Introduction to Assurance services ch#1

Question 1

What are the advantages of audit to an organisation?

Answer 1

1)It increases the credibility of financial statements as most of the misstatements are identified.
2)It confirms that management is performing its statutory and non statutory duties.
3)Auditor identifies deficiencies in entities internal control system and gives recommendations. 4)Assists in sale or purchase of business. 5)Assists in Grant of loan by bank.

Question 2

Discuss the concepts of accountability and stewardship in the context of a limited company

Answer 2

Stewardship:
Stewardship is the practice of managing other persons property example(the directors look after the Assets of the company in manage them on the behalf of the shareholders).

Accountability:
Director show their accountability to shareholders by preparing financial statements and presenting them to the shareholders for the decision making

Question 3

Explain the meaning of “Assurance”and give two examples of types of assurance which can be provided distinguishing between the two in terms of the level of assurance offered by each of them

Answer 3

Assurance means confidence.

Level of Assurance which can be provided a limited Assurance and reasonable assurance.
Limited Assurance is a moderate level of Assurance expressed in negative form of conclusion examples are review of historical financial statements or review of cash flow forecast.

Reasonable Assurance is high but not absolute level of Assurance expressed in positive form of conclusion this level of Assurance is usually given in audit of financial statements

Question 4

What is meant by absolute assurance

Answer 4

Certificate guarantee that financial statements are free from all mistatements

Question 5

Why absolute appearance cannot be provided or what are the limitation of external audit?

Answer 5

1)Nature of financial statement.
2)Time and cost limitation
3)many of the audit procedures or based on auditor judgement which may be faulty 4)inherent limitations in clients internal control system
5)company staff may not be available answer auditors questions for provide him document
6)nature of auditor audit procedure(fraud,no legal powers,incomplete information)

Question 6

Define Assurance engagement

Answer 6

It means in engagement in which a practioner obtains evidence about evaluation of a subject matter against a suitable criteria and expresses his conclusion to enhance the confidence of the intended users

Question 6

What are the elements of in Assurance engagement

Answer 6

1)Three party relationship
2)subject matter 3)suitable criteria 4evidence
5)written asshorance report

Question 7

What is the difference between an audit engagement and an assurance engagement

Answer 7

Assurance engagement is a broad term
Audit engagement is one of the types of assurance engagement