Audit Assurance Flashcards
Five elements to an assurance engagement
1) Three party involvement
2) Appropriate subject matter
3) Suitable criteria
4) Sufficient appropriate evidence
5) Written assurance report in an appropriate form
How to explain the 5 elements of an Assurance engagement
1 Element
2 Explanation
3 In relation to the audit: who / what
Three party involvement in assurance engagement
1 Practitioner
2 Intended users
3 Responsible party
General principles the assurance provider must follow when performing such engagements include:
- Comply with ethical requirements
- Apply professional scepticism and judgement
- Performance acceptance and continuance procedures
- Agreed terms of Engagement
- Comply with quality control requirements
- Planning perform engagement effectively
- Obtain sufficient appropriate evidence
- Consider subsequent events
- Form a Conclusion expressing either reasonable or limited Assurance as appropriate
- Evidence should be Documented
Two types of assurance
Reasonable
Limited
Reasonable Assurance engagements
- Gathers sufficient appropriate evidence
- Conforms in all material respects
- Positively worded assurance opinion
- High level of confidence - assurance
Limited Assurance engagement
- Sufficient appropriate evidence
- Limited conclusions
- The subject matter with respect to identified suitable criteria is plausible in the circumstances
- Negatively worded assurance conclusion
- Moderate / low level of assurance
- Fewer procedures performed
Purpose of an external audit engagement
’’ To enhance the degree of confidence of the intended users in financial statements ‘’
The auditor is expressing an opinion on whether the financial statements
- Give a true and fair view of the financial position of the company
- Are prepared, in all material aspects, in accordance with applicable financial reporting framework
’’ True and fair view ‘’
True means …
Factually correct information and conform with accounting standards and relevant legislation.
’’ True and fair view ‘’
Fair means …
Clear, impartial and unbiased information which reflects the commercial substance of the transactions of the entity.
Objectives of an auditor
- Obtain reasonable assurance that FS are free from material misstatements
- Express and opinion whether the FS are prepared, in all material aspects, in accordance with applicable financial reporting framework
- Report on the FS and communicate as required by the ISA’s
Need for external audit
- Shareholders not involved in day to day running of the business
- Directors trying to manage and achieve objectives of the company
- Directors prepare FS - inf. on performance and financial position
- Directors can influence the FS and show a different financial position
- Need for independent review for assurance
Benefits of an audit
HIRED
- Higher quality of information
- Independent review and verification valuable to management
- Reduces the risk of manag. bias , fraud and error
- Enhances credibility in FS
- Deficiencies in internal controls identified
'’Expectation gap’’ examples
Belief of some users that:
- all trans. are tested
- auditors must detect fraud
- auditors prepare the FS
