Chapter 1 - Introduction to assurance

Question 1

What is an assurance engagement?

Answer 1

a practitioner (independent qualified professional) expresses a conclusion designed to enhance the degree of confidence of the intended users (shareholders) other than the responsible party (board of directors that would have overseen the operations of the company and the drafting of financial statements) about the outcome of the evaluation or measurement of a subject matter against a criteria.

Question 2

What are the key elements of an assurance engagement?

Answer 2

CREST
Subject criteria
Written assurance report
Sufficient and appropriate evidence
Subject mater
Third-party involvement

Question 3

What are the characteristics of a Reasonable Assurance engagement?

Answer 3

Audit that is required by law
High but absolute level of assurance/confidence
Samples are tested, not the full data
materiality threshold
opinion is expressed positively
governed by regulations and standards

Question 4

What are the characteristics of a Limited Assurance engagement?

Answer 4

carried out by choice
moderate/low level of assurance is provided
conclusion is expressed negatively

Question 5

What are the benefits of an audit?

Answer 5

HIRED
Higher quality of information
independent scrutiny
reduces the risk of management bias
enhances credibility
Definicies in internal controls are identified

Question 6

What are the limitations of an audit

Answer 6

FIRED
Financial statements include subjective estimates and other judgmental matters
Internal controls may have their own limitations and are relied on during the audit
Representations from management
Evidence is often persuasive, not conclusive
Not all transactions and balances are tested