Fundamentals of Assurance Services Flashcards
Definition
means an ENGAGEMENT in which a practitionaer EXEPRESSES a conclusion designed to enhance the DEGREE of confidence of the intended users other than the responsble party about the outcome of the evaluation or measurement of a subject matter against criteria.
ASSURANCE ENGAGEMENT
Definition
refers to the practitioner’s satisfaction as to the reliability of an assertion being made by one party use by another party.
Assurance
Definition
Objective of Assurance Services
Practitioner to evaluate or measure subject matter that is the responsibility of another party against suitable critera and EXPRESS a CONCLUSION that provides the intended user with a level assurance about the subject matter.
If the practitioner failed to attain the objective of an assurance service, or to express an opinion.
Engagement Failure
Classifications of Assurance Services
Enumeration
Assurance Services
Non Assurance Services
What is the output of Assurance Services?
Assurance in the form of an opinion
What is the output of Assurance Services?
Assurance in the form of an opinion
What is the output of Non- Assurance Services?
Recommendation on how to use the information
How many parties are there in assurance services?
3 party relationship
How many parties are there in Non-Assurance engagement
2 parties
Assurance service should be provided by an independent professional
TRUE
Examples of Assurance engagement
- Audit
- Review
- Examination of prospective financial information
Audit and Review focuses on
Historical FInancial Information
A greater scope of audit and review, it focuses on historical and prospective financial information
Due Diligence Engagement
Due Diligence can be
Audit, Review and Combinatiom, Assurance and Non Assurance
Non-Assurance Services Examples
No conclusion express
- Agreed-upon procedures
- Compilation
- preparation of tax returns
- management advisory services
Elements of Assurance Engagement
What are the elements of Assurance engagements
3SECC
- 3 party relationship
- Subject Matter
- Evidence
- Criteria
- Conclusion
Elements of Assurance Engagement
What are the three parties
- Practitioner
- Responsible Party
- Intended users
Broader than term auditor, Independent, Governed by Ethical requirements, may use the work of experts, responsible for determiing the Nature, Timing or Extent.
The practitioner
The person responsible to the subject matter, subject matter or both, may or may not be the engaging party to the practitioner, may or may not be from the same organization with the intended users, may be one of the intended users.
The responsible party
Are the person/s for whom the practitioner prepares the assurance report
In case of broad range of interests by the readers of assurance report, intended user may be limited to major stockholders with significant and common interests
Intended users.
Is the nature of the assertion the practitioner gathers sufficient evidence.
Main representation, main claim.
Subject Matter
Pertains to the OUTCOME of the evaluation or measurement of the subject matter.
refers to the data, statements, or assertions that are the focus of examination and evaluation by auditors. It typically includes financial information and other relevant data related to the financial statements of an organization.
Subject Matter Information
1.________________ refers to the general topic or area of study, investigation, or discussion. It represents the broad subject or content that is being considered or explored.
On the other hand, 2. ____________ refers specifically to the detailed content, data, facts, and assertions that are the focus of examination, evaluation, or analysis within a particular subject matter.
- Subject Matter
- Subject Matter Information
Characteristics of Subject Matter to be appropriate.
- Identifiable
- Subjected to gather sufficient Evidence
In the form of Financial performance or conditions, what is the subject matter and subject matter information?
Subject Matter: historical or prospective Financial Position, FInancial Performance and cash flows
Subject Matter Information:
Recognition
Measurement
Presentation
Disclosure represented in F.S
In the form of Non-Financial performance or conditions , what is the subject matter and subject matter information?
Subject matter: performance of an entity
**Subject matter information: **
key indicators of efficiency and effectiveness
In the form of Physical characteristics , what is the subject matter and subject matter information?
Subject matter: capacity of a facility
Subject matter information: Specification of document
In the form of Systems and processes, what is the subject matter and subject matter information?
Subject matter: entity’s internal control
Subject matter information: specifications document
Benchmarks used to evaluate or measure the subject matter including, where relevant benchmarks for presentation and disclosure.
Criteria
A criteria should be formal only
TRUE OR FALSE
FALSE, a criteria may be
Formal, Less Formal, Established and specifically developed.
Characteristics of a suitable critera
- Completeness
- Understandability
- Relevance
- Reliability
- Neutrality
CURRN
Criteria need to be available to the intended user to?
Allow them understand how the subject matter has been evaluated or measuresd.
How are criteria be made available to intended users?
- Publicly
- Through inclusion in the presentation
- Through inclusion in the assurance report
- By general understanding
Pertains to all information gathered by practitioner in evaluatingthe subject matter against criteria, on which conclusion is based.
