10 - Assurance and Other Enagements Flashcards
Agreed upon procedures?
Specified in engagement letter
Does not make any judgements
No opinion or conclusions
Restricted to those who have agreed since others may misinterpret
Compliance engagements?
Accounting expertise
No opinion provided
Preparation of financial statements commonly included
Collection/classification/summary of financial info
What is an assurance engagement?
Practitioner aims to obtain sufficient appropriate evidence to express a conclusion designed to enhance the degree of confidence of the intended users
Objectives of an assurance engagement?
Enhance the credibility of the underlying subject matter
Doesn’t have to be financial
Public interest element
Elements of an assurance engagement?
Criteria (suitable) Underlying subject matter Three party relationship Evidence (sufficient) Report (assurance report)
Three party relationship?
Practitioner
Responsible party
Intended used
Suitable criteria?
Relevant, complete, reliable, neural and understandable
Sufficient and appropriate audit evidence
Professional scepticism Free form material misstatement Materiality Engagement risk Quality Quantity
Types of assurance engagements?
Reasonable assurance
Limited assurance
Reasonable assurance?
Engagement risk acceptably low
Positive opinion
Reasonably certain free from material misstatement
Limited assurance?
Level of risk higher than reasonable assurance engagement
Opinion expressed in negative form - no evidence that the financial statements are materially misstated
Processes of an assurance engagement?
Acceptance and continuance Planning (inc risk assessment) Systems and controls analysis Collection of evidence (Substantive testing) Completion (inc reporting)
Acceptance and continuance considerations?
Commercial - financial and reputational risks
Professional - non compliance
Consider for whom and what purpose report is prepared
4 outcomes when assessing third party liability
Accept duty of care and include third party in engagement letter
Ensure third party confirms there is no duty of care
Include a disclaimer of liability to any third party
Reject engagement
Can only accept engagement if it exhibits?
Ethical requirements
Competence and capable to carry out
Basis agreed - common understandings and preconditions
- roles and responsibilities
- underlying subject matter
- suitable criteria
- available to intended users
- evidence
- written report
- rational purpose
What does an engagement letter do?
Clarifies responsibilities
Scope
Form of report
Work that will be performed
Contract of work
Minimum content of an assurance engagement report?
Title Addressee Identify and describe level of assurance obtained Criteria If needed describe limitation Identify responsible party and responsibilities Statement performed in accordance with ISAEs Adhered to standards Summary of work Conclusion Signature Date Location of practice
Factors considered for other engagements?
Parties Subject matter Criteria Procedures Type of report
Half yearly report
May choose to have reviewed
Timeliness
Estimated to a greater extent
LIMITED ASSURANCE ENGAGEMENT
Lower level
Less work
Less costly
Evidence through enquiry and analytical procedures
Engagement letter
No audit opinion in written report
Prospective financial information
Assumptions about events in future
Forecasts - prospective financial info on basis of assumptions on events management expect to happen
Projections - hypothetical assumptions
Subjective
Moderate level of assurance through negative opinion
When examining prospective finance info the auditor should consider?
Reasonableness of assumptions Correct application Disclosure Consistency of accounting principles Obtaining Written representations
Prospective financial info report should include?
Statement anything has come to attention that not reasonable
Opinion on whether properly prepared
Actual results likely to be different
Statement on set of assumptions and not necessarily expected to occur - in case of projection
Forensic auditing?
Application of auditing skills to situations that have legal consequences
E.g investigation of fraud
Reactive or proactive
XBRL tagging?
Inline XBRL format must be used to deliver company tax returns electronically to HMRC
In f/a have computer readable tags
Taxonomy - library of codes
Review accuracy of this tagging e.g agreed upon procedures engagement
Due diligence engagements
Most commonly performed when one company planning to take over another
Advise on risks
No specific guidance
- legal
- tax
- operations
- financial info
Accounting services associated with listings?
LSE Listing Rules require a prospectus
- info investors and advisers need and expect to allow to make informed assessment
Need - unqualified FS, interim info if last accounts more than 6m a go, optional profit forecast info
Public interest engagements?
Best value audits - Scotland public bodies, statutory duty in local government and formal duty in rest of public sector
Corporate and performance assessment
Outcomes Effectiveness of partnership Service performance and use of resource Risk based approach Clear and transparent audit Improvement and good practice
