Chapter 1 - Reintroduction

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 about the outcome of the evaluation or measurement of a subject matter against criteria

Question 2

What are the 2 levels of assurance and their differences

Answer 2

Reasonable - Higher level, positive opinion/conclusion, more in depth. “T&FV…”
Limited - Lower level, Negative (low confidence) opinion/conclusion, less depth. “Nothing has come to our concern…”

Question 3

Benefits of Assurance (3)

Answer 3

• Enhanced credibility of information
• Reduced risk of management bias, fraud, or error
• Draws attention to deficiencies in information provided

Question 4

What are the requirements that need to be met for a small limited company to be exempt from audit?

Answer 4

2 out of:
- No more than 50 employees
- Turnover not over than £10.2m
- Gross assets not over £5.1m

Question 5

What other companies don’t require audit?

Answer 5

Subsidiary companies don’t require audit if parent company guarantees liabilities

Question 6

What companies require audit?

Answer 6

• plc’s
• Banks
• Insurance Companies
• Where shareholders (who own > 10%), request for audit

Question 7

Objectives of FS audit

Answer 7

• Obtain reasonable assurance about FS being free from misstatement
• Ensure FS are properly prepared in framework
• Report on FS & communicate with those in charge of governance.

Question 8

Benefits of Audit?

Answer 8

• Independent scrutiny by professionals
• Additional Assurance
• Promotes discipline over maintaining accounting records
• Reduces risk of misstatement or non-compliance of regulations
• Reports significant deficiencies of internal controls to those charged with governance

Question 9

Differences in nature of work between Audit and other Assurance

Answer 9

• Audit scope determined by ISAs and Companies Act 2006.
• Other Assurance scope is determined by terms of engagement, & relevant international standards of assurance engagements (ISAE) or review engagements (ISRE)
• Audit is more work

Question 10

Differences between Audit and other Assurance

Answer 10

• Audit is reasonable level of assurance, other assurance are usually limited.
• Audit reports to shareholders, other assurance usually reports to management
• Audit expresses opinions on FS, and some other matters (such as information in reports aligning with FS). Assurance provides a conclusion depending on nature of work.
• Audit is publicly reported, assurance work is likely to be restricted.