Audit & Assurance Mannual Studies

Question 1

What is Assurance Engagement?

Answer 1

It aims to obtain sufficient appropriate audit evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users.

Question 2

Engagement is governed by its terms of engagement. Where can these terms be found?

Answer 2

In the engagement letter.

Question 3

What are the 2 types of assurance engagement?

Answer 3

1. Reasonable assurane (+ve expression of opinion & high level of assurance)
2. Limited assurance (-ve expression of opinion & moderate level of assurance)

Question 4

Why do assurance engagement only provide a reasonable asuurance instead of absolute assurance?

Answer 4

It is due to the nature of the evidence available and is somewhat related to the expectation gap between users and auditors.

Question 5

What are some of the benefits of having reasonable assurance?

Answer 5

• enhance credibility of info being reported on
• reduce the risk of management bias, error and fraud in the info being reported on
• draw attention of users to any deficiencies in info being reported on
• ensure high quality, reliable info circulates in the market
• give investors added faith in the market
• improve the reputation of org. trading in the market

Question 6

What are the overall objectives of auditing of financial statements?

Answer 6

• obtain reasonable assurance about whether F.S as a whole are free from material misstatement (due to fraud or error), thus enabling auditor to express an opinion on whether the F.S are prepared, in all material respects, in accordance w/ an applicable financial reporting framework.
• report on F.S & communicate as req. by ISA, in accordance w/ auditor’s findings.

Question 7

All companies registered in the UK are required to be audited except for small co. if they can satisfy 2/3 of the following criteria:

Answer 7

1. co. has no more than 50 employees
2. co.’s turnover does not exceed £10.2m
3. co.’s gross assets total does not exceed £5.1m

Question 8

Even if a company comes under the audit threshold, what are the criterias that require an audit to be carried out?

Answer 8

• articles of association require one
• shareholders who own at least 10% of the shares require
• co. is a non-dormant public co.
• co. is involved in the insurance or banking markets

Question 9

What are the benefits of audit valued by the management?

Answer 9

• business is scrutinised by another set of professional eyes
• provides additional assurance to 3rd parties concerning the reliability of F.S
• growing business will one day req. audit
• subsidiary benefit (auditors recommend improvements in the co. system)

Question 10

What are the drawbacks of having F.S audited?

Answer 10

• costly
• timely on the initial appointment process
• staff time req. in providing info
• deals w/ confidentiality
• expectation gap (fraud detection)
• inherent limitations of audit

Question 11

What is the nature and quality of evidence affected by?

Answer 11

It is affected by the nature of the subject matter.