Chapter 1: Concept of and need for assurance

Question 1

Who is the 3 parties involved?

Answer 1

1) Practitioner- The assurance provider
2) Intended user- e.g. shareholders/ Stakeholders
3) Responsible party- Directors (Client)

Question 2

What is the subject matter?

Answer 2

E.g. financial statements, other financial data, systems.

Question 3

What is the suitable criteria?

Answer 3

e.g. Accounting standards UK Corporate Governance Code.

Question 4

What 2 things must the evidence be?

Answer 4

1) Sufficient
2) Appropriate

Question 5

What are the 2 levels of assurance?

Answer 5

Limited Assurance
Reasonable Assurance

Question 6

What is a limited assurance?

Answer 6

• Moderate/ Lower level of assurance
• Conclusion expressed negatively
• e.g. anything other than an audit

Question 7

What is a reasonable assurance?

Answer 7

• High. but not absolute level of assurance
• Opinion expressed positively
• E.g. audit of financial statements

Question 8

What is the overall objectives of the auditor?

Answer 8

• 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.

Question 9

What is professional scepticism?

Answer 9

A questioning mind, being alert to conditions.

Question 10

What is professional judgement?

Answer 10

The application of training, knowledge and experience in making informed decisions.

Question 11

Companies act 2006 exempts small companies from a mandatory audit. What are the criteria for being a small company?

Answer 11

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

Question 12

What are the 2 rules an auditor must comply with?

Answer 12

1) Be a member of a Recognised Supervisory Body (RSB)
2) Not a ineligible- officer or employee

Question 13

What are the benefits of carrying out assurance?

Answer 13

• Added credibility
• Reduces risk of management bias
• Draws attentions to issues

Question 14

What are the limitations of assurance?

Answer 14

• Sampling- does not review 100% of transactions
• Collusion to defraud
• Financial information includes subjective and judgemental matters

Question 15

What is the expectation gap?

Answer 15

The gap between what the user thinks the auditor does vs what the auditor actually does.

Question 16

What is sustainability?

Answer 16

Meeting the needs of present without compromising the ability of future generations to meet their own needs.

Question 17

What does ESG stand for?

Answer 17

Environmental, social and governance

Question 18

What is sustainability impacts?

Answer 18

How the business of an organisation positively or negatively affects ESG issues.

Question 19

What is sustainability dependencies?

Answer 19

ESG issues that can affect the organisations ability to create and maintain value.

Question 20

What does Environmental, Social and Governance mean?

Answer 20

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.

Question 21

Are there any mandatory frameworks for reporting climate-related financial reporting?

Answer 21

No