Introduction to assurance

Question 1

How many elements of an assurance engagement are there

Answer 1

5

Question 2

What is the first element of an engagement

Answer 2

3rd party involvement

Question 3

Examples of 3rd party involvement

Answer 3

Practitioner (auditor), intended user (shareholders), responsible party (directors)

Question 4

What is the second element of an engagement and give an example

Answer 4

Subject matter - e.g. financial statements

Question 5

What is the 3rd element of an engagement

Answer 5

Subject criteria - IFRS

Question 6

What is the 4th element of an engagement

Answer 6

Sufficient & appropriate evidence to provide a basis for the conclusion

Question 7

What is the 5th element of an engagement

Answer 7

Written assurance report - expressing a conclusion or opinion

Question 8

What level of assurance is reasonable?

Answer 8

Moderate

Question 9

What assurance gives a positive conclusion

Answer 9

Reasonable

Question 10

Example of reasonable assurance

Answer 10

External audit

Question 11

Example of limited assurance

Answer 11

Review of financial statements, examination of forecast, review of internal controls

Question 12

What level is limited assurance

Answer 12

Low level

Question 13

What conclusion is given in limited assurance

Answer 13

Negative conclusion (nothing has come to our attention)

Question 14

What is a positive conclusion

Answer 14

The financial statements give a true and fair view

Question 15

What is accountability

Answer 15

Can be held to account for their actions - directors are accountable to the shareholders

Question 16

What is stewardship

Answer 16

Responsibility to take good care of resources - Directors are stewards and required to produce financial statements

Question 17

What is agency

Answer 17

When one party employs another party to perform a task on their behalf

Question 18

Give 3 benefits of an audit

Answer 18

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

Question 19

Give 3 limitations of an audit

Answer 19

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

Question 20

Expectations gap

Answer 20

Auditor tests everything
Auditor detects all fraud and error
Auditor confirms the company is a going concern
Auditor prepares the financial statements