Assurance Part 1 Flashcards
What is assurance?
3 parties
3 components
3 parties:
Responsible party (directors)
Practitioner/accoutancy firm
Users (shareholders)
3 components:
Subject matter (financial statements)
Criteria
Conclusion/opinion/report
Opinion: true and fair view
What is meant by:
True
Fair
True: in accordance with facts and legislation
Fair: do we believe they’re objective and free from manipulation?
Reasonable assurance (6)
- High level of assurance
- Less than absolute assurance
- Engagement risk reduced to acceptably low level
- Allows conclusion to be expressed positively
- Sufficient and approriate evidence sought
- ‘In our opinion, the f-s’s show a true and fair view and have been properly prepared’
Limited assuance (6)
- Meaningful level of assurance
- Less than reasonable
- Engagement risk has been reduced to acceptably low level
- Allows conclusion to be expressed negatively
- Sufficient and appropriate (lower level) evidence sought
- ‘Nothing has come to my attention indicating that X is not reasonable’
Benefits of assurance (5)
- Increases confidence of users/banks > facilitates finance
- Increases credibility of responsible party/subject matter
- Independent report
- Reduces risk of bias/manipulation of subject matter
- Reduces risk of fraud
Limitations of assurance (5)
- Testing on sample basis
- Judgement re subject matter > includes estimates
- Limitations of accounting systems internal controls > human error/collusion/management override
- Items tested may not be representative of rest
- Most evidence is persuasive not conclusive
Engagement letters - contents
Shall be included
May be included
Shall be included:
- scope of audit, referring to legislations, regulations and pronouncements
- auditor’s responsibilities
May be included:
- arrangements regarding planning of audit
- basis for fees
Engagement letters - contents
Shall be included
May be included
Shall be included:
- scope of audit, referring to legislations, regulations and pronouncements
- auditor’s responsibilities
May be included:
- arrangements regarding planning of audit
- basis for fees
Sources of knowledge (6)
- enquiries - directors
- Companies House
- observation
- company’s website
- previous auditor
- analytical procedures > comparing results to date with previous years, forecasts or budgets
Key criteria of insurance engagement
5
- 3 party involvement
- subject matter (financial statements)
- relevant criteria (law and accounting standards)
- evidence (sufficient and appropriate)
- written report in suitable form
Stages of audit (5)
- obtaining the engagement
- planning
- performing procedures
- review and completion
- reporting
Professional scepticism (3)
- questioning mind
- being alert to conditions that may indicate possible misstatement
- critical assessment of audit evidence
Professional judgement (2)
- application of relevant training, knowledge and experience
* making informed decisions about appropriate courses of action
