Concept of assurance Flashcards
What is an assurance engagement?
When a practitioner expresses a conclusion to enhance the degree of confidence of intended user (other then responsible party) about the outcome of the evaluation/measurement of subject matter against criteria.
Information asymmetry
When agents act in their own self-interest. This has increase the need for assurance due to separation of ownership.
What are the objectives of an auditor?
To obtain reasonable assurance about whether the financial statements are free from material misstatement (error/fraud)
Express whether the financial statements are prepared in accordance to financial reporting framework.
What is reasonable assurance?
High but not absolute
Conclusion expressed positively
Engagement level risk is at an acceptable low level.
What is limited assurance?
Moderate/low level
Conclusion expressed negatively
Engagement risk is at an acceptable low level.
Why can absolute assurance not be given?
There are limitations of an audit including:
Evidence persuasive
Sample testing
Judgement involved
Statutory audit
collecting evidence/exercising judgement to form a opinion on whether the financial statements are true and fair.
True
Conform with standards and laws (correctly extracted from books + records)
Fair
Info free from discrimination and bias. Accounts should reflect commercial substance of company
Going concern
It is the directors responsibility to conclude whether the business is a going concern.
It is the auditors responsibility to conclude whether there is a material uncertainty about the going concern.
What should happen if the business isn’t a going concern?
Accounts prepared on a break up basis
Concept of ‘non-current’ doesn’t apply
Assets shown at a recoverable amount.
What is a unmodified audit opinion?
When the auditor issues a “true and fair view”
What is a modified audit opinion?
When the auditor is dissatisfied with sufficiency/appropriateness of evidence or has issues with financial statements.
