Introductory description

The overall aim of this module is to provide an insight into the work of external auditors, examining the process by which assurance is provided on company financial statements. The external auditor's report is an important mechanism in enhancing the credibility of published financial statements, and we will examine the key audit process which underpins the auditor's opinion on financial statements.

The module is quite practical - we will understand and justufy the decisions made by auditors during the audit process. There are technical elements and rules which we need to understand, but the focus is on application and the evaluation of auditing scenarios. The majority of audit work is based on the exercise of professional judgement, so we will develop our ability to make judgement calls, and justify our decisions. These skills are highly regarded by employers.

The module will enable you to understand the work of auditors, the commercial decisions made by audit firms, the regulatory environment in which auditors operate, and how all of this relates to corporate governance and accountability to shareholders and the wider society.

Module aims

Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

The module will include some of the following topics. Note that the syllabus is driven by regulatory requirements and current issues in audit practice, therefore the content may change year to year to ensure that content is up to date.

The need for external audit - the value of audit to society and to specific stakeholders
The role of the external auditor: an introduction to, and evaluation of, the ethical and regulatory framework in which audit operates
The process of an external audit: initial client and engagement acceptance, the method of planning an audit and performing key audit techniques
Fraud and money laundering issues
The completion stage of the audit: evaluation of going concern, the objectives and content of the auditor’s report
Professional scepticism and its links to the use of professional judgement
Current issues - indicative issues include audit quality, reform of the audit market, changes in the regulatory environment
Other services offered by professional firms and potential links with ethical principles

Learning outcomes

By the end of the module, students should be able to:

• Demonstrate comprehensive understanding of the main processes of internal and external audit, and assess whether an engagement has been appropriately accepted, planned and performed
• Identify and evaluate the societal need for external audit, and the benefits of external audit to a wide range of stakeholders, considering the relevance and understandability of auditor’s reports
• Identify and assess the need for ethical standards for auditors and apply the principles and requirements to real life audit scenarios, including responses to potential fraud and money laundering
• Critically evaluate the different technical approaches to auditing
• Critically evaluate the current auditing framework

Indicative reading list

Much of the reading for this module will be focused on the regulations which apply to the external audit process. These
are issued by the Financial Reporting Council in the UK. International Standards on Auditing (ISAs), the Ethical Standard applicable to auditors in the UK and the Corporate Governance Code are all available from the Financial Reporting Council website:
www.frc.org.uk

There are also some textbooks which provide useful insight to the external audit process and governance issues. The following
texts are referred to most frequently:

Millichamp, A. and Taylor, J. (2018), Auditing, 11th Edition, Cengage Learning - essential text

Collings, S. (2014), Frequently Asked Questions on International Standards on Auditing, 1st Edition, Wily. - recommended text

Relevant academic articles will be referrred to, depending on the content covered. Indicaitive articles:

Ghafran, C. and O’Sullivan, N. (2017) ‘The impact of audit committee expertise on audit quality: Evidence from UK audit fees’, The British Accounting Review, 49(6), pp. 578–593.

Houston, R.W., Peters, M.F. and Pratt, J.H., 1999. The audit risk model, business risk and audit-planning decisions. The Accounting Review, 74(3), pp.281-298.

Knechel, W.R., Krishnan, G.V., Pevzner, M., Shefchik, L.B. and Velury, U.K., 2012. Audit quality: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 32(sp1), pp.385-421.

Köhler, A., Ratzinger-Sakel, N. and Theis, J. (2020) ‘The Effects of Key Audit Matters on the Auditor’s Report’s Communicative Value: Experimental Evidence from Investment Professionals and Non-professional Investors’, Accounting in Europe, 17(2), pp. 105–128

Lee, T., Azham, A. and Bien, D, 2009. Towards an understanding of the audit expectation gap. 2009. ICFAI Journal of Audit Practice, 6(1), pp.8-33

Martin, R. (2007) Through the Ethics Looking Glass: Another View of the World of Auditors and Ethics, Journal of Business Ethics, 70(1), pp. 5–14

Subject specific skills

• Appreciate the need for ethical standards for auditors and apply the principles and requirements to real life audit scenarios.
• Recognise and respond to potential money laundering situations, applying the relevant regulations in the context of external auditing.
• Recognise the circumstances when it is appropriate to apply professional scepticism in an audit context.
• Identification of ethical issues relating to the practicing of auditing.

Transferable skills

Summarising research articles and professional briefings.
Oral and written communication of complex technical issues in a logical and conceptually sound manner.
Searching for, summarising and analysing technical and conceptual information.
Identifying ethical issues in relation to the practicing of an influential discipline.