The Concept Of Audit And Other Assurance Engagement Flashcards
The Auditor must state an opinion as to whether the financial statements…..
Give a true and fair view
The accounting records are accurate and complete
Are prepared in accordance with an applicable financial reporting framework in all material respects
General Principles for the auditor to follow
Compliance with applicable ethical principles (such as the ACCA’s Rules of Professional Conduct)
Compliance with International Standards on Auditing
Keeping an attitude of professional scepticism when planning and performing the audit (i.e. don’t accept on face value – get evidence)
What happens in an Engagement Review?
Auditor Reviews FS
So Needs Less Evidence
Limited Assurance
Needs Engagement Letter and Report at the End
What does Accountability mean?
Accountability means holding those in charge accountable for their actions.
In the context of a company, it means holding the directors who manage the company responsible for explaining their actions to the shareholders who own the company.
What does Stewardship mean?
Stewardship is when a person is responsible for taking care of something on behalf of another.
This is known as a ‘Fiduciary Relationship’ and exists between directors and shareholders as directors are responsible for the management of the shareholders property.
What does Agency mean?
Agency is where an agent acts on behalf of a principle to perform tasks for them.
In the context of a company, the directors are the agents of the shareholders (principles) who entrust them to manage the running of the business.
This separation of ownership and management is often referred to as the ‘Agency Problem’.
What is the objective of an Assurance Engagement?
To provide assurance from an independent source that the subject matter agrees with set criteria
What are the 5 Elements of Assurance Engagements?
3 Parties (User, Preparer, Reviewer)
The Subject Matter
Criteria to Judge Reliably and Accurately (e.g. IFRS)
Sufficient Evidence to make an Opinion
A Written Report
What 3 things will an Assurance Engagement have?
An engagement Letter agreeing terms
A decision on methods to gather and evaluate evidence to support a conclusion
A type of report to be produced at the end of the engagement
Types of Review Engagements
Risk assessment reports
Review of internal controls
System reliability reports
Value for money reviews
Social and environmental reports
Remember they’re basically something that someone wants assurance over - so it might be you’re buying something and you want assurance you’re paying a fair price
We would call this a value for money review
Statutory Audit
This is when entities are required by law to have an audit
All public and large companies are required to have one
Other organisations such as Building Societies and certain charities must also
Non Statutory Audit
This is when there is no legal requirement.
A small company for example may choose to be audited when not legally obliged.
Reasons to undertake a non statutory audit will include:
Providing assurance to the owners over financial results
Making accounts more acceptable to Tax authorities
Making a sale of the business easier
Providing assurance to those financing the business e.g. Banks
What is Limited Assurance?
Where there’s sufficient evidence that the subject matter is plausible in the circumstances.
It is a moderate level of assurance
It is a Negative Assurance (This means that in their opinion there is nothing to suggest that the subject has not been prepared in line with the relevant criteria)
An example is a review engagement
Here, the auditor reviews the financial statements using less evidence than required by an audit
It is not an audit.
The report will not be to the shareholders but to the body that commissioned the review e.g. Bank, Directors.
What is Reasonable Assurance?
Where there is sufficient evidence that the subject matter agrees to certain criteria.
It is a high level of assurance
It is Positive Assurance (This means that in their opinion the subject has been prepared in accordance with the criteria required)
An example is the external audit
A Review Engagement gives Negative Assurance
An Audit Report gives Positive Assurance
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