What is assurance engagement?
An engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.
What does giving assurance mean?
Offering an opinion about specific information so the users of that information are able to make confident decisions knowing that the risk of the information being ‘incorrect’ is reduced.
What are the five elements on an assurance engagement?
- Third parties
- An appropriate subject matter
- Suitable criteria
- Sufficient appropriate evidence
- A written assurance report in an appropriate form
What are the two types of assurance engagement that the IAASB permit?
Reasonable and limited
What 5 things does the practitioner do in an reasonable assurance engagement?
- Gathers sufficient appropriate evidence
- Concludes that the subject matter confirms in all material respects
- Gives a positively worded assurance opinion
- High level of assurance
- Performs very thorough procedures to obtain evidence
What 5 things does the practitioner do in an limited assurance engagement?
- Gathers sufficient appropriate evidence
- Concludes that the subject matter is plausible in the circumstances
- Gives a negatively worded assurance opinion
- Moderate of low level of assurance
- Performs fewer procedures to obtain evidence
What is the objective of an external audit engagement?
To enable the auditor to express an opinion on whether the financial statements give a true and fair value and are prepared in all material aspects with an applicable financial reporting framework.
What are the benefits on an audit? (5)
H - Higher quality information is more reliable
I - Indépendant scrutiny and verification may be valuable to management
R - Reduces risk of management bias, fraud and error
E - Enhances the creditability of the financial statements
D - Deficiencies in the internal control system may be highlighted
What is the expectation gap?
The assumption of the auditor that they believe everything is assured.
What are the limitations of an audit? (5)
F - Financial statements include subjective estimates and other judgmental matters
I - Internal controls may be relied on which have their own inherent limitations.
R - Representations from management may have to be relied upon as the only source of evidence in some areas
E - Evidence is often persuasive not conclusive
D - Do not test all transactions and balances.
What is a review engagement an example of?
Limited assurance engagement
What is accountability?
That people in a position of power can be held to account for their actions
What is agency?
Occurs when one party, the principle, employs another party to perform a task on their behalf
What is stewardship?
The responsibility to take good care of resource
What is it called where one person has a duty of care towards someone else?
Fiduciary relationship
