C2: AUDITING AND ASSURANCE SERVICES

Facilitator: CPA Alfred Feruzi Mabula (+255784158286)

Experience: Qatar Airways, Deloitte, Primefuels, Wexito
Overall Introduction
Topics and Coverage
1. Legal, Regulatory and Ethical Issues
2. Accepting Engagements and Managing Assignments
3. Planning and Understanding of Audit Work
4. Assessment of Risks, Internal Controls, Internal Financial Controls
5. Evaluation of Accounting Treatments and other Audit
Consideration
6. Drawing Conclusions and Reporting
C2: AUDITING AND ASSURANCE SERVICES
Introduction (Continued)
Recommended Learning Materials:
1. NBAA (2019), Auditing and Assurance Services Study Text
2. ACCA Study Texts on Auditing and Assurance Services
3. IFAC Handbook of International Quality Control, Auditing, Review,
Other Assurance, Related Services, Pronouncements
4. NBAA Past Papers

Examination Structure:
You will be required to solve 4 questions in three hours time. The
examination will consist two sections:
Section A: One compulsory question 40 Marks
Section B: Three questions out of five 60 Marks
Topic 1. Legal, Regulatory and Ethical Issues
 The old expression “say what you mean and mean what you say” applies
particularly to accountants today.

 This is because the code of professional ethics that accountants are

expected to abide by is better documented and more stringently enforced
than at any time in the past.

 Accountants are always expected to apply the fundamental principles of

professional ethics namely integrity, objectivity, professional competence,
due care, confidentiality and professional behavior..
Topic 1. Legal, Regulatory and Ethical Issues
1.1 Technical, professional and ethical issues that may arise during
assurance engagements
 The accounting profession requires moral underpinnings since much of our
work is ‘regulated’ work.
 Regulated work requires ‘independence’ either technically by having no
self-interest or pragmatically by having an ‘attitude of mind characterised
by integrity and objectivity, i.e. being and being seen to be free of
influence’.
 Without independence there can be no credibility and without credibility
there can be no confidence in the information or reports we produce or
the work we undertake.
 Auditor independence is an important factor in establishing the credibility
of the audit opinion
Topic 1. Legal, Regulatory and Ethical Issues
1.1 Technical, professional and ethical issues that may arise during
assurance engagements
 Independence comprises:
a) Independence of mind: the state of mind that permits the provision of an
opinion without being affected by influences that compromise professional
judgment, allowing an individual to act with integrity, and exercise
objectivity and professional skepticism.
b) Independence in appearance: the avoidance of facts and circumstances
that are so significant that a reasonable and informed third party, having
knowledge of all relevant information, including any safeguards applied,
would reasonably conclude a firm’s, or a member of the assurance team’s,
integrity, objectivity or professional skepticism had been compromised.
Topic 1. Legal, Regulatory and Ethical Issues
1.2 Fundamental principles of the professional code of ethics
 A professional accountant is required to adhere to the following
fundamental principles:
a) Integrity: Being straightforward and honest in conduct of all professional
services
b) Objectivity: Being unbiased and impartial in the conduct of his/her business
c) Professional Competence and Due Care: Maintain professional knowledge &
skills and providing professional services conscientiously (in a thorough and
responsible way)
d) Confidentiality: Maintaining confidentiality of information received as a
result of professional/business relationship
e) Professional Behaviour: Adhering to applicable laws and regulations &
avoiding those acts which may discredit the profession.
Topic 1. Legal, Regulatory and Ethical Issues
1.2 Fundamental principles of the professional code of ethics
 Exceptions to the rule of confidentiality:
a) Disclosure is permitted by law and is authorised by the client or the
employer.
b) Disclosure is required by law. For example Production of documents or
other provision of evidence in the course of legal proceedings; or
disclosure to the appropriate public authorities of infringements of the
law that come to light
c) There is a professional duty or right to disclose, when not prohibited by
law. e.g. to comply with the quality reviews of NBAA or other
professional body;
Topic 1. Legal, Regulatory and Ethical Issues
1.2 Fundamental principles of the professional code of ethics
 Matters to be considered before disclosure of confidential information is
made
a) Whether the interests of any parties, including third parties whose interests
may be affected, could be harmed if the client or employer consents to the
disclosure of information by members.
b) Whether all the relevant information is known and substantiated, to the
extent it is practicable.
c) When the situation involves unsubstantiated facts, incomplete information
or unsubstantiated conclusions, professional judgement should be used in
determining the type of disclosure to be made, if any.
d) The type of communication that is expected and to whom it is addressed. In
particular, the professional accountant should be satisfied that the parties
to whom the communication is addressed are appropriate recipients.
Topic 1. Legal, Regulatory and Ethical Issues
1.3 Threats to independence
The professional accountants are faced threats that may affect/impair their
independence.
a) Self Interest threat
b) Self review threat
c) Advocacy threat
d) Familiarity threat
e) Intimidation threat
Topic 1. Legal, Regulatory and Ethical Issues
1.3 Threats to independence (continued)
a) Self-interest threats are due to financial, personal and other interest (like
probable employment with client, excessive dependence on client fees).
These threats can be overcome by avoiding the financial, personal and
b) Self review threat refers to a situation whereby an auditor is assigned the
task of auditing his own work or the work of a colleague.
c) Advocacy threat occurs
i. when an audit team member is involved in corporate financial services
such as dealing in financial securities /shares of a client or underwriting /
selling a client’s shares.
ii. The position of the company secretary can lead to an advocacy threat.
This is because the duties of the company secretary include maintaining
records and registers, ensuring compliance with regulations and advising
on matters of corporate governance.
Topic 1. Legal, Regulatory and Ethical Issues
1.3 Threats to independence
Matters to be considered before disclosure of confidential information is
made
d) Familiarity threat: This is the threat which arises when an auditor has a
close personal relationship with a client, its directors, officers or
employees.
 Over-familiarity with a client could lead to the auditor becoming
sympathetic to the client and therefore being more likely to accept the
client’s judgement.
e) Intimidation threat: This threat arises from the possibility that the auditor
may be threatened by the dominating personality of, or by other pressures
from, the client’s senior management.
 It can also occur if an auditor believes he is being, forced by the assurance
client or by another interested party to give an untrue opinion.
Topic 1. Legal, Regulatory and Ethical Issues
1.3 Safeguards to Threats to Independence

