Introduction to assurance

Question 1

Define Assurance Engagement

Answer 1

Assurance Engagement is the engagement in which the practitioner provides a conclusion or expresses the opinion about the subject matter by applying certain criteria .The opinion is provided to the intended users about the information provided by the responsible party

Question 2

What are the elements of Assurance Engagement

Answer 2

1) 3 party relationship(practitioner/auditor,intended users/shareholders ,responsible party/Board of Directors)
2) Subject Matter
3) Suitable Criteria
4) Evidence
5) Written Report

Question 3

What’s the objective of Assurance Engagement

Answer 3

To provide assurance to the intended users of the information

Question 4

what are the 2 types of assurance

Answer 4

Reasonable

Limited

Question 5

Does reasonable assurance provide a 100% assurance

Answer 5

No , though it provides a high level of assurance it doesn’t provide an absolute assurance

Question 6

what type of opinion is given by reasonable assurance

Answer 6

Positive

Question 7

Example for reasonable assurance

Answer 7

An external auditor providing a true and fair view

Question 8

what is required to provide reasonable assurance

Answer 8

Detail testing

Question 9

what are the types of detailed testing used

Answer 9

Test of control & Substantive procedures

Question 10

What is used to perform External Audit

Answer 10

ISA- Auditing standards

Question 11

What type of assurance gives a higher risk for the auditors opinion to be incorrect

Answer 11

Limited

Question 12

What form of conclusion does the limited assurance provide

Answer 12

Negative

Question 13

what is the objective of limited assurance

Answer 13

reduction in assurance engagement risk to a level acceptable in the circumstances

Question 14

Examples for limited assurance

Answer 14

review engagement
PFI (Prospective Financial Information): used in forecasting cash flows & F/S
Due Diligence
Social Audit

Question 15

what procedures do you perform to give a limited assurance

Answer 15

Enquiry
ARP
Observation
Inspect

Question 16

what do you use to perform Review Engagement

Answer 16

ISRE- International standard on review engagement

ISAE- International Standard on Assurance Engagement

Question 17

Is Review engagement mandatory

Answer 17

No, Voluntary

Question 18

examples where review engagement is necessary

Answer 18

financial statement verification if client is not listed

financial statement verification to obtain bank loan

Question 19

For whom is it mandatory to perform external audit

Answer 19

Listed Entities

Question 20

What are the objectives of External Audit

Answer 20

to provide reasonable assurance

to provide true & fair view

Question 21

what is meant by true & fair view

Answer 21

F/S are free from error (true)
Transactions transferred completely & accurately(true)
Free from bias(fair)

Question 22

Benefits of external audit

Answer 22

more reliable financial information
management integrity verified
reduction on management bias & other risk
credibility of financial statements improved
internal control deficiencies are identified & communicated to responsible party

Question 23

Limitations of external audit

Answer 23

auditors professional judgement not always accurate
auditor do not test all transactions(sample testing)
all evidence is not conclusive some are persuasive
management can override entity’s internal controls
F/S consist inherent limitations
auditor rely on management representation

Question 24

what are agreed upon procedures

Answer 24

auditor perform procedures and report findings but 0% assurance

Question 25

what is expectation gap

Answer 25

expecting more

ex.shareholders expect auditor to prepare F/S,shareholder expecting absolute assurance from external auditor

Question 26

how do you reduce the expectation gap

Answer 26

through Engagement Letter

Question 27

Is the subject matter plausible in External audit

Answer 27

No, subject matter is plausible in review Engagement(limited)