Module 10 Flashcards
Procedures to be performed specified in
The engagement letter
Compilation engagements (3)
- Compiling financial information
- Use accounting expertise
- No opinion provided
Assurance engagement
Practitioner aims to obtain sufficient appropriate evidence to express a conclusion designed to enhance the degree of confidence of the intended users about the outcome of measurement or evaluation of underlying subject matter
Objective of assurance engagement
Enhance credibility of underlying subject matter
Assurance engagements required to comply with (2)
- International framework for assurance engagements
- International standard on assurance engagements (ISAE) 3000
Engagement only classified as assurance if has all following five criteria
CREST
- suitable Criteria
- written assurance Report
- sufficient and appropriate audit Evidence
- appropriate underlying Subject matter
- Three party relationship
Three party relationship
Practitioner, responsible party and intended users
Appropriate underlying subject matter egs (3)
- Financial performance
- Non-financial performance
- Behaviour
Suitable criteria
Required for consistent evaluation of underlying subject matter. Should be relevant, complete, reliable, neutral and understandable eg international financial reporting standards, code of conduct, applicable laws/ regulations
Sufficient appropriate audit evidence
Practitioner has attitude of professional scepticism about whether the subject matter is free from material misstatement considering materiality, engagement risk and quantity and quality of available evidence
Written assurance report
Practitioner forms conclusion based on evidence obtained.
Modified conclusion can be issued if limitation in scope/ material misstatement
Reasonable assurance
Opinion expressed in positive form - reasonably certain the financial statements are free from material misstatement
Limited assurance
Level of risk is higher. Opinion expressed in negative form. No evidence that the financial statements are materially misstated
Key process stages of assurance engagement
- Acceptance and continuance
- Planning (including risk assessment)
- Systems and control analysis
- Collection of evidence
- Completion
Acceptance and continuance
ISAE 3000 requires compliance with fundamental ethical principles (independence). Consider professional and commercial risks.
Acceptance and continuance - four outcomes of preliminary risk assessment
- Accept duty of care and include agreement by third party in engagement letter
- Ensure third party confirms no duty of care prior to reporting
- Include disclaimer of liability to third party in auditor’s report
- Reject engagement
Acceptance and continuance - Engagement letter
Contract which clarifies responsibilities, scope of engagement and form of report to be provided or work that will be performed
Acceptance and continuance - quality control
Quality control procedures must be followed as required by ISQC
Completion and reporting
Produce reporting which has clear expression of reporting practitioner’s conclusion about underlying subject matter
Factors to consider for other engagements (5)
- Parties
- Subject matter
- Criteria
- Procedures
- Type of report
Half-yearly report should be prepared using
Accounting policies of latest published annual accounts or new policies if these expected to chance in subsequent financial statements
Half yearly review is
Limited assurance engagement
Auditor obtains evidence for half year review primarily through (2)
Enquiry and analytical procedures
Half yearly reporting
Must state the review is not an audit and the auditor is not expressing an audit opinion
Reporting accounting examining and reporting on prospective financial information
Very high level of difficulty
Specific engagements > forensic audits
Investigation of fraud or suspected fraud
Specific engagements > Internal controls egs (3)
- SOx engagement
- Internal audit
- Service organisations
If specified tested performed only on specific controls
Agreed upon procedures engagement - no assurance given
XBRL tagging engagement
Directors of company may want independent review of accuracy of tagging
Accounting services associated with listings
Prospectus
Review procedures for half year review (4)
- Planning
- Procedures to update the understanding of the entity and its environment
- Evidence (primarily obtained through enquiry and analytical review)
- Completion
Prospective financial information can be in form of
Forecast or projection
Prospective information is
Subjective in nature
Level of assurance in prospective information engagement
Moderate level of assurance through negative opinion most common (higher risk) - risk increases as length of period increases also
If assumptions are unrealistic or inappropriate
Auditor should not accept the engagement/ withdraw if continuing engagement
When examining prospective financial information, auditor must consider (5)
- Reasonableness of assumptions
- Correct application of assumptions
- Disclosure of assumptions
- Consistency of accounting principles
- Obtaining written representations
Auditor’s report - prospective financial information (4)
- Statement as to whether assumptions provide reasonable basis for conclusion
- Opinion on whether properly prepared
- Statement that actual results likely to differ from prospective info and variation could be material
- Statement in the case of projection that the prospective financial information has been prepared using assumptions about future events that may not occur
Level of assurance provided in an engagement depends on
Needs of the users
Due-diligence engagement requirements
No specific requirements
