Chapter 1 - Reintroduction to Audit & Assurance

Question 1

assurance engagement?

Answer 1

when a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party

Question 2

two types of assurance?

Answer 2

reasonable assurance
limited assurance

Question 3

reasonable assurance characteristics

Answer 3

• high level of assurance
• positive opinion
• e.g., audit of FSs

Question 4

limited assurance characteristics

Answer 4

• moderate level of assurance
• negative opinion
• e.g., review of forecasts

Question 5

does a higher level of assurance require more evidence?

Answer 5

yes

Question 6

can absolute assurance ever be guaranteed?

Answer 6

no

Question 7

should the independent practitioner be objective when giving an opinion?

Answer 7

yes

Question 8

benefits of assurance from an independent practitioner?

Answer 8

• enhanced credibility of information
• reduced risk of management bias, error or fraud
• draws attention to any deficiencies

Question 9

what governs external audits?

Answer 9

ISAs

international standards on auditing

Question 10

ISA 200?

Answer 10

sets out the overall objectives of the auditor when conducting an audit of FSs

Question 11

which ISA sets out the objectives of the auditor when conducting audits of FSs?

Answer 11

ISA 200

Question 12

3 objectives of auditor when conducting audits of FSs?

Answer 12

• to obtain reasonable assurance about whether they’re free from material misstatement
• to obtain assurance they were prepared in accordance with an applicable FR framework
• to report on the FSs and communicate with those charged with governance

set out in ISA 200

Question 13

audit threshold?

Answer 13

companies act 2006 says PLCs don’t have to do an audit if they meet 2/3 of the following:

• no more than 50 employees
• turnover not exceeding £10.2m
• total assets don’t exceed £5.1m

Question 14

subsidiary companies don’t require an audit when…

Answer 14

when their parent companies guarantee their liabilities

Question 15

companies taking advantage of the ‘audit exemption’ must…

Answer 15

must include a statement to that effect in the FSs

Question 16

which companies must have an audit even if they meet the criteria for exemption?

Answer 16

• insurance companies
• banks
• PLCs
• when a shareholder owning at least 10% asks for an audit

Question 17

audit exemption

Answer 17

when companies don’t need to do an audit because they’re below the threshold of:

• 50 employees
• £10.2m turnover
• £5.1m total assets

Question 18

why is an audit of value/benefit to management?

Answer 18

• it provides independent scrutiny of the business by professionals
• additional assurance may be required for 3rd parties
• promotes discipline over maintaining accounting risk - reducing risk of misstatement/non-compliance

Question 19

difference in nature of work between statutory audits and other assurance engagements?

Answer 19

statutory audit:
- scope is determined by companies act 2006 and ISAs (e.g., inspection, observation, reperformance, APs etc)

other assurance:
- scope is determined by terms of engagement & ISAEs or ISREs (e.g., inquiry written representations)
- less work than audit

Question 20

ISAEs?

ISREs?

Answer 20

ISAEs = international standards on assurance engagements

ISREs = international standards on review engagements

Question 21

statutory audit vs other assurance engagement level of assurance differences?

Answer 21

statutory audit = reasonable level of assurance

other assurance engagements = usually limited level of assurance

Question 22

statutory audits report to…
other assurance engagements report to…

Answer 22

statutory = shareholders

other = usually management

Question 23

statutory audits/other assurance report on…

Answer 23

statutory audits = express an opinion on FSs and certain other matters

other = report a conclusion depending on the nature of the work performed

Question 24

circulation of report for statutory audits and other assurance engagements?

Answer 24

statutory audits = in the public domain once FSs are filed

other = likely to be restricted in-house