Chapter 1 - introduction to audit and assurance

Question 1

What is an assurance engagement?

Answer 1

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 of measurement of a subject matter against suitable criteria

Question 2

Reasonable level of assurance

Answer 2

• high assurance level
• positive conclusion
• example: audit of financial statements

Question 3

Limited level of assurance

Answer 3

• moderate level of assurance
• negative conclusion
• example: review of financial information

Question 4

Benefits of assurance

Answer 4

• enhanced credibility of information
• reduced risk of management bias
• draws attention to any deficiencies within the information being reported on

Question 5

Overall objectives of the auditor when conducting an audit of the financial statements:

Answer 5

• to obtain reasonable assurance about whether the financial statements are free from material misstatement and properly prepared in accordance with an applicable financial reporting framework
• to report on the financial statements and to communicate with those charged with governance

Question 6

Audit threshold

Answer 6

Companies act 2006 exempts small private limited companies from a mandatory audit if it satisfies two out of the three following criteria:
- no more than 50 employees
- turnover does no exceed £10.2 million
- gross assets total does not exceed £5.1 million

subsidiary companies do not require an audit if their parent companies guarantee their liabilities

some companies like banks, insurance companies and where shareholders owing at least 10% of the shares ask for an audit

Question 7

Benefits of an audit

Answer 7

• provides independent scrutiny of business by professionals
• additional assurance may be required for third parties eg banks
• it promotes discipline over maintaining accounting records, reducing the risk of misstatement or non compliance with statutory responsibilities
• audits provide additional benefits such as reports to those charged with governance on significant deficiencies in internal control

Question 8

stages of an engagement

Answer 8

1. Acceptance
2. Planning
3. Evidence
4. Conclusion & reporting