind = Womankind. Womb, wûm, subst. baarmoeder, schoot: Falling and displacement of the womb = uitzakken; Womb-fury (med.); Womb-passage = (hals der) scheede.
  • 68. Won, wɐn, imp. en p.p. van to win. Wonder, wɐndə, subst. wonder, verbazing, bewondering; Wonder verb. verbaasd staan, zich verwonderen, nieuwsgierig zijn, benieuwd zijn: Wonders will never cease = de wonderen zijn de wereld nog niet uit; To do (perform, work) wonders = wonderen doen; To look all wonder = groote oogen opzetten; It caused considerable scandal, and remained a nine days’ wonder = en bleef een korten tijd de aandacht trekken; No article in a review is a nine days’ wonder = baart ooit lang opzien; In the name of wonder = om ’s hemels wil; It is no wonder he refused = het is heel natuurlijk; He is here, for a wonder = zoowaar (vreemd genoeg); The seven wonders of the world = de zeven wonderen der wereld; I wonder where he can have been = ik ben benieuwd; I wonder how much he left me = ik ben toch nieuwsgierig, ben benieuwd; Wonderland = land der wonderen; Wonder-stricken = Wonder-struck = verbaasd, door verwondering getroffen; Wonder-working = wonderdadig; Wonderer = wie zich verbaast, etc.; Wonderful = verwonderlijk, vreemd, verbazend; subst. Wonderfulness; Wonderment = verwondering, verbazing; Wondrous = verwonderlijk, vreemd. Won’t, wount, samentr. v. Will not: It won’t do = dat gaat niet. Wont, wount, wɐnt, gewend; subst. gewoonte, gebruik; Wont verb. gewend zijn, plegen; zich gewennen (Wont oneself): Wonted = gewoon, gewend; Wontless = ongewoon, niet gewend. Woo, wû, vrijen naar, dingen naar, het hof maken, trachten te winnen: They woo the battle = zoeken den strijd; Wooer; Wooing: To go a-wooing = uit vrijen gaan. Wood, wud, subst. woud, bosch, hout, vat, houtinstrument; Wood verb. met bosch bedekken, in bosch veranderen, hout innemen: It
  • 69. was drawn from the wood = van het vat getapt; In a wood = verward, verlegen; The ale is in the wood = in het vat: The Palace in The Wood = Het Huis ten Bosch; I shall soon be out of the wood = buiten gevaar of de moeilijkheid te boven zijn; She is out of the wood again = is weer bij (kennis); Have you taken in your stock of wood yet? = al hout opgedaan; He doesn’t see the wood for trees = hij ziet wegens de boomen het bosch niet; Wood-ant = boschmier; Wood-ashes = houtasch; Wood-band = houtorkest, de blaasinstrumenten, “het hout”; Woodbine = wilde kamperfoelie; Wood-bird = boschvogel; Wood-bound = ingesloten door hooge en zware heggen; Wood-carver = houtsnijder; Wood-carving = houtsnijwerk; Woodchuck = soort v. marmot; Wood coal = bruinkool; Woodcock = houtsnip; sukkel; Woodcraft = bedrevenheid in boschcultuur of jacht; jachtvermaak; Woodcut = houtsnee(plaat); Wood-cutter = houthakker, maker van houtsneden; Wood-drink = afkooksel van medicinale planten; Wood-engraver = houtgraveur; Wood-engraving = houtgraveerkunst, houtgravure; Wood-fretter = houtworm; Wood-gear = raderwerk van hout; Wood-grouse = auerhaan; Wood-hole = Wood-house = houtloods; Wood-knife = hertsvanger; Woodland, subst. boschland, adj. bosch.., woud.., boschachtig; Woodlark = boomleeuwerik; Wood-lot = stuk land waarop brandhout wordt verbouwd (Amer.); Wood-louse = houtluis; Woodman = boschwachter, [650]boschbewoner, houthakker; Wood-mite = houtworm; Wood-mouse = boschmuis; Wood-nymph = boschnimf; Wood-paper = papier uit hout vervaardigd; Wood-pavement = houten bestrating; Woodpecker = specht; Wood-pigeon = houtduif; Wood-pile = houtmijt; Woodreeve = houtvester; Wood-rick = Wood-pile; Wood-rock = bergvlas, soort v. asbest; Wood-ruff = Lieve Vrouwe Bedstroo; Wood-sare = koekoekspog; Wood-screw = houtschroef; Woodshed = houtloods; Wood-skin = boot of kano van boombast (Guyana); Wood-soot = houtroet (bemesting);
  • 70. Wood-sorrel = boschklaverzuring; Wood-spite = groene specht; Wood-tar = houtteer; Wood-vetch = soort lathyrus; Wood-wale = Woodpecker; Wood-wax(en) = verfbrem; Woodwork = houtwerk; Wood-worm = Wood-mite; Wooded = bedekt met bosch; Wooden = van hout, houterig, dom, suf: What are you so wooden about? = hoe ben je zoo suf; Wooden horse = paard (gymn.); ook strafmiddel (To ride the wooden horse); Wooden shoes = klompen, armoede, oude spotnaam voor de Fransche natie; Woodenness = houterigheid, stijfheid: That particular woodenness which has in all ages been characteristic of mere philologists; Woodiness, subst. v. Woody = houtachtig, boschrijk: Woody fibre (tissue) = houtvezels (weefsel). Woof, wûf, inslag, weefsel. Wool, wul, wol, bont: