Chapter 1 Flashcards
What is an Assurance engagement?
An engagement in which practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the subject matter
What are the main elements of an assurance engagement?
Responsible party Practicioner User of the report Subject matter Criteria Sufficient appropriate evidence to support the conclusion Written report containing a conclusion
What are the three types of assurance engagement and explain them?
Reasonable Assurance engagement
positive expression of opinion and where level of assurance is deemed high
“management has operated an effective system”
Limited Assurance
results negative assurance where level is deemed moderate
“nothing has come to our attention”
Absolute Assurance
can never be given as can’t be 100% sure
What are some benefits of assurance?
Enhances the credibility of the information reported on
Reduces the risk of management bias, error or even fraud on the info being reported on
Draws attention of user to any deficiencies in the information being reported on
Gives credibility to wider share markets; high quality, reliable information circulates market, investors gain added faith, improve reputation of organisations trading in market
What are the overall objectives of independent auditor?
Bonus points name ISA it relates too
Obtain reasonable assurance whether the FS are free from material misstatement, whether due to fraud or error, be enabling auditor to express an opinion on whether FS prepared in all material respects in accordance with applicable financial reporting framework.
Report on FS and communicate as required by ISAs accordance with auditors findings
ISA 200
What are the criteria for being exempt from mandatory audit?
Small companies that satisfy 2/3 of the following;
Company no more than 50 employees
Company turnover doesn’t exceed £10.2 million
Company gross assets total doesn’t exceed £5.1 million
If a company is exempt what must they do/include in the FS?
include a statement
Must carry out an audit even if comes under audit threshold criteria name?
Shareholders own at least 10% of shares ask for one
company is non dormant public company
Company involved in insurance of banking markets
What are the disadvantages relating to audit?
Cost
Staff time required in providing information
Disruption to clients business
Time spent on initial appointment process
Dealing with confidentiality
Expectation gap, particularly surrounding fraud detection
Inherent limitations of audit
What are the main audit procedure?
bonus points name the ISA
Inspection of documentation Inspection of assets Observation External confirmation Recalculation Reperformance Analytical Procedures Inquiry
ISA 500
