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Assurance > ch1 concept and need for assurance > Flashcards

ch1 concept and need for assurance Flashcards

1
Q

What is an assurance engagement

A

an assurance engagement is one in which a practitioner expresses a conclusion designed to enhance the degree of confidence the intended users other than the responsible party have about the outcome of the evaluation or measurement of a subject matter against criteria

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2
Q

What are the 5 key elements of assurance

A
  1. 3 party involvement
  2. Subject Matter
  3. Suitable criteria
  4. Evidence
  5. Written report
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3
Q

Name and give an example of each of the 3 party relationship

A

Practitioner - Auditor / Assurance Firm
Intended User- depends on assignment
Responsible party - usually the directors

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4
Q

Give examples of subject matter

A

financial statements / data / systems

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5
Q

Give examples of suitable criteria

A

accounting standards / UK corporate gov ernance code

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6
Q

What are the two levels of assurance provided

A

Limited assurance
Reasonable assurance

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7
Q

What is limited assurance

A

moderate / lower level of assurance
conclusion expressed negatively
eg an engagement to review interim accounts

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8
Q

What is reasonable assurance

A

high but not absolute levels of assurance
Conclusion expressed positively
eg the audit of financial statements

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9
Q

name 6 types of assurance engagement

A

statutory audit
fraud investigations
due diligence
internal controls assessment
business plan / projections
environmental audits

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10
Q

In the UK who are audits governed by

A

companies act 2006
international standards on auditing (2006)

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11
Q

What does the ISA 200 state are the overall objectives of the auditor

A

the obtain reasonable assurance about whether the financial statements are free from material misstatement

to express an opinion on whether financial statements are prepared in accordance with an applicable financial reporting framework

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12
Q

In order to comply with ISA200 an auditor must

A
  1. comply with relevant ethical requirements
  2. plan and perform the audit with professional scepticism
  3. provide professional judgement
  4. obtain audit evidence that is sufficient and appropriate
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13
Q

Companies Act 2006 exempt small ltd companies from a mandatory audit if they satisfy two out of the three what criteria

A

employees- 50 or less
turnover- no more than 10.2 million
total assets- no more then 5.1 million

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14
Q

What must an auditor be

A

be a member of recognised supervisory body (rsb)
- individuals holding appropriate qualification
- part of a firm controlled by qualified persons

Not be ineligible
- if employee of company
- a partner or employee

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15
Q

why is assurance important ? what are the benefits

A
  • independent scrutiny of the business
  • added credibility
    -fraud deterrent
    -draws attention to issues
  • reduces risk of management bias
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16
Q

limitations of assurance

A
  • sampling
    -inherent limitations of systems
  • evidence is persuasive not conclusive
  • collusion to defraud
  • financial information included subjective and judgemental matters
  • use of management representations as evidence may be unavoidable
17
Q

what is the expectations gap

A

misunderstandings around audit. examples of these are

  • the auditor detects all fraud and error
    -the auditor tests 100% of transactions
  • the auditor verifies the accuracy of the financial statements
    -the company is guaranteed to continue to trade for the forseaable future if a true and fair opinion is issued
  • the SFP shows the true value of the company
18
Q

The key global initatives that summarise the ESG guidance, legislation and regulation developments over the past 20 years are

A

united nations global impact (2000)
global reporting initiative (2000)
task force on climate-related financial disclosure or TCFD (2015)
sustainable development goals (2016)

19
Q

ICAEW, in relation to sustainability, need to:

A

recognise that sustainability is at the core of what they do and analyse how to make the sustainable economy work for business, for clients and the public interest.

move beyond simply measuring and reporting by the impact of climate change etc

20
Q

what 4 areas of assurance does sustainability impact

A

risk management
assurance
governance
sustainability metrics and targets

21
Q

is there a mandatory framework for reporting climate- related risks

A

No. but there is growing support for climate-related financial reporting within financial statements

22
Q

What climate related risks sit within the audit

A

where climate change impacts the entity
auditors need to understand how climate related risks relate to their responsibilities under prof standards
The IAASB published a practice alert which focuses on the implications of climate related risks for audits of financial statements

23
Q

Who is in charge of sustainability related disclosure standards

A

the IFRS established the ISSB to sit alongside the IASB.

they look to provide investors and other capital market participants with information about companies sustainability related risks and opportunites to help them make informed decisions

24
Q

what are the two exposure drafts that have been issued by the ISSB:

A

IFRS S1 general requirements for disclosure of sustainability- related financial info

IFRS 2- climate-related disclosures

25
Q

what are the two exposure drafts that have been issued by the ISSB:

A

IFRS S1 general requirements for disclosure of sustainability- related financial info

IFRS 2- climate-related disclosures

26
Q

what is the Tcfd methodology

A

governance, strategy, risk management, metrics and targets

27
Q

who made recommendations for auditing climate related risks in 2020

A

the Frc

28
Q

What do the largest companies in the UK now have to do

A

report all significant climate related matters using the approach laid down by the TCFD under

governance
strategy
risk management
metrics and targets

since 2013 the companies act 2006 has required listed companies you report on issues relating to sustainability and the environment in both the strategic report and directors report. Uk auditors are then required to give an opinion on whether it is consistent with financial statements

29
Q

what does the strategic report do

A

contain a review of the companys business including risks and key performance indicators

30
Q

what must the directors report include

A

co2 emissions in tonnes

31
Q

do the disclosures in the strategic report need to be subject to independent assurance

A

no. likely to become inevitable though

Assurance (4 decks)

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