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Question 1

What is an assurance engagement?

Answer 1

An assurance engagement is when a professional gathers enough reliable evidence to give a judgment or opinion, helping people trust the result of an evaluation or measurement of something based on certain rules or standards.

Question 2

What are the five main elements of an assurance engagement?

Answer 2

Three-party involvement

Appropriate subject matter

Suitable criteria

Sufficient appropriate evidence

Written assurance report in an appropriate form

Question 3

Who are the parties involved in an assurance engagement?

Answer 3

practitioner (the reviewer of the subject matter
who provides the assurance)
AUDITOR

intended users (of the information)
SHAREHOLDER

responsible party
(those responsible for preparing
the subject matter)
Directors
DIRECTORS

Question 4

What is the “appropriate subject matter” in an assurance engagement?

Answer 4

The information subject to examination by the practitioner, such as financial statements.

Question 5

What are “suitable criteria” in an assurance engagement?

Answer 5

The standards against which the subject matter is evaluated, such as a financial reporting framework.

Question 6

What is meant by “sufficient appropriate evidence”?

Answer 6

“Sufficient appropriate evidence” means that the auditor or professional gathers enough valid and reliable information through testing and analysis (like checking financial records, conducting interviews, or reviewing documents) to form a solid, trustworthy opinion or conclusion about the subject being examined.

For example, when auditing financial statements, the auditor looks at documents, transactions, and data to make sure everything is correct and in line with accounting rules. If the evidence is enough and reliable, it supports the auditor’s final decision.

Question 7

What is the “written assurance report”?

Answer 7

“Written assurance report” is the final result of the engagement, like an official report written by an auditor. It explains what they found, how they evaluated it, and provides their conclusion or opinion, such as whether the financial statements are accurate and trustworthy.

For example, after reviewing financial records, the auditor might issue a written report that says, “Based on our review, the financial statements give a true and fair view of the company’s financial position.”

Question 8

Examples of Assurance engagements include:

Answer 8

Audit of financial statements
Review of financial statements
Systems reliability reports
Verification of social and environmental information
Review of internal controls
Value for money audit in public sector organisations.
What is an assurance engagement

Question 9

What is a “limited assurance engagement”

Answer 9

In a limited assurance engagement, the practitioner:

Gathers sufficient appropriate evidence to draw limited conclusions.

Concludes that the subject matter is plausible based on suitable criteria.

Provides a negatively worded assurance opinion (e.g., “Nothing has come to our attention…”).

Gives a moderate level of
assurance than that of an auditperforms significantly fewer
procedures mainly enquiries and analytics

Question 10

What is a “reasonable assurance engagement”?

Answer 10

In a reasonable assurance engagement, the practitioner:

Gathers sufficient appropriate evidence to draw reasonable conclusions.

Concludes that the subject matter conforms in all material respects with the identified criteria.

Provides a positively worded assurance opinion (e.g., “In our opinion, the financial statements give a true and fair view…”).

Performs very thorough procedures to
obtain sufficient appropriate evidence-
tests of controls and substantive
procedures

Question 11

What is the main difference between reasonable and limited assurance engagements?

Answer 11

Reasonable assurance provides a high level of assurance using detailed procedures.

Limited assurance provides a moderate level of assurance using fewer, less detailed procedures.

Question 12

What kind of wording is used in the opinions for each type of assurance engagement?

Answer 12

Reasonable assurance: Positively worded (e.g., “In our opinion…”).

Limited assurance: Negatively worded (e.g., “Nothing has come to our attention…”).

Question 13

What is the purpose of an external audit engagement?

Answer 13

To enhance the degree of confidence of intended users in financial statements by having an auditor express an opinion on the financial statements.

Question 14

What are the two key aspects of the auditor’s opinion in an external audit?

Answer 14

1. The financial statements give a true and fair view (or present fairly in all material respects).
2. The financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.

Question 15

What international standard guides external audit engagements?

Answer 15

International Auditing Standards (IAS) 200.

Question 16

What does “True” mean in the context of financial statements?

Answer 16

TRUE: factually correct information which conforms with accounting standards and
relevant legislation, and agrees with the underlying records

Question 17

What does “Fair” mean in the context of financial statements?

Answer 17

FAIR: clear, impartial and unbiased information which reflects the commercial
substance of the transactions of the entity.

Question 18

What is one key objective of an auditor under ISA 200, 11?

Answer 18

o obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.

Question 19

What is the auditor’s responsibility regarding their opinion on financial statements?

Answer 19

To express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.

Question 20

What is the auditor’s role in reporting?

Answer 20

To report on the financial statements and communicate, as required by International Standards on Auditing (ISAs), in accordance with the auditor’s findings.

Question 21

What does “reasonable assurance” mean in the auditor’s objectives?

Answer 21

It refers to a high level of confidence that the financial statements are free from significant misstatements, though not an absolute guarantee.