Great (Much) cry and little wool = veel geschreeuw en weinig wol = More squeak than wool; To draw (pull) the wool over a person’s eyes = iemand zand in de oogen strooien; Wool-ball = wolbal (in magen van dieren); Wool- bearing = woldragend; Wool-comber, wolkammer; Wool- combing = het wolkammen; Wool-cotton = boomwol; Wool- dyed = in de wol geverfd; Wool-gathering, subst. het vergaren van pluisjes wol; verstrooidheid; adj. verstrooid: His wits are a- wool-gathering = zijn verstand is op den loop, hij suft; Wool- grower = schapenfokker; Wool-man = wolkooper; Wool- market; Wool-merchant; Wool-mill = wolspinnerij; Woolpack = baal wol (± 108,826 K.G.); Woolsack = zitplaats van den Lord Chancellor in het House of Lords; Woolsorter = wolsorteerder = Wool-stapler, dit laatste ook wolhandelaar; Wool-staple = wolmarkt; lengte der wolharen; Wool-trade = wolhandel; Woollen = van wol, grof, lomp, boersch: Woollens = wollen stoffen, wollen goederen = Woollen articles of Woollen goods; Wool trade = wolhandel; Wool-draper = lakenkooper, handelaar in wollen
  • 71. goederen; Wool-printer = woldrukker; Wool-scribbler = machine om wol te kaarden; Woolliness = wolligheid; Woolly = wollig, wolachtig, gedempt, dof, onduidelijk, prikkelbaar, knorrig; Woolly-haired; Woolly-head = neger; Woolly-minded men = suffers. Woolwich, wulidž. Woom, wûm, beverbont. Wootz, wûts, fijn Indisch gietstaal. Worcester, wustə. Word, wɐ̂ d, subst. woord, uitdrukking, mededeeling, bericht, bevel, wachtwoord, parool, motto; Word verb. onder woorden brengen: The Word = de H. Schrift; Money is the word = geld is de boodschap; He is as good as his word = houdt zijn woord = He has not been worse than his word; There were angry words between us = we hadden hooge woorden; At a word = met één woord; By good word = met goedheid; He communicated it to me by word of mouth = mondeling; I repeated it to him word for word = woord voor woord; In a (one) word = in één woord, kort en goed; There you have it in a word = met dat ééne woord is alles gezegd; He is a hero in word(s) = een held met den mond; To a word = woordelijk; Upon my word = op mijn woord; To come to words = woorden krijgen; He tried to get away from his word = van zijne belofte af te komen; I could not get in a word edgeways = er geen woord tusschen krijgen; To stick to one’s word = zijn woord houden; I take you at your word = houd je aan; To take up the word again = weer opvatten; To understand at half a word = met een half woord verstaan; To bring word = bericht brengen; You shall eat your words = terugnemen; He gave me many kind words = sprak zeer vriendelijk; I must have a word
  • 72. with you = u even spreken; To have a few words = woorden (ruzie) hebben; To have the final word = het laatste woord hebben; I have your word = uw woord, verzekering; I won’t have any words about it = ik wil er niet van hooren; She hasn’t a good word to say of (for) anybody = zij heeft op iedereen wat te zeggen; To keep one’s word = houden; To leave word with the servant = boodschap achterlaten; I should like a word with you = je gaarne even spreken; To put in a good word for = een goed woordje doen voor = To say a good word for; He has not said his last word = zijn laatste woord nog niet gezegd (fig.); I’ll send you word = ik zal u eene boodschap zenden; To speak a good word for, Zie Put in; You may take my word for it = gij kunt erop aan; To take the word = het woord nemen; To write word = bericht zenden; Word-book = woordenlijst; Word-building = woordvorming; Word-catcher = woordenzifter, woordenvitter; Word-catching; Word-painter = woordkunstenaar; Word- painting = woordkunst; Word-picture = beeld of beschrijving; Word-spin = met woorden schermen: Journalists can Word-spin on occasion = verstaan de kunst om met veel woorden niets te zeggen; Word-spinner = redekunstenaar; Word-square = reeks v. woorden (in een vierkant) die hetzelfde woord opleveren hetzij naar beneden of van rechts naar links gelezen; Cautiously worded = voorzichtig gesteld; A well-worded letter = een goed gestelde brief; Wording = redactie, bewoordingen; Wordiness, subst. v. Wordy; Wordless = sprakeloos, niet uitgesproken; Wordy = woordenrijk, langdradig: Wordy warfare = woordentwist. Wordsworth, wɐ̂ dzwəth. [651] Wore, wö, imperf. van to wear. Work, wɐ̂ k, subst. werk, arbeid, bezigheid, bewerking, behandeling, etc.; Works = industrieele inrichting, fabriek, (uur)werk; goede
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