Introduction to assurance Flashcards
How many elements of an assurance engagement are there
5
What is the first element of an engagement
3rd party involvement
Examples of 3rd party involvement
Practitioner (auditor), intended user (shareholders), responsible party (directors)
What is the second element of an engagement and give an example
Subject matter - e.g. financial statements
What is the 3rd element of an engagement
Subject criteria - IFRS
What is the 4th element of an engagement
Sufficient & appropriate evidence to provide a basis for the conclusion
What is the 5th element of an engagement
Written assurance report - expressing a conclusion or opinion
What level of assurance is reasonable?
Moderate
What assurance gives a positive conclusion
Reasonable
Example of reasonable assurance
External audit
Example of limited assurance
Review of financial statements, examination of forecast, review of internal controls
What level is limited assurance
Low level
What conclusion is given in limited assurance
Negative conclusion (nothing has come to our attention)
What is a positive conclusion
The financial statements give a true and fair view
What is accountability
Can be held to account for their actions - directors are accountable to the shareholders
What is stewardship
Responsibility to take good care of resources - Directors are stewards and required to produce financial statements
What is agency
When one party employs another party to perform a task on their behalf
Give 3 benefits of an audit
HIRED:
Helps to improve quality of information
Independent activity
Reduces risk of management bias, fraud and error
Enhances credibility of financial statements
Deficiencies in internal controls are highlighted
Give 3 limitations of an audit
FIRED:
FS include subjective estimates and judgements
Inherent limitations of internal controls
Representations from management are not reliable
Evidence is persuasive
Don’t test all transactions - only use samples
Expectations gap
Auditor tests everything
Auditor detects all fraud and error
Auditor confirms the company is a going concern
Auditor prepares the financial statements
