Chapter 1 Flashcards
T or F
assurance engagements require independence on the part of the auditor
T
T or F
Assurance refers to the responsible party’s satisfaction as to the reliability of an assertion being made by one party for use by another party
F(Assurance refers to the practitioner’s satisfaction)
The degree of satisfaction achieved(the level of assurance which may be provided) is directly related to the scope of procedures performed by their results.
T or F
T
Assurance services are ________ contracts.
3 party
Users of financial statements
investors
creditors
government
customers
employees
why investors, creditors, government, customers and employees needs financial statements?
*To know whether to buy, hold, or sell shares of a company
*To approve loans applies for by a debtor or borrower
* to amend or retain the taxation rules and regulations currently in force
* whether to continue doing business with the company, or to find another supplier
* whether to demand a salary increase; whether to stay with the company, or to go looking for another job
Elements of assurance engagement:
- A 3 party relationship involving a practitioner (CPA), a responsible party and intended users
- An appropriate subject matter
- Suitable criteria
- Sufficient appropriate evidence
- A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement.
3SECC para masaulo
- All of this elements must be present in an engagement for the engagement to be classified as an assurance engagement
3 separate parties involve in assurance engagement
practitioner (auditor)
responsible party
intended users
who’s responsible for the subject matter or the subject matter information in an assurance engagement
May or may not be the party who engages the practitioner (the engaging party)
Provides the practitioner with a written representation that evaluates or measures the subject matter against the identified criteria, whether or not it is to be made available as an assertion to the intended users
responsible party
Who are the person, persons or class of persons whom the practitioner prepares the assurance report?
Intended users
Assurance engagements performed by CPAs are intended to enhance the ______ about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria.
credibility of information
Criteria are the benchmarks used to evaluate or measure the subject matter including, where relevant, benchmarks for presentation and disclosure.
Required for reasonably consistent evaluation or measurement of a subject matter within the context of professional judgment.
The evaluation or measurement of a subject matter merely on the basis of the practitioner’s own expectations, judgments and individual experience would not constitute suitable criteria.
Suitable Criteria
Criteria are the _______ used to evaluate or measure the subject matter including, where relevant, benchmarks for presentation and disclosure.
benchmarks
Applicable criteria for: Audit on internal control
Established internal control framework or individual control objectives specifically designed for the engagement COS
Applicable criteria for: compliance audits
applicable law, regulation or contract
Characteristics of suitable criteria
Relevance
Completeness
Reliability
Neutrality
Understandability
_________ are those embodied in laws or regulations, or issued by authorized or recognized bodies of experts that follow a transparent due process.
Established criteria
__________ are those designed for the purpose of the engagement.
Specifically developed criteria
The ability in recognizing that circumstances may exist that cause the subject matter information to be materially misstated.
The professional makes a critical assessment, with a questioning mind, of the validity of evidence obtained and is alert to evidence that contradicts or brings into question the reliability of documents or representations by the responsible party.
Professional Skepticism
Attitude of being alert to:
Evidence that is inconsistent with other evidence obtained;
Information that calls into question the reliability of documents and responses to inquiries to be used as evidence;
Circumstances that suggest the need for procedures in addition to those required by relevant Assurance Standards; and
Conditions that may indicate likely misstatement
Professional Skepticism
Evidence is more reliable when obtained from ________sources.
independent
Evidence generated internally is more reliable when controls are _______.
effective
Evidence ________ by practitioner is more reliable than evidence obtained indirectly or by inference.
obtained directly
Evidence is more reliable when it exists in _________form, whether paper, electronic, or other media
documentary
Evidence provided by ________ is more reliable than evidence provided by photocopies or facsimiles.
original documents
Risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated.
The more extensive the evidence gathering procedures, the lower the chances of an inappropriate conclusion.
Assurance Engagement Risk
The objective is the reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement as the basis for a positive form of expression of the practitioner’s conclusion.
Reasonable Assurance Engagement
The objective is the reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement, but where that risk is greater than for a reasonable assurance engagement, as the basis for a negative form of expression of the practitioner’s conclusion.
Limited Assurance Engagement
Form used in a reasonable assurance engagement.
Form used in a limited assurance engagement.
positive
negative
Styles of Reporting
Short-form
Ordinarily include the basic elements
Long-form
Include other information and explanations that are not intended to affect the practitioner’s conclusion.
The measurer or evaluator, who is not the practitioner, measures or evaluates the underlying subject matter against the criteria, the outcome of which is the subject matter information.
The role of the practitioner is to obtain sufficient appropriate evidence in order to express a conclusion about whether the subject matter information is free from material misstatement.
Attestation Engagement
The practitioner either directly performs the evaluation or measurement of the subject matter against the criteria and presents the resulting subject matter information as part of , or accompanying the assurance report.
Direct Engagement
An engagement in which a practitioner is engaged to issue, or does issue, a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party
Attestation Engagements
Attestation Engagements
Provides a reasonable level of assurance that the subject matter is free of material misstatement
Independent Audit Engagement
Attestation Engagements
Involves a limited investigation of much narrower scope than an audit and undertaken for the purpose of providing limited assurance that the subject matter is presented in accordance with identified suitable criteria.
Review Engagement
Provides assurance about whether financial and non-financial information being reported from the entity’s performance measurement system is reliable and whether the performance measures are being used are accurately leading the entity toward meeting its strategic goals and objectives.
Business Performance Measurement
Involves the evaluation of the quality of health care, medical services and outcome. It looks into the health care delivery system, the medical services provided and quality attributes associated with those services
Health Care Performance Measurement
Evaluation designed to provide assurance to the elderly and their relatives about the quality of care being provided by various care givers by comparing their specific objectives in providing care with actual services rendered.
Elder Care Plus
Identifies a set of risks that affect the organization. Studies also the link between risks and organization’s vision, mission, objectives and strategies and development of new and relevant measures to address these risks
Risk Assessment Services
is a seal of assurance service developed jointly by AICPA and CICA. Enables consumers and businesses to purchase goods and services over the Internet with the confidence that the Web site business meet the high standards of business practice as set forth in the CPA WebTrust Principles and Criteria
CPA Web Trust
Involves evaluating whether financial and non-financial information systems provide reliable information for operating and financial decisions by an entity’s management.
Information Systems Reliability
Auditor is engaged to carry out only agreed procedures. Recipients of the report must form their own conclusions
Non-Assurance Services
Agreed-upon procedures
Accountant uses accounting expertise to classify and summarize financial information. No assurance is expressed
Non-Assurance Services
Compilation of Financial or Other Information
such as preparation of tax returns where no conclusion is expressed, and tax consulting
Non-Assurance Services
Some tax services
Refers to helping organizations improve their performance, primarily through the thorough analysis of existing business problems and development of plans for improvement.
Non-Assurance Services
Management consulting and other advisory services
