Chapter 1 Flashcards
report provided: factual findings of procedures
agreed-upon procedures
greater the risk, the _ quantity of evidence required
greater
criteria are made available to intended users in ff. ways
- publicly
- inclusions in clear manner in presentation of SMI
- inclusions in a clear manner in assurance report
- general understanding
an AE wherein the evidence supports a moderate level of assurance that the information subject to review is free of material misstatement.
review
assurance engagements from the perspective of what forms assurance engagement can take then we get
attestation or assertion-based engagements
and direct reporting engagements.
is the information that results from applying the criteria to the subject matter.
The outcome of the evaluation or measurement of a subject matter,
the risk that the practitioner will not detect material misstatements that exists.
detection risk
The practitioner provides a written report containing a conclusion that conveys the
assurance obtained about the subject matter information.
written assurance report
positive form
in our opinion, internal control is effective, in all material respects, based on XYZ criteria
measure of quality of evidence (reliability and relevance)
appropriateness
affected by the effectiveness of the procedures conducted by the auditor to gather evidence.
detection risk
audit within company. independent, objective assurance and consulting activity designed to add value and improve an organization’s operations
internal audit
in limited assurance engagement, the practitioner expresses the conclusion in
negative form
ELEMENTS OF AN ASSURANCE ENGAGEMENT:
A. Three party relationship involving:
- A practitioner
- A responsible party, and
- Intended users
B. Appropriate subject matter
C. Suitable criteria
D. Sufficient appropriate evidence
E. Written assurance report (in the form appropriate to a reasonable AE or limited AE)
negative form
based on our works described in this report, nothing has come to our attention that causes us to believe that internal control is not effective, in all material respects, based on XYZ criteria.
There are two types of assurance engagement a practitioner is permitted to perform:
A reasonable assurance engagement and
A limited assurance engagement.
report provided: negative assurance on assertions
review
an auditor is engaged to carry out those procedures of an audit nature to which the auditor and entity and any appropriate third parties have agreed
agreed upon procedures
types of assertions
- internal control assertions
- financial statements assertions
Aims to reduce the AE risk to a level that is acceptable
in the circumstances of the engagement. That risk is greater than for a reasonable AE as a
basis for expressing a negative form of conclusion.
Limited assurance engagement
absolute assurance is not attainable because:
- need for judgement
- use of testing (time-consuming and costly)
- inherent limitations of any accounting and internal control systems
- most evidence available to auditor is persuasive rather than conclusive in nature
report provided: identification of information compiled
compilation
the degree or level of assurance we get
two types
reasonable assurance engagements and limited assurance engagements.
government audit includes
- financial and compliance audit
- economy and efficiency audit
- program results
____ presents a framework for auditing and related services
PSA 120 (Philippine Standard on Auditing)
provide accounting services to small clients with limited accounting staff
accounting and data processing or information technology system services
Person who provides the assurance to the intended users about a subject matter that is the
responsibility of another party.
practitioner
the susceptibility or tendency of a subject matter information to a material misstatement, assuming there are no related controls
inherent risk
are two types of assurance engagements based on who is performing the evaluation:
- Assertion-based engagements (or attestation engagements)
- Direct reporting engagements
non-assurance engagements examples
- agreed upon procedures
- compilation of financial and other information
- tax services
- management consulting/advisory services
- accounting and data processing or information technology system services
the evaluation or measurement of the subject matter is performed by the responsible party, and the subject
matter information is in the form of an assertion by the responsible party that is made available to the intended users. Ex. Independent financial statements audit.
Assertion-based engagements (or attestation engagements)
phrases used to express the auditor’s opinion
- give a true and fair view
- present fairly in all material aspects
employs the practitioner’s technical skills, education, observations, experiences, and knowledge of the analytical approach and procedures used
management consulting/advisory services
Refers to the auditor’s satisfaction as to the reliability of an assertion made by one party for the use of another party.
ASSURANCE
Aims to reduce the AE risk to an acceptably low
level in the circumstances of the engagement, as a basis for expressing a positive form of
conclusion.
Reasonable assurance engagement
audits of parts or components or other based on other criteria or basis
special audits
the higher the quality, the _ quantity required
less
To provide such assurance, the auditor assesses the ______- as a result of procedures conducted, and expresses a
conclusion.
evidence
collected
Is the risk that the practitioner expresses an inappropriate conclusion when the subject
matter information is materially misstated.
4.Assurance Engagement (AE) Risk
report provided: positive assurance on assertions
audit
the outcome of the measurement or evaluation.
Subject Matter Information
the risk that a material misstatement that could occur will not be prevented, or detected and corrected, on a timely basis by related internal controls.
Control Risk
it has broader scope than external audit. scope includes
- efficiency and effectiveness of operations
- reliability of financial reporting
- safegaurding of assets
- compliance with laws and regulations
means an engagement, in which a practitioner expresses a conclusion, designed to enhance the degree of confidence of the intended users, other than the responsible party, about the outcome of the evaluation or measurement of a subject matter, against criteria.
Assurance Engagement
measure of quantity of evidence
sufficieny
evidence is more reliable if:
- obtained from independent sources outside the entity
- when controls are inplace for internally generated evidence
- obtained directly by the practitioner, rather than through inquiry
- when it exists in documentary form in paper, electronic or other media
- original documents, rather than photocopies
assurance engagements examples
- audits
- reviews
- other assurance services
an appropriate subject matter is:
- identifiable and capable of consistent evaluation or measurement against identified criteria.
- can be subjected to procedures for gathering sufficient appropriate evidence to support a reasonable (high, not absolute) assurance or limited (moderate) assurance conclusion
audit of government receipts and disbursements
government audit
objective: to assist all members of management in the effective discharge of their responsibilities by furnishin them with analyses, appraisals, recommendations, and pertinent comments concerning activities reviewed.
internal audit
CPA renders 2 kinds of tax services
- tax compliance
- tax planning
one party who makes an assertion about a subject matter
Responsible party
Is considered in the context of quantitative and qualitative factors:
materiality
Representations by management, explicit or otherwise, that are embodied in the financial statements or processes.
ASSERTION
Criteria are the benchmarks used to evaluate or measure the subject matter.
- relevance
- completeness
- reliability
- understandability
- neutrality
another party who will use or rely on the assurance provided by the practitioner about the reliability of the subject matter.
Intended users
the practitioner either directly performs the evaluation or measurement of the subject matter, or obtains a representation from the responsible party that has performed the evaluation or measurement that is not available to the intended users. The subject matter information is provided to the intended users in the assurance report.
Direct reporting engagements
Recognize that circumstances may exist that causes the subject matter to be materially
misstated.
professional skepticism
internal audit includes
- operational audit
- management audit
- financial audit
Two Main Categories of Services
- assurance engagement
- non-assurance engagement
– is measurable. It is the one being measured or evaluated.
subject matter
an assurance engagement to provide high level of assurance that the FS are free from material mistatement
Independent Financial Statement Audit (external audit)
ingredients needed for sufficient appropriate evidence
- professional skepticism
- sufficieny and appropriateness
- materiality
- assurance engagement risk
in reasonable assurance engagement, the practitioner expresses the conclusion in
positive form
Components of AE risk:
- inherent risk
- control risk
- detection risk
combined level of inherent and control risk are low
higher detection risk
accountant is engaged to use accounting expertise as opposed to auditing experties to collect, classify and summarize financial information.
Compilation fo Financial and other information