Safeguards that may eliminate or reduce to acceptable levels the

threats faced by members fall into three broad categories:

i. Safeguards created by the profession, legislation or regulation

ii. firm-wide safeguards in the work environment
iii. engagement-specific safeguards in the work environment.
Topic 1. Legal, Regulatory and Ethical Issues
1.3 Safeguards to Threats to Independence (continued)
a) Safeguards by the profession: application of accounting standards,
auditing standards, peer review, code of ethics, professional
qualifications and experience for entry into the profession, educational
training and continuous professional development.
b) Prohibition of certain activities / non-auditing services by auditors
(according to the IFAC)
 The IFAC has prohibited auditors from carrying out certain activities / non-
auditing services like:
i. undertaking management responsibilities of setting policies, directing
and taking responsibility for the actions of the entity’s employees,
authorising or executing transactions on behalf of the assurance client,
taking responsibility for designing, implementing and maintaining
internal control.
Topic 1. Legal, Regulatory and Ethical Issues
1.3 Safeguards to Threats to Independence (continued)
 The IFAC has prohibited auditors from carrying out certain activities / non-
auditing services like (continued)
ii. assuming a management responsibility when providing internal audit
services to an audit client
iii. preparation of accounting records and financial statements
iv. providing valuation services, if the valuation requires a significant level of
subjectivity and includes items which are material to financial statements
v. providing corporate finance services involving promoting, dealing in, or
underwriting an audit client’s shares, providing litigation support
vi. preparing or changing journal entries (without client approval),
authorising or approving transactions or preparing source documents
Topic 1. Legal, Regulatory and Ethical Issues
1.3 Safeguards to Threats to Independence (continued)
c) Ensuring that all professional accountants study and are tested
on the importance of ethics (thereby ensuring that professional
accountants are at the very least aware of the importance of
following an ethical code of conduct).

d) Having a regulatory body that will investigate and take

disciplinary action against any accountant found guilty of ethical
misconduct (thereby helping to ensure that professional
accountants will face a penalty for non-compliance with any of
the five principles).
Topic 1. Legal, Regulatory and Ethical Issues
1.3 Safeguards to Threats to Independence (continued)
e) Instances of firm-wide safeguards in the work environment include:
i. Leadership of the firm establishing the expectation that members
of an assurance team will act in public interest
ii. Firms designating a member of its senior management to be
responsible for overseeing the adequate functioning of the firm’s
quality control system
iii. Firms setting up a disciplinary mechanism to promote compliance
with policies and procedures
iv. Firms setting policies and procedures that will enable the
identification of interests or relationships between the firm or
members of engagement teams and clients
Topic 1. Legal, Regulatory and Ethical Issues
1.3 Safeguards to Threats to Independence (continued)
e) Instances of firm-wide safeguards in the work environment
include:
v. Firms documenting its internal policies and procedures relating
to compliance with the fundamental principles

