CHAP 1:Concept and Need For Assurance Flashcards
Assurance engagement definition
it is when a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended user other than the responsible party about the outcome of the evaluation or measurement a subject matter against the criteria
5 key element of an assurance engagement
1,three people or groups of people involved
The practitioner (accountant)
The intended users
The responsible party (the person(s) who prepared the subject matter)
2, a subject matter.
the subject matter of an assurance engagement may vary considerably, thuong la 3 loai nay
data (financial statements or business projections)
systems or processes (internal control systems or computer systems)
behaviour (social and environmental performance or corporate governance)
3,suitable criteria
The person providing the assurance must have something by which to judge whether the information is reliable and can be trusted. So for example, in an assurance engagement relating to financial statements, the criteria might be accounting standards. The practitioner will be able to test whether the financial statements have been put together in accordance with accounting standards, and if they have, then the practitioner can conclude that there is a degree of assurance that they are reliable.
In the context of company behaviour, suitable criteria to judge whether something is reliable and can be trusted might be the UK Corporate Governance Code, or, if the company has one, its published Code of Practice.
4, sufficient appropriate evidence to support the assurance opinion
The practitioner must substantiate the opinion that he draws in order that the user can have confidence that it is reliable. The practitioner must obtain evidence as to whether the criteria have been met. We will look at the collection of evidence in detail later in this Workbook.
5, a written report in appropriate form
Lastly, it is required that assurance reports are provided to the intended users in a written form and contain certain specified information. This adds to the assurance that the user is being given, as it ensures that key information is being given and that the assurance given is clear and unequivocal.
2 type of assurance engagement
reasonable assurance engagement
limited assurance engagement
Nguồn gốc assurance engagement
from International Framework for Assurance Engagement, issued bới IFAC
IFAC là j
International Federation of Accountants (IFAC), a global organisation for the accountancy profession, which works with its member organisations to protect the public interest by encouraging high quality practices around the world. ICAEW is a member of IFAC.
Định nghĩa 2 type of assurance engagement
Reasonable assurance: A high level of assurance, that is less than absolute assurance, that engagement risk has been reduced to an acceptably low level, which then allows a conclusion to be expressed positively.
Limited assurance: A meaningful level of assurance, that is more than inconsequential but is less than reasonable assurance, that engagement risk has been reduced to an acceptable level, which then allows a conclusion to be expressed negatively.
tại sao lại chia 2 type assurance engagement
do tùy thuộc evidence practioner obtain dk
2 key difference của 2 type assurance engagement
the evidence obtained
the type of opinion given
các vd của assurance engagement dựa vào nature của business
1,local authority audits (audits of local authorities, with specific reporting requirements which differ from the statutory audit)
2,insurance company audits, bank audits, pension scheme audits (audits of often complex companies in a highly-regulated industry)
3,charity audits (charities may be audited under the Companies Act or the Charities Act)
4,solicitors’ audits (audits of firms of solicitors in line with the Solicitors’ Accounts Rules)
5,branch audit (where an overseas company trades in the UK through a branch and requires an audit of that branch although an audit is not required by UK law)
các vd assurance engagement mà các term trong đó phải thỏa thuận giữa người làm báo cáo và practioner
1,value for money studies (for example, in the public sector where auditors may be asked to conclude on whether a service provides value for money)
2,metrics relating to environmental issues (assurance engagements on information given about an organisation’s impact on the natural environment)
3,internal audit
4,circulation reports (for example, for magazines)
5,cost/benefit reports
6,due diligence (where a report is requested on an acquisition target)
7,reviews of specialist business activities
8,reports on website security, such as WebTrust
9,fraud investigations
10,inventories and receivables reports
11,internal control reports
12,reports on business plans or projections
User của assurance engagement? Dựa vô đâu để quyết định user
1,shareholder
2,board of director
3, a subsection of board director( bộ phận phụ)
Dựa vô subject matter
Key benefit của assurance
Indepentdent, Professional verification
5 subsidiary benefits của assurance
1,Although an assurance report may only be addressed to one set of people, it may give additional confidence to other parties in a way that benefits the business. For example, audit reports are addressed to shareholders, but the existence of an unqualified audit report might give the bank more confidence to lend money to that business; in other words, it enhances the credibility of the information.
2,The existence of an independent check might help prevent errors or frauds being made and reduce the risk of management bias. In other words, the fact that an assurance service will be carried out might make people involved in preparing the subject matter more careful in its preparation and reduce the chance of errors arising. Therefore it can be seen that an assurance service may act as a deterrent.
3,In addition, where problems exist within information, the existence of an assurance report draws attention to the deficiencies in that information, so that users know what those deficiencies are.
4,Assurance is also important in more general terms. It helps to ensure that high quality, reliable information exists, leading to effective markets that investors have faith in and trust. It adds to the reputation of organisations and even countries, so that investors are happy to invest in country X because there is a strong culture of assurance provision there.
5,Businesses are keen to be seen as acting responsibly and are increasingly publishing information such as emissions targets or a pledge not to employ children. There is a growing public perception that this is an important area and stakeholders are unlikely to associate with businesses that could damage their reputation. Corporate responsibility or sustainability reports provide assurance for stakeholders that this published information is reliable and accurate.
9 limitation của assurance
1,the fact that testing is used – the auditors do not oversee the process of building the financial statements from start to finish.
2,the fact that the accounting systems on which assurance providers may place a degree of reliance also have inherent limitations (we shall look at control systems and their limitations in Chapter 5).
3,the fact that most audit evidence is persuasive rather than conclusive.
4,the fact that assurance providers would not test every item in the subject matter (this would be prohibitively expensive for the responsible party, so a sampling approach is used – see Chapter 11).
5,the fact that the client’s staff members may collude in fraud that can then be deliberately hidden from the auditor or misrepresent matters to them for the same purpose.
6,the fact that assurance provision can be subjective and professional judgements have to be made (for example, about what aspects of the subject matter are the most important, how much evidence to obtain etc).
7,the fact that assurance providers rely on the responsible party and its staff to provide correct information, which in some cases may be impossible to verify by other means.
8,the fact that some items in the subject matter may be estimates and are therefore uncertain. It is impossible to conclude absolutely that judgemental estimates are correct.
9,the fact that the nature of the assurance report might itself be limiting, as every judgement and conclusion the assurance provider has drawn cannot be included in it.
nguyên nhân của các vấn đề phát sinh trong quá trình cung cấp assurance provision
DO limitation với các restriction inherent ( hạn chế vốn có)
các expectation gap giữa user và provider
1, user không hiểu nature của of limittation on assurance provision, cứ nghĩ service provider cung cấp là correctness 100%
2, user k hiểu sự khác nhau giữa 2 type of assurance engagement
tóm lại là việc provider đang làm với việc user nghĩ provider đang làm là đang bị lệch nhau
Cách close expectation gap
1, issue engagement letter thông báo về limitation của cv
2, thường xuyên reviewing về format, content của report phát sinh trong quá trình làm việc
Objective của audit FS
enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
key outcome của statutory audit
key outcome of the statutory audit is the audit opinion. In the UK, the auditor will normally express their audit opinion by reference to the ‘true and fair view’, which is an expression of reasonable assurance.
