Ch 1 Assurance THE CONCEPT OF AUDIT AND ASSURANCE (SG A1)

Question 1

The concept of assurance

Answer 1

We ask for assurance when we need to know whether or not things are ‘ok’.
It is often not possible to check the situation yourself – so you are likely to want to rely on someone else to check it for you - a professional.

Question 2

Examples for assurance

Answer 2

= schools are checked by government inspectors
= restaurants have health and safety checks
= Annual published Financial Statements are checked by external (statutory) auditors
= Company systems are checked by internal auditors.

Question 3

External audit is

Answer 3

formal audit process of auditing financial statements prepared by directors in order to give an opinion on the true and fair view to shareholders.

Question 4

The objective of external audit is

Answer 4

assurance

Question 5

The purpose of external audit is

Answer 5

the delivery of confidence in financial statements to the shareholders.

Question 6

The development of assurance (SG A1b)

Answer 6

Audit is ancient. There is evidence of audit going back to the birth of writing 5,000 years ago.

Question 7

Circa 1900:

Answer 7

The birth of the company and the idea of compulsory audit of fs.

Question 8

Circa 1980:

Answer 8

The development of auditing standards.

Question 9

Circa 1990:

Answer 9

the development of those auditing standards to focus on risk.

Question 10

The concepts of stewardship, agency and accountability

SG A1c

Answer 10

straight out of agency theory. The directors of the company are the stewards of the entity charged with giving the company direction.
But each year the directors are held accountable for their stewardship by the shareholder analysis of the company accounts.

Question 11

true & fair presentation and reasonable assurance (A1d)

Answer 11

true is taken to mean that the numbers are
accurate within materiality and fair is taken to mean an honest and clear representation.
Reasonable assurance is often described as a high degree of confidence based on the opinion of a qualified auditor that can give no guarantees.

Question 12

The objectives of an assurance engagement (A1f)

Answer 12

the objectives of all assurance engagements is assurance.

Question 13

The purpose of all assurance engagements is

Answer 13

to give confidence to the principal.

Question 14

The five elements of an assurance engagement (A1g)

Answer 14

1. A subject matter.
2. Three main parties:
   = The responsible person
   = The assurance provider
   = The intended user
3. A report
4. Standards
5. The amount of checking

Question 15

elements of an assurance engagement

1. A subject matter.

Answer 15

What is we are checking?

Question 16

elements of an assurance engagement
2. Three main parties:
= The responsible person

Answer 16

the person preparing the subject matter being

be checked

Question 17

elements of an assurance engagement
2. Three main parties:
= The assurance provider

Answer 17

the party who forms the opinion on the subject

matter and gives the assurance

Question 18

elements of an assurance engagement
2. Three main parties:
= The intended user

Answer 18

the party who relies on the assurance report.

Question 19

elements of an assurance engagement

3. A report

Answer 19

stating the assurance provider’s conclusion.

Question 20

elements of an assurance engagement

4. Standards

Answer 20

the assurance provider doing the checks will have some

standards to check against.

Question 21

elements of an assurance engagement

5. The amount of checking

Answer 21

The amount of checking can vary.

Question 22

“positive assurance”.

Answer 22

If a lot of detailed checking is done, the “assurance-provider” will be able to conclude that the responsible person has done their job properly, or has not.

Question 23

“negative assurance”.

Answer 23

If a smaller amount of checking is done, the assurance provider may only be able to report that “no errors/problems were found”, but may not feel able to confirm that there are no errors … because they have not checked enough to be sure.