Module 7 - Introduction To Assurance Flashcards
What is an assurance engagement?
Where 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
What is the mnemonic ‘CUTER’ used for?
Classifying an assurance engagement
What does CUTER stand for?
suitable Criteria
an appropriate Underlying subject
a Three-party relationship
sufficient and appropriate Evidence
an assurance Report
Failure to demonstrate the five elements of CUTER would result in what?
The engagement not being classified as an assurance engagement
What are the two levels of assurance?
Reasonable assurance
Limited assurance
When a practitioner has to decide whether or not to take on a client, the risks that must be considered can be categorised into two categories:
Commercial (financial and repetitional)
Professional (ethical and legal)
The main acceptance procedures a practitioner should perform when gathering info about a client are to:
Identify users and the nature of the engagement
Assess legal and financial stability
Integrity of those in charge - management
Ability to undertake the engagement (eg ethically)
Client identification procedures
Agree basis for performance of the assurance engagement
For external audits engagements only, what must the practitioner do when gathering client info
Communicate with the previous auditor
What is an example of an assurance audit?
A statutory financial statement
Stages of an audit
Acceptance
Planning
Systems and Controls Analysis
Substantive Testing
Completion
(RUNNING THROUGHOUT:
Risk Assessment and
Engagement and Client Management)
What is issued by the international federation of accountants (‘IFAC’)
The International Framework for Assurance Engagements
How does reasonable assurance work?
The practitioner reduces engagement risk to an acceptably low level to give an opinion on the subject matter
In reasonable assurance, how is the opinion expressed?
A positive form
How would the practitioner conclude (in a positive case) with reasonable assurance
That they are reasonably certain the subject matter is free from material misstatement
Is reasonable assurance 100% accurate
No
But it is high (it is not an absolute level of assurance
Is the level of risk higher with limited assurance?
Yes
What would the practitioner conclude in limited assurance?
That there is no evidence that the subject matter is materially misstated (less rigorous than reasonable assurance)
In what form is the opinion expressed with limited assurance?
The negative form
Acceptance decision, what is it?
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
Audit - definition
An examination of a company’s financial statements by an independent expert that results in the expert providing an opinion on whether the financial statements give a true and fair view to the shareholders
What does the audit process look like?
Audit process stages: (following on from acceptance / continuance decision)
Planning stage
Systems and controls analysis
Substantive testing
Completion
Risk assessment
Engagement and client management
When terms are agreed between client and practitioner, where are the terms documented?
In an engagement letter - this acts as a contract
