Audit Engagements Flashcards
Internal audit
Internal audit is performed by internal auditors who are employees of the firm
Is about evaluating the firms internals controls
External audit
External audit is audit performed by external auditors who are paid by the firm but are independent professionals
Is about expressing an independent opinion on whether the financial statements of the firm show a “true and fair” view
Objective of an external audit
The objective of an audit of financial statements is to enable the auditor to express an opinion on whether the fs are prepared, in all material respects, in accordance with an applicable financial reporting framework
Do the fs show a true and fair view?
There are two types of external audit:
Statutory audit - required by law
Non statutory audit - voluntary audit
Accountability, stewardship and agents
Accountability is being expected to justify actions and decisions. An obligation to accept responsibility
Stewardship refers to the duties and obligations of a person who manages another persons property
Agents are people employed or used or provide a particular service
Assurance engagement
An assurance engagement is one which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion (opinion) designed to enhance the degree of confidence of the intended user in the fs which have been the subject of the engagement
The IIASB
The five elements of an assurance engagement
A three party relationship - the intended user, the responsible party and the practitioner
A subject matter - the data to be evaluated
Suitable criteria - against which the subject matter is evaluated
Evidence- sufficient appropriate evidence to support the level of assurance
An assurance report - a written report containing the practitioners opinion
Different types of assurance engagements
External audit
Review engagement - attestation engagement - direct engagement
Internal audit -
Value for money audits
Information technology audit
Best value audits - for local authorities
Financial, operational and procurement audits
Materiality
Materiality is an expression of the relative significance of a particular matter in the context of the financial statements
A matter is material if it’s omission or misstatement would influence the economic decisions of users of financial statements
Materiality is a threshold - varies from business to business
Limitations of external audits
Auditing is not objective, judgements have to be made
Not all items in the fs are tested - sampling risk
Limitations in accounting and control systems
Audit evidence sometimes indicate what is possible not what is certain
Audit reports have inherent limitations - format, jargon.
Auditors can never certify that the accounts are correct. They can only ever express an opinion.
