Concept and need for assurance Flashcards

1
Q

What is assurance?

A

An assurance firm’s satisfaction of the reliability of an assertion being made by one party for the use of another.

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2
Q

What is an assurance engagement?

A

A practitioner expresses a conclusion designed to enhance the degree of confidence of the other users about the outcome of the evaluation of a subject matter against criteria.

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3
Q

What are the members of a three party relationship?

A

Practitioner - auditors
Intended users - shareholders
Responsible party - directors

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4
Q

What are the key elements of an assurance engagement?

A

Three party relationship
Subject matter
Suitable criteria
Sufficient, appropriate evidence
A written report

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5
Q

What are the 2 types of assurance and evidence/opinion?

A

Reasonable - intrusive, high, positive
Limited - less intrusive, low, negative

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6
Q

Examples of reasonable and limited assurance?

A

bank, pension, charity, solicitors
environmental, due diligence, internal, fraud investigation

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7
Q

What is the objective of a statutory audit?

A

Enable the auditor to express an opinion on the financial statements in all material respects in accordance with an applicable accounting framework

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8
Q

What is a true and fair view?

A

Factual information correctly extracted from the books, free from discrimination and bias in compliance with expected standards

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9
Q

What are the overall objectives of an auditor?

A

To obtain reasonable assurance that the financial statements are free from material misstatements and to report on the financial statements and communicate as required by the ISAs

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10
Q

How are the overall objectives met?

A

Complying with ethical requirements
Professional scepticism
Professional judgement
Find sufficient and appropriate evidence

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11
Q

Benefits of assurance to each party

A

Shareholders - independent and professional verification
Third parties - more confidence to other parties
Board of directors - prevent errors and fraud

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12
Q

What criteria must be met to be exempt from an audit?

A

2/3 of:
Turnover < 10.2 mil
Assets < 5.1 mil
No. of employees < 50

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13
Q

What are the 4 limitations of assurance?

A

Testing and sampling - auditors don’t oversee the process, sampling
Reliance on controls - staff collude in fraud
Nature of FS - persuasive not conclusive, estimates
Quality of judgements - subjective and professional judgements can be uncertain

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14
Q

What are some gaps in expectation?

A

Do not understand opinion
Think they just find fraud
Not aware of limitations

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15
Q

How to reduce the expectation gap?

A

engagement letter saying what will be done and its limitations, regularly reviewing format and content of reports

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16
Q

What is sustainability?

A

Meeting the needs of the present without compromising the ability of the future generation meeting their own needs

17
Q

How are we increasing awareness of sustainability?

A

Environmental footprint
Social - wellbeing
Governance

18
Q

ICAEW sustainability impacts?

A

risk management, assurance, governance, metrics and targets

19
Q

Where is guidance rapidly increasing?

A

Developments by ISSB
Publications of papers
Required company reporting