Introduction to assurance Flashcards
Define Assurance Engagement
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
What are the elements of Assurance Engagement
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
What’s the objective of Assurance Engagement
To provide assurance to the intended users of the information
what are the 2 types of assurance
Reasonable
Limited
Does reasonable assurance provide a 100% assurance
No , though it provides a high level of assurance it doesn’t provide an absolute assurance
what type of opinion is given by reasonable assurance
Positive
Example for reasonable assurance
An external auditor providing a true and fair view
what is required to provide reasonable assurance
Detail testing
what are the types of detailed testing used
Test of control & Substantive procedures
What is used to perform External Audit
ISA- Auditing standards
What type of assurance gives a higher risk for the auditors opinion to be incorrect
Limited
What form of conclusion does the limited assurance provide
Negative
what is the objective of limited assurance
reduction in assurance engagement risk to a level acceptable in the circumstances
Examples for limited assurance
review engagement
PFI (Prospective Financial Information): used in forecasting cash flows & F/S
Due Diligence
Social Audit
what procedures do you perform to give a limited assurance
Enquiry
ARP
Observation
Inspect
what do you use to perform Review Engagement
ISRE- International standard on review engagement
ISAE- International Standard on Assurance Engagement
Is Review engagement mandatory
No, Voluntary
examples where review engagement is necessary
financial statement verification if client is not listed
financial statement verification to obtain bank loan
For whom is it mandatory to perform external audit
Listed Entities
What are the objectives of External Audit
to provide reasonable assurance
to provide true & fair view
what is meant by true & fair view
F/S are free from error (true)
Transactions transferred completely & accurately(true)
Free from bias(fair)
Benefits of external audit
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
Limitations of external audit
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
what are agreed upon procedures
auditor perform procedures and report findings but 0% assurance
what is expectation gap
expecting more
ex.shareholders expect auditor to prepare F/S,shareholder expecting absolute assurance from external auditor
how do you reduce the expectation gap
through Engagement Letter
Is the subject matter plausible in External audit
No, subject matter is plausible in review Engagement(limited)
