1. need for assurance Flashcards
what are the 5 key elements of an assurance engagement
- three party relationship
- subject matter = documents
- suitable criteria
- sufficient evidence
- a written report providing an opinion
what are the 2 types of assurance levels
- reasonable
- limited
reasonable assurance and limited
what is the difference
reasonable = high level of assurance
- positive conclusion
- statements are true and fair in all material respects
limited = low level of assurance
- negative conclusion - nothing come to attention that makes us think that the subject matter is mistated
what are the 4 kinds of audits that MUST have assurance engagements
- bank audits
- pension scheme audits
- charity audits
- solicitors audits
statutory audits
what is statutory audit
legally required review of companys FS to ensure they comply with accounting standards and regulations
how does auditor express their audit opinion
true and fair view
true = info is factual, accounts are correct
fair = free from bias and discrimination, compliant with standards and regulations
FRC - financial reporting council
monitors the accounting profession
issues standards
ethical standards
RSB - recognised supervisory body
responsible for ensuring:
1. auditors are qualified
2. continued professional development
what are the objectives of an auditor
- obtain assurance on whether FS are free from material misstatement
- report on FS
what are the 5 stages of an audit
what takes place
- obtain engagement - get the work
- planning
- perform procedures - test
- review and complete
- report - unmodified/modified
who are the users of an audit
shareholders, directors, employees, customers…
4 main benefits of assurance
LETTERS
ACID
ACID
- 4 main benefits of assurance
A - attention to issues - additional confidence
C - credibility
I - independently verified
D - deterrent
what is the small company exemption rule in UK
small companies not required to have audit
what is the small company criteria
must meet 2/3
Turnover - no more than £10.2 million
Total assets - no more than £5.1 million
number of employees - 50 or fewer
limitations of assurance
why cant it be 100% correct
- testing and sampling
- reliance on controls
- FS nature - estimates
- auditor judgements
what is the expectations gap
difference between what people think the auditor does vs what they actually do
what is ESG
set of criteria to assess a companys sustainability
what is sustainability reporting
impacts
dependencies
impacts - influence the company has on the world
dependencies - impact the world has on the company
what are the 4 things that sustainability impacts
LETTERS
RAGS
RAGS
what are the 4 things that sustainability impacts
R - risk management
A - assurance
G - governance - chief ESG
S - sustainability metrics
How does sustainability impact
risk management
- physical risks = climate change
- transition risks = struggling with transitioning to new rules and regulations
ISSB
International sustainability standards board
what are the 2 disclosure standards
IFRS S1 = info about sustainability risks and opportunities
IFRS S2 = climate related disclosures
