Chapter 1 - Need for assurance

Question 1

1. What is a statutory audit?
2. What level of assurance (type of engangement) is provided?
3. What does this mean about the work load?
4. What language is used on the report?

Answer 1

1. An audit of financial statments required by law
2. Reasonable (high) → pretty confident but not 100% sure
3. More work → more evidence / tests
4. Possitive langauage → ‘In our opinion’

Question 2

1. What is a non statutory audit?
2. What level of assurance is provided? (type of engagment)
3. What does this mean about the work loan?
4. What language is used on the report?

Answer 2

1. An audit of a non legal requirment (reviews, forecasts)
2. limited (low) → less certain
3. less work → less evidence / tets
4. Negative langauge → ‘ based on our review, nothing has come to our attantion’

Question 3

What 3 parties are involed in statutory audit assignment?

Answer 3

1. Practitioner → auditer
2. Intended user → shareholder or investor
3. Responsible party → client director

Question 4

What is a suitable criteria for assurance?

Answer 4

• Accounting standars
• UK GAAP or IAS

Question 5

What types of engament do the following require?

1. statutory aduits
2. Fraud investigations
3. Due diligence (company takeover)
4. Internal control assesments
5. Review of financial infomation

Answer 5

1. Reasonable
2. Reasonable (big consiquences)
3. Limited → short time span
4. Limited
5. Limited

Question 6

When are comapnies exempt from mandartory audits?

Answer 6

If they have 2 of the following…

• < 50 employees
• Turnover < £10.2m
• Gross asset total < £5.1m

Question 7

What are the limitations of assurance?

(6 marks)

Answer 7

• Sampling → we do not review 1005 of transactions
• Inhert limitations → different softwares
• Evidence is persuasive not conclusive
• Fraud
• Subjective (depressiation / provissions)
• Use of managment representations as evidence may be unaviodable

Question 8

What constitute as subject matter which may be evaluated for assurance engagment?

Answer 8

• Data
• Systems
• Processes
• Corporate policies

Question 9

1. What is a modified audit opinion?
2. What is a unmodified audit opinion?

Answer 9

1. Financial statments that do not ‘give a true and fair view”
2. Financial statments that “give a true and fair view”