Chapter 1 - Concept and need Flashcards
What is assurance?
Assurance firm’s satisfaction as to the reliability of an assertion being made by one party for the use of another party
What is assurance engagement?
practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party
What are the key elements of assurance engagement?
- 3 party relationship
- Subject matter
- Sufficient appropriate evidence to support assurance opinion
- Suitable criteria
- Written report providing an opinion on the subject matter
What are the 3 parties involved in a 3 party relationaship?
Practitioner
Intended users
Responsible party
What are the 2 types of assurance engagement?
Reasonable and Limited
What is reasonable assurance engagement?
- Gives a positive opinion
- Sufficient and appropriate evidence
What is limited assurance engagement?
- Gives a negative conclusion
- Sufficient and appropriate evidence (less intrusive)
Is it practical to give absolute assurance?
No
What is the key example of an assurance engagement in the UK?
Statutory audit
What are other examples of audits required by regulators?
Bank
Pension scheme
Charity
Solicitors
What are examples of voluntary engagements?
Environmental
Fraud
Internal
Due dilligence
What is the objective of an audit of financial statements?
To deem whether statements have been prepared in accordance with framework
What is meant by true and fair?
True - info is factual
Fair - info is free from bias
What does the 2006 companies act require?
Auditors and members of a RSB, e.g. ICAEW
What is the RSB responsible for ensuring?
- Only Individuals holding an appropriate qualification or Firms controlled by qualified persons can conduct audits
- Those individuals or firms are monitored on a regular basis
Who monitors the accounting profession in the UK?
FRC through its codes and standards committee
What does the ISA 200 state as the objective of independent auditors?
- Obtain reasonable assurance
- Report on financial statements
What are the stages of an audit?
- Obtain engagement
- Planning
- Performance
- Review and completion
- Reporting
Who are the primary users of an audit?
Shareholders
What are the benefits of assurance?
Shareholders - verification
3rd party - confidence
Directors - prevent errors/fraud and reduce risk
How is a small company identified?
2/3 of:
- Max turnover 10.2 mil
- Max total assets 5.1 mil
- <50 employees
What are the limitations of assurance?
Testing and sampling
Reliance on controls
Nature of financial statements
Quality of auditor judgments
What is the expectations gap?
Difference between what users think the auditor does and what the auditor actually does
In assurance, what does the ICAEW say sustainability can be impacted by?
Risk management
Assurance
Governance
Sustainability metrics and targets
What are the current developments regarding sustainability?
ISSB (sit alongside IASB)
FRC climate thematic audit
IAASB
What level of assurance is given on a statutory audit?
Reasonable
What level of assurance is given on a review of financial info?
Limited
What level of assurance is given on a report on profit and cash flow forecasts?
Limited
