Module 7: Introduction to Assurance

Question 1

What is an assurance engagement?

Answer 1

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 about the subject matter information.

Question 2

What are the key elements of an assurance engagement? (CUTER)

Answer 2

1. A three-party relationship: the practitioner, the responsible party and the intender users
2. An appropriate underlying subject matter: Financial performance, non-financial data, systems and processes.
3. Suitable criteria. The benchmarks used to evaluate or measure the underlying subject matter. Example IFRS
4. Sufficient, appropriate evidence. Practitioner performs assurance engagement with professional scepticism to obtain sufficient and appropriate evidence
5. Assurance report. Practitioner provides a written report containing a conclusion that conveys the assurance obtained.

Question 3

What are the two levels of assurance that a practitioner can provide and explain them?

Answer 3

Reasonable assurance and limited assurance.

Reasonable assurance: The practitioner will conclude that they are reasonably certain that the subject matter is free from material misstatement.
Reasonable assurance is a high but not absolute level of assurance. No guarantee

Limited assurance has a higher level of risk than reasonable assurance. The practitioner concludes there is no evidence that the subject matter is materially misstated. Work undertaken is less rigorous. Opinion is expressed in negative form.

Question 4

Do practitioners need to accept every entity that requests an audit engagement?

What considerations will the practitioner make before accepting an audit engagement?

Answer 4

No. Some engagements could introduce risks to the firm that may outweigh the benefits of the revenue.

1. Commercial considerations that could impact the firm
2. Considerations of regulations and standards

Question 5

Risks can be split into professional and commercial risk?

What are the four categories for both?

Answer 5

Commercial risks:

1. Financial - financial loss for the firm
2. Reputation - risk of damage to public perception of firm

Professional risk:

3. Ethical - risk that the firm fails to conduct the engagement in a way thats ethical
4. Legal - legal implications

Question 6

What is acceptance decision?

Answer 6

This relates to the situation where the practitioner is taking on a new client that it did not provide the assurance service for in the prior year.

Question 7

What is the acceptance checklist? 6 things

Answer 7

1. Identify the users and nature of the engagement
2. Assess the prospective client’s legal and financial stability
3. Assess the integrity of those charged with governance, management and the principal owners
4. Evaluate the firm’s ability to undertake the assurance engagement
5. Perform client identification procedures
6. Agree the basis for performance of the assurance engagement.

Question 8

What are the 7 elements of the audit process?

Answer 8

1. Acceptance
2. Planning
3. Systems and controls analysis
4. Substantive testing
5. Completion
6. Risk assessment
7. Engagement and client management

Question 9

What should the auditor do when it takes on a new client?

Answer 9

The auditor is required to communicate with the previous auditor in relation to a new client acceptance decision.