1 Introduction to assurance

Question 1

What is assurance engagement?

Answer 1

An engagement in which a practitioner 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.

Question 2

What does giving assurance mean?

Answer 2

Offering an opinion about specific information so the users of that information are able to make confident decisions knowing that the risk of the information being ‘incorrect’ is reduced.

Question 3

What are the five elements on an assurance engagement?

Answer 3

1. Third parties
2. An appropriate subject matter
3. Suitable criteria
4. Sufficient appropriate evidence
5. A written assurance report in an appropriate form

Question 4

What are the two types of assurance engagement that the IAASB permit?

Answer 4

Reasonable and limited

Question 5

What 5 things does the practitioner do in an reasonable assurance engagement?

Answer 5

1. Gathers sufficient appropriate evidence
2. Concludes that the subject matter confirms in all material respects
3. Gives a positively worded assurance opinion
4. High level of assurance
5. Performs very thorough procedures to obtain evidence

Question 6

What 5 things does the practitioner do in an limited assurance engagement?

Answer 6

1. Gathers sufficient appropriate evidence
2. Concludes that the subject matter is plausible in the circumstances
3. Gives a negatively worded assurance opinion
4. Moderate of low level of assurance
5. Performs fewer procedures to obtain evidence

Question 7

What is the objective of an external audit engagement?

Answer 7

To enable the auditor to express an opinion on whether the financial statements give a true and fair value and are prepared in all material aspects with an applicable financial reporting framework.

Question 8

What are the benefits on an audit? (5)

Answer 8

H - Higher quality information is more reliable
I - Indépendant scrutiny and verification may be valuable to management
R - Reduces risk of management bias, fraud and error
E - Enhances the creditability of the financial statements
D - Deficiencies in the internal control system may be highlighted

Question 9

What is the expectation gap?

Answer 9

The assumption of the auditor that they believe everything is assured.

Question 10

What are the limitations of an audit? (5)

Answer 10

F - Financial statements include subjective estimates and other judgmental matters
I - Internal controls may be relied on which have their own inherent limitations.
R - Representations from management may have to be relied upon as the only source of evidence in some areas
E - Evidence is often persuasive not conclusive
D - Do not test all transactions and balances.

Question 11

What is a review engagement an example of?

Answer 11

Limited assurance engagement

Question 12

What is accountability?

Answer 12

That people in a position of power can be held to account for their actions

Question 13

What is agency?

Answer 13

Occurs when one party, the principle, employs another party to perform a task on their behalf

Question 14

What is stewardship?

Answer 14

The responsibility to take good care of resource

Question 15

What is it called where one person has a duty of care towards someone else?

Answer 15

Fiduciary relationship