Introduction to Assurance service

Question 1

Define relationship between Shareholder and Director/Management?

Answer 1

Steward: Directors look after the assets of the
shareholders.
Agent: Directors act in accordance with
instructions and in best interest of shareholders.
Accountable: Directors show their
accountability to shareholders by preparing F/S.

Question 2

Define Advantages of Audit/Assurance Engagement

Answer 2

1. Most of misstatements are identified.
2. Confirms management is performing its duties.
3. Deficiencies internal control are identified.
4. Assists in sale or purchase of business.
5. Assists in obtaining loan.

Question 3

Define Origin of Assurance Services?/Define Statutory audit or Non-Statutory audit?

Answer 3

Statutory audit means audit
required by law.
Non-Statutory audit means audit
conducted voluntarily due to its
advantages.

Question 4

DEFINITION AND ELEMENTS OF
ASSURANCE ENGAGEMENT?

Answer 4

1. Three party relationship (Intended users, Responsible
   party, Practitioner)
2. A subject matter (information prepared by responsible
   party e.g. F/S)
3. A Suitable Criteria (framework/basis used to prepare F/S)
4. Evidence (information on which his report is based)
5. Written Assurance Report (provided by practitioner to
   users, and includes conclusion)

Question 5

Define Limited (Moderate/Negative) Assurance ?

Answer 5

It is a moderate level of assurance, expressed in negative
form of conclusion i.e.
“Based on our review, nothing has come to our attention that
causes us to believe that accompanying financial statements
do not give true and fair view in accordance with IFRSs.”
Example: review of historical financial statements, review of
cash flow forecast.

Question 6

Define Reasonable (High/Positive) Assurance:

Answer 6

It is a high, but not absolute, level of assurance expressed
in positive form of conclusion i.e.
“In our opinion, financial statements give true and fair
view of financial position of ABC Limited at December 31,
20X1 and its financial performance and cash flow for the
year then ended in accordance with IFRS.”
Example: audit of historical F/S

Question 7

Why Absolute Assurance cannot be provided: (inherent limitations of audit)?

Answer 7

1. Nature of financial statements (estimates,
   judgments and uncertainties).
2. Nature of audit procedures
   a. No complete information r.
   b. No legal powers.
   c. Collusion and complex techniques.
3. Time and Cost limitation.
4. Procedures based on judgment.
5. Limitations in internal control.
6. Staff may not be available always