Chapter 1: Concept of and need for assurance Flashcards
Who is the 3 parties involved?
1) Practitioner- The assurance provider
2) Intended user- e.g. shareholders/ Stakeholders
3) Responsible party- Directors (Client)
What is the subject matter?
E.g. financial statements, other financial data, systems.
What is the suitable criteria?
e.g. Accounting standards UK Corporate Governance Code.
What 2 things must the evidence be?
1) Sufficient
2) Appropriate
What are the 2 levels of assurance?
Limited Assurance
Reasonable Assurance
What is a limited assurance?
- Moderate/ Lower level of assurance
- Conclusion expressed negatively
- e.g. anything other than an audit
What is a reasonable assurance?
- High. but not absolute level of assurance
- Opinion expressed positively
- E.g. audit of financial statements
What is the overall objectives of the auditor?
- To obtain reasonable assurance about whether the financial statements are free from material missstatement, whether due to fraud or error.
- Express an opinion on if the financial statements are in accordance with a applicable financial reporting frameworks.
What is professional scepticism?
A questioning mind, being alert to conditions.
What is professional judgement?
The application of training, knowledge and experience in making informed decisions.
Companies act 2006 exempts small companies from a mandatory audit. What are the criteria for being a small company?
Must satisfy 2/3 of these criterias this and last financial year:
1) Employees- less than 50
2) Turnover- less than £10.2m
3) Total assets- Less than £5.1m
What are the 2 rules an auditor must comply with?
1) Be a member of a Recognised Supervisory Body (RSB)
2) Not a ineligible- officer or employee
What are the benefits of carrying out assurance?
- Added credibility
- Reduces risk of management bias
- Draws attentions to issues
What are the limitations of assurance?
- Sampling- does not review 100% of transactions
- Collusion to defraud
- Financial information includes subjective and judgemental matters
What is the expectation gap?
The gap between what the user thinks the auditor does vs what the auditor actually does.
What is sustainability?
Meeting the needs of present without compromising the ability of future generations to meet their own needs.
What does ESG stand for?
Environmental, social and governance
What is sustainability impacts?
How the business of an organisation positively or negatively affects ESG issues.
What is sustainability dependencies?
ESG issues that can affect the organisations ability to create and maintain value.
What does Environmental, Social and Governance mean?
Environmental- Companies impact on the environment.
Social- Well-being/ impact on society and their stakeholders. e.g. good work environment for employees.
Governance- Implementation of good governance policies from the top down.
Are there any mandatory frameworks for reporting climate-related financial reporting?
No
