L1 Assurance, auditing, the structure of the profession: an overview Flashcards
What is an assurance engagement?
An engagement in which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the measurement or evaluation of an underlying subject matter against criteria.
Why is there value in the assurance service?
Independence - Users derive value from the knowledge that the assurance provider has no interest in the information other than for its usefulness.
Expertise - Assurers must have the competence to obtain sufficient relevant information to provide a reasonable basis for their conclusions. Requires professional judgment and professional scepticism.
What are the 3 types of assurance engagements?
Reasonable assurance engagements (audit engagement)
Limited assurance engagements (review engagements)
Agreed-upon procedures engagements where the auditor reports their findings and doesn’t provide assurance.
What is the difference between an attestation engagement and a direct engagement?
- Attestation engagement requires a party other than the auditor to measure or evaluate the underlying subject matter against the criteria. The auditor is reviewing someone else’s assessment
- A direct engagement requires the auditor to directly measure or evaluate the underlying subject matter against the criteria. The auditor is making the assessment themselves
What is auditing?
A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria, and communicating the results to interested users.
Why is there a demand for assurance? (4 reasons)
- Conflict of interest—managers may present biased information, as they are also evaluated on the information.
- Consequence—information provided forms the basis of many users’ decisions.
- Complexity—many users do not have the expertise required to determine the quality of information presented.
- Remoteness—the separation of owners from the user and the preparer—prevents users from assessing information quality.
What is the concept of the expectation gap?
The gap between society’s expectations of auditors and auditors’ performance, as perceived by society.
What is the role of auditing standards?
Prescribe the basic principles and essential procedures that govern the professional conduct of the auditor.
Who develops and issues the auditing standards and the professional and ethical standards applicable to auditors in Australia?
Auditing standards - The Auditing and Assurance Standards Board (AUASB)
Professional & ethical standards - The Accounting Professional and Ethical Standards Board (APESB).
Who oversees the auditing standard-setting process?
The Financial Reporting Council (FRC)
Who oversees auditors’ compliance with the regulatory requirements?
The Australian Securities and Investments Commission (ASIC) and the Companies Auditors Disciplinary Board (CADB).
What is the role of the Corporations Act 2001 in auditing?
- Specifies that audits are mandatory.
- Establishes an accountability process whereby directors are responsible for the preparation and presentation of appropriate financial reports, with an independent auditor appointed by the shareholders reporting on these financial reports.
Why is a quality management procedure essential in auditing?
Ensures that auditors meet their responsibilities to clients, other users and regulators.
