1. Concept and need for assurance Flashcards
What is assurance?
A firms confirmation/satisfaction with the reliability of an assertion (statement)
What is an assurance engagement?
Auditor expresses opinion/conclusion to enhance degree of confidence of intended users on the outcome of evauluation of a subject matter against criteria (accounting standards).
What is the nmeumonic of the key elements of an assurance engagement?
CRESTRIP
Explain the nmeumonic
Criteria - abide by accounting standardse.g. IAS, IFRAS, UK GAAP
Report - Written report providing opinion on subject matter
Evidence - to support assurance opinion e.g. annual reports
Subject Matter - Financial statements/ internal controls/ corporate governance
Three party relationship:
Responsible party - Director of company
Intended user - Person asking for audit
Practioner - Auditor
What are the levels of assurance?
Reasonable assurance engagaement
Limited assurance engagement
Explain characteristics of Reasonable assurance and give example
- Statuatory audit
- Sufficient and appropriate evidence
- Positive opinion (Directional)
- E.G. True and fair view in all material respects
Explain characteristics of Limited assurance and give example
- Other audits
- Sufficient and appropriate (less intrusive/access to reports etc)
- Negative conclusion
- e.g. Nothing has come to our attention that makes us believe that the subject matter is misstated
What is a statuatory audit?
An audit all companies, of a certain size, must have by law.
Explain true and fair view
True: Information is factual, conforms with required standards and law.
Fair: Info is free from discrimination and bias
What is a RSB and their responsibilities?
Recognised supervisory body. All auditors must be a part of an RSB e.g. ICAEW
They are responsible for ensuring:
- Only individuals holding appropriate qualification can conduct (sign off) audits.
- Those individuals/firms are monitored on a regular basis
Who monitors the accounting profession and auditing standards?
Financial reporting council (FRC) - also issues ethical standards
Give 2 overall objectives of the independent auditor
and in order to do this the auditor must:
a) Obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.
b) Provide audit report
Do this by complying with ethical requirements e.g. PIPCO
What are the stages of an audit
- Obtaining the engagement
- Planning
- Performing procedures
- Review and completion
- Reporting
What are limitations of assurance
- Sample
- Independence threats
- Human error in detection
- Collusion may make it difficult to detect
- Subjective answer not absolute certainty.
Expectations gap
Reliance on controls
what are benefits to directors from assurance
Deter fraud / reduce management bias / identify and correct significant errors / recommendations for improvements (e.g. internal controls)
