Chapter 1- Intro to A&A

Question 1

Define an assurance engagement

Answer 1

An assurance engagement is one in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.

Question 2

What does any assurance engagement need?

Answer 2

A responsible party
A practitioner
A user of the report
A subject matter
Criteria
Sufficient appropriate evidence to suppor the conclusion
A written report containing a conclusion

Question 3

IFAC (International Federation of Accountants) recognises 2 types of assurance engagements. What are they and define them

Answer 3

Reasonable assurance engagements: Positive expression of opinion. High level of assurance
Limited assurance engagement. Negative assurance and moderate level.

Question 4

Can an assurance engagement ever provide absolute assurance?

Answer 4

No.

Question 5

What are the 3 benefits to users of assurance services?

Answer 5

Enhance credibility of info reported on
Reduces risk of management bias, error and fraud
Draws attention of user to any eficiencies in info being reported on.

Question 6

What are the 3 benefits to the wider share market?

Answer 6

Ensure high quality, reliable info in market
Give investors faith in market
Improve reputation of organisations in the market.

Question 7

What are the key criteria of an assurance engagement and how do they apply to audit?

Answer 7

1) 3 party involvement:
Users (shareholders)
Responsible Party (Board of Directors)
Audit Firm (practitioner)

2) Subject matter (Financial Statements)
3) Relevant Criteria (law and accounting standards)
4) Evidence (Auditor required by ISAs to obtain sufficient and appropriate evidence to support the audit opinion
5) Written report in suitable form (Required by ISA 700 (UK and I). Audit report written report issued in paper form

Question 8

What conditions must companies fulfil to be exempt from audit

Answer 8

Must qualify as a small company under Companies Act 2006 (will already qualify if fulfils other criteria. 3rd: <3.26m

Question 9

Some companies CANNOT gain small company status and therefore must have an audit. What are the 4?

Answer 9

Companies regulated by Financial Services and Markets Act 2000 (FSMA) e.g. banks and FS providers.

Insurance companies

Public companies (PLC)

Company’s that are members of a group including above.

Question 10

What are the benfeits of being audited? And the disadvantages

Answer 10

Independent verification
Enhances value of accounts
Authorities e.g. HMRC have more faith in figures
Credibility
By-products (e.g. fraud deterrent, improvements to company systems)
Reduce risk of management bias
Growing business may need audit one day.

Dis:
Timely
Costly