Concept and need for assurance Flashcards
What is an assurance engagement?
It is when 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.
What are the five key elements of an assurance engagement?
- Three people or groups of people involved:
– The practitioner (accountant)
– The intended users
– The responsible party (the person(s) who prepared the subject matter) - A subject matter
– Data
– Systems or processes
– Behaviour - Suitable criteria
- Sufficient appropriate evidence to support the assurance opinion
- A written report in appropriate form
What are the two types of assurance engagements?
- Reasonable assurance engagement
- Limited Assurance engagement
What is meant by reasonable assurance
A high level of assurance, that is less than absolute assurance, that engagement risk has been reduced to an acceptably low level, which then allows a conclusion to be expressed positively.
What is meant by limited assurance?
A meaningful level of assurance, that is more than inconsequential but is less than reasonable assurance, that engagement risk has been reduced to an acceptable level, which then allows a conclusion to be expressed negatively.
What is the evidence sought and conclusion given with regards to reasonable assurance?
Evidence sought - Sufficient and appropriate
Conclusion given - positively worded
What is the evidence sought and conclusion given with regards to limited assurance?
Evidence sought - Sufficient and appropriate (lower level)
Conclusion given - negatively worded
What is meant by the expectations gap?
it is this lack of understanding which constitutes the expectations gap – meaning that there is a gap between what the assurance provider understands he is doing and what the user of the information believes he is doing.
What is meant by audit of financial statements?
The objective is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an
applicable financial reporting framework.
What is the criteria that is used to determine whether a company is exempt from having an audit in the UK?
A company must meet two of three of the following criteria, for both this financial year and the last financial year:
– Turnover < £10.2m
– Total assets < £5.1m
– Number of employees < 50
What are the benefits of assurance?
Independent, professional opinion
Added confidence to other users
Deterrent to error/fraud
Higher quality of information
What are six limitations of assurance?
Subjective
Sampled
Limitations of systems
Information from third parties
Limitations of reporting
Includes estimates
what are some examples of assurance engagements?
- Statutory audit
- Fraud investigations
- Due diligence
- Internal controls assessment
- Business plan/projection reviews
- Environmental audits
In the UK, audits are governed by:
- Companies Act 2006
- Internal Standards on Auditing (ISAs)
Professional scepticism
attitude that includes a questioning mind, being alert to conditions, which may indicate possible misstatement due to error and fraud, and a critical assessment of audit evidence