Question 22

Why is the need for external audits justified?

Answer 22

Remoteness of information: Users may not have direct access to the organization’s data.
Biases and motives of the provider: Management may present information in their favor.
Voluminous data: Large amounts of data increase the risk of errors or misstatements.
Complex exchange transactions: Transactions can be complicated and require expertise to evaluate properly.

Question 23

What are the key benefits of an external audit?

Answer 23

1. Higher quality information ensures reliability.
2. Independent scrutiny and verification may help management make better decisions.
3. Reduces the risk of management bias, fraud, and errors.
4. Enhances the credibility of financial statements for stakeholders.
5. Allows for the early discovery of deficiencies in the internal control system.

Question 24

What is meant by the “expectation gap” in auditing?

Answer 24

The difference between:

What society expects from auditors.
What auditors are reasonably required to do under their responsibilities.

Question 25

What are some examples of expectation gaps in auditing?

Answer 25

Believing auditors test all transactions and balances. Expecting auditors to detect all fraud. Assuming auditors are responsible for preparing financial statements (instead of management).

Question 26

Who is responsible for preparing financial statements?

Answer 26

Management, not the auditors. Auditors review the statements but do not prepare them.

Question 27

What are the key elements of the expectation gap?

Answer 27

Duties society expects auditors to perform. Reasonable expectations of auditors’ responsibilities. How well auditors fulfill these expectations.

Question 28

Why do auditors provide only reasonable assurance and not absolute assurance?

Answer 28

Because audits have limitations, including reliance on judgment, sampling, and evidence that may be persuasive rather than conclusive.

Question 29

What are some limitations of an audit related to judgmental matters?

Answer 29

Auditors deal with subjective estimates and other judgmental areas like provisions or valuation of assets, which involve uncertainty.

Question 30

What are two key areas where auditors rely on others during an audit?

Answer 30

Deficient internal controls: Auditors may rely on a client’s control systems, which might have weaknesses. Representations from management: Auditors depend on management’s statements and explanations, which may not always be accurate.

Question 31

Why don’t auditors test all transactions and balances?

Answer 31

Audits are performed using sampling techniques to examine only a selection of transactions, making audits efficient but not exhaustive.

Question 32

list some limitations of audit

Answer 32

Subjective estimates and other judgmental matters. Relying on deficient internal controls Relying on representations from management Persuasive Evidence Do not test all transactions and balances

Question 33

How does the nature of financial reporting limit an audit?

Answer 33

Financial statement amounts involve management judgment (e.g., estimates, valuations), which can lead to bias and affect reliability.

Question 34

Why does the nature of audit procedures create limitations?

Answer 34

Auditors may rely on incomplete or falsified information provided by the client, and cannot investigate every transaction due to time constraints.

Question 35

Why is timeliness of financial reporting a limitation for audits?

Answer 35

The relevance of financial information decreases over time, and auditors face deadlines, preventing them from investigating every issue exhaustively.

Question 36

What is a review engagement?

Answer 36

A review engagement is a type of limited assurance engagement where an auditor reviews financial statements and provides a conclusion about whether they are prepared in accordance with the applicable financial reporting framework.

Question 37

Why might a company choose a review of their financial statements instead of a full audit?

Answer 37

Companies that are not legally required to audit their financial statements may choose a review engagement to obtain a reasonable level of assurance about the statements without the extensive procedures of an audit.

Question 38

What is accountability in the context of financial management?

Answer 38

Accountability means people in positions of power (e.g., management) can be held responsible for their actions and the management of resources.

Question 39

What is agency in business terms?

Answer 39

Agency occurs when one party, called the principal, employs another party, the agent, to perform a task or duty on their behalf.

Question 40

What is the role of a steward?

Answer 40

stewardship is the responsibility to take good care of resources. A steward is a person entrusted with management of another person's property.

Question 41

Who are the primary stakeholder groups in financial reporting?

Answer 41

Shareholders Employees Those charged with governance Customers Suppliers and lenders The government

Question 42

What are the roles of shareholders in relation to financial statements?

Answer 42

Shareholders use financial statements to decide whether to alter their shareholdings in the company based on the company’s financial performance and stability.

Question 43

Why do employees care about financial statements?

Answer 43

Employees evaluate the reasonableness of their pay and benefits, as well as the financial health of the company to ensure job security and fairness.

Question 44

What do customers look for in financial statements?

Answer 44

Customers judge the company’s financial strength (liquidity) to ensure it is able to maintain or continue future business and trading relationships.

Question 45

What do suppliers and lenders look for in a company’s financial statements?

Answer 45

They assess the financial stability of the company before extending credit or offering supplies to ensure the company can meet its payment obligations.

Question 46

What does the government evaluate from financial statements?

Answer 46

The government reviews financial statements to determine whether the company has paid the correct amount of taxes and is complying with laws and regulations.