Assurance Engagements

Question 1

What is meant by ‘assurance engagement’?

Answer 1

A practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the confidence of the intended users.

Question 2

What is meant by ‘practitioner’?

Answer 2

The individual conducting the engagement (usually the engagement partner).

Question 3

What is meant by the ‘intended users’?

Answer 3

The individuals (shareholders) that the practitioner expects will use the assurance report.

Question 4

What is meant by the ‘responsible party’?

Answer 4

The party responsibile fot the underlying subject matter (management).

Question 5

Element of an assurance engagement: Criteria…

Answer 5

The subject matter is evaluated or measured against criteria in order to reach an opinion.

Question 6

Element of an assurance engagement: Report…

Answer 6

Communicating the auditor’s opinion to the users.

Question 7

Element of an assurance engagement: Evidence…

Answer 7

Sufficient evidence needs to be gathered to support the required level of assurance.

Question 8

Element of an assurance engagement: Subject matter…

Answer 8

The data to be evaluated that has been prepared by the responsible party. It can take many forms, including financial and non financial performance, processes and behaviour.

Question 9

Element of an assurance engagement: Three party relationship…

Answer 9

The three parties are the intended user, responsible party and the practitioner.

Question 10

Examples of assurance engagements…

Answer 10

1. Review of the effectiveness of an entity’s internal control.
2. Statutory audit.
3. Review of an entity’s financial results for the first half of year.
4. Review of cash flow forecasts (presented to bank)
5. Review of threats to affect the business’s going concern.
6. Corporate governance.
7. Environmental isssues.
8. Contracts.
9. Other regulation.

Question 11

What is the approach of conducting assurance engagements?

Answer 11

1. Agree the scope of work with the client.
2. Formalise the terms of the engagement (engagement letter).
3. Plan the work based on the risk and level of assurance required.
4. Obtain sufficient appropriate evidence on which to base the opinion.
5. Perform overall review and form opinion.
6. Issue assurance report to the client.

Question 12

What are the benfits of assurance reports?

Answer 12

1. An independent opinion of an external source, enhances the credibility of the information.
2. Reduces management bias.
3. Any non standard or modified opinion draws attention to risk.
4. Relevance of information is improved because of the expertise and knowledge of the assurance firm.