vi. Firms designing policies and procedures to implement and

monitor quality control of engagements
Topic 1. Legal, Regulatory and Ethical Issues
2.0 Regulatory & Legal Issues
2.1 Development and status of International Standards on
Auditing (ISAs)
International Federation of Accountants (“IFAC”) mission is to
serve the public interest, strengthen the worldwide accountancy
profession and contribute to the development of strong
international economies by establishing and promoting adherence
to high-quality professional standards, furthering the
international convergence of such standards and speaking out on
public issues where the profession’s expertise is most relevant
Topic 1. Legal, Regulatory and Ethical Issues
2.0 Regulatory & Legal Issues
2.1 Development and status of International Standards on Auditing
(ISAs) (Continued)
 IFAC’s main activity is publishing a uniform set of auditing
standards to serve as a benchmark for professional accountants
around the world when they are conducting their audits.
 IFAC heavily promotes these standards as it believes that their
adoption will lead to a uniform quality of auditing across the
globe.
 The ISAs are not intended to override or supersede local laws and
regulations. However they are heavily promoted with the aim
that they will lead to audits being conducted in accordance with
international standards on a global scale.
Topic 1. Legal, Regulatory and Ethical Issues
2.0 Regulatory & Legal Issues
Standard Applicable for
International Standards on Auditing (ISAs) An audit of historical financial information

International Standards on Review Applied in the review of historical financial information

Engagement (ISREs)

International Standards on Assurance Applied in assurance engagements dealing with subject

Engagements (ISAEs) matters other than historical financial information.
International Standards on Related Services Applied to compilation engagements, engagements to
(ISRSs) apply agreed upon procedures to information and other
related services engagement as specified by the IAASB.

International Standards on Quality Control Applied for all services falling under the ISAS, ISAES and
(ISQCs) ISRSs.
International Auditing Practice Statements Provide interpretive guidance and practical assistance to
(IAPSs) accountants for implementing ISAS and to promote good
practices.
Topic 1. Legal, Regulatory and Ethical Issues
2.0 Regulatory & Legal Issues
2.2 Standard setting process at national and international level

