Chapter 1

Question 1

what is stewardship?

Answer 1

The practice of managing other person’s property. e.g. Directors

Question 2

What does agent mean?

Answer 2

Who acts on behalf of the principal. In a company, directors are agents of shareholders.

Question 3

What is accountability?

Answer 3

As agents of shareholders directors are accountable. directors show their accountability to shareholders by preparing financial statements.

Question 4

What are the advantages of assurance engagement?

Answer 4

1. it increases credibility of FS.
2. Auditor identifies deficiencies in entity’s
   internal control system
3. It confirms that management is performing its statutory and non- statutory duties.
4. It assists in sale or purchase of business.
5. It assists in grant of loan by bank.

Question 5

What is Assurance Engagement?

Answer 5

An Engagement in which a practitioner obtains evidence about evaluation of a subject matter against suitable criteria and expresses his conclusion to enhance the confidence of intended user.

Question 6

What are the elements of assurance Engagement?

Answer 6

1. Three party relationship (Intended user, responsible party, Practitioner)
2. A subject matter
3. A suitable criteria
4. Evidence
5. Written assurance report

Question 7

What is limited assurance?

Answer 7

Moderate level of assurance.
Expressed in negative of conclusion.
Usually given in review of historical FS.

Question 8

What is Reasonable assurance?

Answer 8

It is high but not absolute.
expressed in positive form of conclusion.
usually given in audit of historical FS.

Question 9

What does Reasonable assurance mean?

Answer 9

Auditor does not certify or guarantee that FS are free from all misstatements. there may still be some undetected misstatements even after the audit due to inherent limitations.

Question 10

Why absolute assurance cannot be provided?

Answer 10

1.Nature of FS (estimates and judgements are involved)
2. management may not provide complete information to auditor
3. Auditor does not have legal power.
4. Fraud involving collusions and complex techniques or involving senior management.
5.Time and cost limitation
6. there are always some inherent limitations in clients internal control system.
7. Company’s staff may not available to answer auditor’s questions.
8. many of the audit procedures are based on auditor’s judgement, which may be faulty.