Evidence
It is the measure of of the quantity of evidence
Suffiency
It is the measure of quality of evidence, that is, relevance and it;s reliability
Appropriateness
Higher Quality, ____ evidence may be required.
Less
Lower Quality, __________ evidence .
obtaining more evidence may not compensate for it’s poor quality. Find other evidence.
Sufficiency and Appropriateness are
Interrelated
Higher quality, less evidence
Lower quality, more evidence
FALSE, lower quality does not mean more evidemce. we just need other evidence.
Sufficient Appropriate evidence
Consideration when planning and performing engagement (Nature, Timing, and extent)
Skepticism
Evidence
Risk
Materiality
Cost- benefit Consideration
SERMC
The practitioner plans and performs an assurance engagement with a questioning mind attitude, recognizing that circumstances may exist that cause the subject matter information to be materially misstated.
Skeptism
“Professional Skeptism”
Two characteristics must be possessed by the evidence to be gathered in an assurance engagement.
Sufficient and Approporiate
Is the risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated.
RIsk
Assurance engagement risk
When basing on materiality, Lower amount of materiality leads to ________ evidence
More
________ is relevant when the practitioner determines the nature , timing and extent of evidence-gathering procedures, and when assessing whether subject matter information is free from misstatement.
Materiality
In performing evidence-gathering procedures, the practitioner is expected to observe _________________ .
“the benefits that will be dervied from obtaining the evidence should exceed the cost of obtaining it”
Cost-benefit consideration.
If the Subject matter information provided by the responsible partner is misstated, and we gave an unmodified/ unqualified opinion. What is it called?
Assurance Engagement Risk
Evidence is more reliable when it is obtained from independent sources OUTSIDE the entity
True or False
TRUE
Evidence that is generated internally is more reliable when the related controls are effective.
TRUE
Evidence obtained by a practitionaer is more reliable than evidence obtained indirectly or by interference.
TRUE
Evidence provided by photocopies or fascimiles is more reliable than provided by original documents.
FALSE
What are the four types of opinion
- Unqualified/ Unmodified opinion
- Qualified opinion
- Adverse opinion
- Disclaimer of opinion
________ opinion is issued when the auditor determines that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework (e.g., Generally Accepted Accounting Principles or International Financial Reporting Standards). It indicates that the financial statements are free from material misstatements or departures from the reporting framework.
Unqualified Opinion
An opinion issued when the auditor concludes that the overall financial statements are fairly presented, except for a specific area or aspect that is subject to a departure from the reporting framework. This could be due to a limitation in the scope of the audit or a material misstatement that is confined to a particular area of the financial statements.
Qualified opinion
An opinion issued when the auditor determines that the overall financial statements are not presented fairly in accordance with the applicable financial reporting framework. It indicates that the financial statements are **materially misstated **and depart significantly from the reporting requirements, resulting in a pervasive and fundamental lack of reliability.
Adverse opinion
An opinion issued when the auditor is unable to express an opinion on the financial statements due to significant limitations on the scope of the audit or the inability to obtain sufficient appropriate audit evidence. This may occur when there is a lack of independence, inadequate records, or restrictions on access to necessary information.
Disclaimer of opinion
What are the levels and forms of assurance
Levels can be high or moderate
Forms can be postive or negative
Objective: In a ________ engagement, the objective is for the auditor to obtain reasonable assurance that the financial statements, taken as a whole, are free from material misstatement. The auditor performs extensive audit procedures, including testing of transactions, examination of supporting documentation, and assessment of internal controls.
Reasonable Assurance
Objective: In a ________________ engagement, the objective is for the auditor to provide a moderate level of assurance that nothing has come to their attention that causes them to believe that the financial statements are not presented fairly. The auditor performs fewer procedures and has limited scope compared to a reasonable assurance engagement.
Limited Assurance
Assurance Level: ________________________ provides a high but not absolute level of assurance. It means that, based on the auditor’s work, they believe that the financial statements are presented fairly and are reliable, but there is still a small possibility that some material misstatements may not be detected.
Reasonable Assurance
Assurance Level: ____________ provides a lower level of assurance than reasonable assurance. It means that, based on the auditor’s work, they have not identified any material modifications that need to be made to the financial statements but cannot provide absolute assurance about their reliability.
Limited Assurance
**_______________ engagements focus on providing a conclusion on the reliability of a specific subject matter or assertion based on defined criteria. __________ engagements, on the other hand, have a broader objective of providing a high level of confidence to users about the reliability of a subject matter, also based on established criteria.
Attestation
Assurance
