MODULE 7

Question 1

What’s an Assurance Engagement?

Answer 1

An Engagement in which a practitioner aims to gain sufficient evidence to express a conclusion - this is supposed to increase confidence on a subject matter

Question 2

What’s the Purpose of an assurance engagement?

Answer 2

To have an objective expert give an opinion on whether the subject matter is correct.

Question 3

What’s the main example of an Assurance Engagement?

Answer 3

Audit on financial statement

Question 4

What are the Key Elements of an assurance Engagement

Answer 4

1. A three party Relationship a practitioner, a responsible party and the intended users. So this could be The auditor, Directors and Shareholders
2. An Appropriate Underlying subject matter-This may be the Financial data
3. Suitable Criteria - This could be. Benchmark(Possibly the first or the company’s internal conduct), this will allow to see if certain stuff are up to standard
4. Sufficient, appropriate evidence - The Practitioner must gin sufficient appropriate evidence to form an opinion
5. Assurance Report- the practitioner provides a written report containing the conclusion

Question 5

What are the two types of Assurance? Explain them and give an example

Answer 5

1.Reasonable Assurance- This is where the practitioner reduces engagement risk to an acceptably low level (They check a lot of key areas for misrepresentation and errors) e.g MOT, the mechanic checks a lot of key areas before issuing a passed MOT, they don’t check everything

2. Limited Assurance - Risk is reduced, but not to as a low level as a Reasonable Assurance, therefore the level of risk is higher.
   The Practitioner will conclude that there is no evidence that the subject matter is misstated.
   E.g - ‘ Based on our work In this report, nothing has come to our attention that causes us to believe that the company’s financial information is not prepared.

Question 6

Explain the acceptance Procedure:

Answer 6

1. Identify the Users and nature of the Engagement
2. Assess the Clients legal and financial stability
3. Assess their integrity
4. Evaluate the firms ability to undertake the assurance engagement
   5, perform Client Identification procedures
5. Agree the basis for performance of the assurance engagement

Question 7

What are the risks faced when accepting or continuing a Assurance Engagement

Answer 7

When accepting a client or deciding whether to continue with a client, there are many risks:
Financial and Reputational Risk (Commercial risks) & Ethical and Legal Risk (Professional Risk)

Question 8

What are the elements to an Audit Process, explain each stage.

Answer 8

1. Acceptance ( Deciding whether or not to take on the client)
2. Planning (understanding entity, making plan for audit procedure)
3. Systems and controls Analysis ( Understand client processes, and test how well these work at preventing/detecting error )
4. Substantive Testing (Testing the figures in the financial statement)
5. Completion (Issuing the final Audit Report)

1-5 = Audit Process Stages

6. Risk Assessment
7. Engagement and client Management

6-7 = Ongoing Elements