 ISAs issued by IAASB (under IFAC – global federation); and IFRS

& IASs are issued by IASB (a private body under IFRS foundation)
 The National Board of Accountants and Auditors (NBAA) has a
legal mandate to set accounting and auditing standards in
Tanzania.
 Effective from 1 July, 2004, the National Board of Accountants
and Auditors (NBAA) has wholly adopted the IFRSs, IASs, & ISAs
Topic 1. Legal, Regulatory and Ethical Issues
2.0 Regulatory & Legal Issues
2.3 Nature of laws, regulation, standards and codes in the context
of assurance engagements.
 An assurance engagement is where a professional accountant in
public practice expresses a conclusion designed to enhance the
degree of confidence of the intended users, other than the
responsible party, about the outcome of the evaluation or
measurement of a subject matter against criteria.
 An assurance is an assertion that the statements presented are
correct. However, the need for assurance arises in every field,
not just accounting.
Topic 1. Legal, Regulatory and Ethical Issues
2.0 Regulatory & Legal Issues
2.3 Nature of laws, regulation, standards and codes in the context
of assurance engagements. (continued)
 The regulatory environment in which auditors function requires
auditors to:
a) Comply with the code of ethics of the professional body of
which the auditor is a member e.g. the NBAA,
b) Comply with national laws and regulations
c) Comply with accounting and auditing standards (national as
well as international standards)
Topic 1. Legal, Regulatory and Ethical Issues
A. Compliance with Code of Ethics
 Code of Ethics is a set of rules obligatory on the member of the
professional body
 The accounting bodies such as the International Federation of
Accountants (“IFAC”) publish and issue sets of ethical standards
that they expect their members to live by.
 Generally, cases of alleged non-compliance with the code of
ethics are referred to a disciplinary committee for investigation.
 Those failing to comply with the rules are required to answer a
complaint before the disciplinary committee.
Topic 1. Legal, Regulatory and Ethical Issues
B. Compliance with national laws and regulations
1) Compliance with The Companies Act
 A statutory audit is an audit required by statute.
 The Companies Act of each country, requires all companies
(above a certain size) registered under the Act to have their
financial statements audited by an independent auditor.
 The Act contains the provisions related to the audit e.g.
appointment, removal etc. of an auditor.
Topic 1. Legal, Regulatory and Ethical Issues
B. Compliance with national laws and regulations
1) Compliance with The Companies Act (continued)
• Responsibilities of the Auditors
a) Provide an opinion of whether the financial statements audited,
are true and fair;
b) Confirm that the annual financial statements are in accordance
with the requirements laid down in The Companies’s Act; and
c) State whether the information provided in the directors’ report
conforms to the annual accounts.
Topic 1. Legal, Regulatory and Ethical Issues
B. Compliance with national laws and regulations
1) Compliance with The Companies Act (continued)
• Rights of the Auditors
a) Right of access to records
b) Right to information and explanations
c) Right to receive resolutions
d) Right to attend and receive notice of meeting
e) Right to speak and to be heard at general meetings of the
company
Topic 1. Legal, Regulatory and Ethical Issues
B. Compliance with national laws and regulations
1) Compliance with The Companies Act (continued)
• Duties of an auditor
a) Maintenance of adequate accounting records
b) Compliance with legislation while preparing the financial
statements.
c) Examination, comparison and verification of accounting records
and returns with financial statements of the entity
d) Truth and fairness of financial statements
e) Compliance of material disclosures in financial statements with
the applicable statute
Topic 1. Legal, Regulatory and Ethical Issues
B. Compliance with national laws and regulations
1) Compliance with The Companies Act (continued)
• Appointment of auditors
 Only a member of a recognised supervisory body is eligible to be
appointed as an auditor.
 The person to be appointed as the auditor is required to hold a
professional accountancy qualification.
 Generally, an auditor is appointed by the shareholders in the
Annual General Meeting (AGM) and holds his post until the
conclusion of the next AGM in which the auditor for the next year
is appointed.
Topic 1. Legal, Regulatory and Ethical Issues
B. Compliance with national laws and regulations
1) Compliance with The Companies Act (continued)
• Appointment of auditors
 Sometimes an auditor is appointed by the directors or the audit
committee
 For entities in which a share is owned by the state, the auditor is
appointed by the CAG/NAOT (National Audit Office of Tanzania)
Topic 1. Legal, Regulatory and Ethical Issues
B. Compliance with national laws and regulations
1) Compliance with The Companies Act (continued)
• Removal and resignation of auditors
 In order to protect the interests of auditors as well as
shareholders, in many countries, the law requires the consent of a
majority for the removal of the auditor and provides an
opportunity to the auditor to make a representation before all the
shareholders.
 The auditor has to give a statement to all the shareholders in the
Annual General Meeting about the reason for the disagreement
(or the fact that removal or resignation was innocent).
Topic 1. Legal, Regulatory and Ethical Issues
B. Compliance with national laws and regulations
1) Compliance with The Companies Act (continued)
• Removal and resignation of auditors
 The facts should be communicated to the shareholders.
 The letter communicating the circumstances is called a statement
of circumstances.

The appointment of the auditor, his removal or his resignation

should be communicated to the regulatory authorities
Topic 1. Legal, Regulatory and Ethical Issues
B. Compliance with national laws and regulations
2. Compliance with Income tax Act.
 The auditor performing tax audit has to comply with the
provisions of the Income Tax Act as well as Companies Act.
3. Compliance with industry specific norms
 Statutory audit should also comply with the laws and regulations
related to a particular industry like the audit of a bank must
comply with the provisions of Banking and Financial Institutions
Act 2006 and BOT Act 2006..
4. Compliance with provisions of professional bodies regulating
audits i.e NBAA in Tanzania
Topic 1. Legal, Regulatory and Ethical Issues
C. Compliance with accounting and auditing standards (national as
well as international)
 Apart from the laws and regulations, the auditor should also
conduct an audit in accordance with International tandard on
Auditing (ISAs).
 The auditor should be familiar with all the applicable accounting
standards because they are expected to report on any non-
compliance with these and the reason for this non-compliance.
 ISA 200, 210,220,230,240, et.c
Topic 1. Legal, Regulatory and Ethical Issues
The importance/benefits of regulation of the audit and auditor;
1) To protect public interest
2) To maintain dignity of the profession
3) To ensure independence and professional competence of the
auditors
4) To bring uniformity to the audit procedures