Engagement

Question 1

Define the term ‘External Audit’

Answer 1

• External audit is carried out by external auditors
• Are independent of the company
• Provide personal opinion on company’s financial statements in all material respects

Question 2

Name the 5 elements of an assurance engagement

Answer 2

Criteria- suitable criteria
Report - an assurance report
Evidence
Subject matter
Three party relationship

Question 3

Explain the differences between an AUDIT REPORT and a REVIEW REPORT in term of work done.
-Start with AUDIT REPORT

Answer 3

Work done:

• an audit financial statements must be carried out in accordance with international standards
• which establish best professional practice
• and set out principles in terms of the nature and quantity of evidence required.

Question 4

Explain the difference between an audit report and a review report in term of level of assurance
-Start with AUDIT REPORT

Answer 4

• Auditor can never be absolute.

- So reasonable assurance is the highest level of assurance that can reasonably be expected.

Question 5

Explain the differences between an audit report and a review report in term of wording
-Start with AUDIT REPORT

Answer 5

An audit opinion is expressed positively, that is: ‘In our opinion the financial statements give a true and fair view…’ This form of wording is known as ‘positive assurance’

Question 6

Explain the difference between an AUDIT REPORT and a REVIEW REPORT in term of work done.
-Start with REVIEW REPORT

Answer 6

• There is an international standard on review engagements
• Which establishes that normally a review will involve analytical procedures (e.g yr on yr comparison and ratio analyses) and enquiries in client staff.

Question 7

Explain the difference between an audit report and a review report in term of level of assurance
-Start with REVIEW REPORT

Answer 7

As lower level of evidence is obtained, the assurance profession is less confident of their opinion and hence can only give a lower level of assurance

Question 8

Explain the differences between an audit report and a review report in term of wording
-Start with REVIEW REPORT

Answer 8

In a review opinion, the wording would be ‘nothing has come to our attention, based on our review that leads us to believe that the financial statements do not give a true and fair view…’ This form of wording is known as ‘negative assurance’