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The general definition of an 

 is an evaluation of a person, organization, system,
process, enterprise, project or product. 



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The phrases used to express the auditor¶s opinion are µgive a true and fair view¶ or
µpresent fairly, in all material respects¶, which are equivalent terms.

The auditor gives an opinion on whether the financial 

statements:

0 _______________________________________ and

People will be surprised to
know that in England
CCM comprises of six
0 __________________________________________ accounting bodies and all
of them can conduct
audits.c


   

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Mn assurance engagement as opposed to an audit is one in which the independent

practitioner evaluates or measures a subject matter that is the responsibility of another
party, against suitable criteria and expresses an opinion that provides the intended user
with a level of assurance about the subject matter.

M
external audit 



assurance engagement 

 







   
 






  
 



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Yubject matter could include data, systems, processes or behavior.

Mn assurance engagement will involve three separate parties;

0 ______________
0 ______________
0 ______________


    
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0 _______________________________________________(to a lesser extent for

limited assurance)
0 __________________________________.

   
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0 _______________________
0 _______________________

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Mssurance reports are written for the benefit of the people reading them. The
readers need to be able to trust that the reports are &
'&   (. If they
sense any links between the auditors and the things being audited, they may not trust
the opinions given.

If there  any links between the auditors and the things being audited, the report
loses credibility and the assurance is undermined.

It is therefore a requirement if the auditors are

)  of those they are auditing


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( -Muditors are frequently required to provide assurance
for a range of non-audit engagements.



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.
 
Ãist and explain the elements of an assurance engagement. (5 marks)

 

 = information is

1. ______________________, is not false.

2. Conforms to required ______________.
3. The accounts have been correctly extracted from _______________.


 = Information is

1. _____________________.
2. _________________________________________.
3. The accounts reflect _____________________.

#/ 

  

Due to the directors most likely differing to the shareholders, the shareholders will need
some protection, and therefore the auditors will independently review that the directors
have acted in the best interests of the shareholders.

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0 High level of assurance
0 Positive opinion e.g. ³in our opinion the FY show a T&F view´
0 Mudit is not an absolute guarantee that FY are free from material misstatement.
0 Muditors cannot provide a guarantee because of limitations.

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0
  

0 Moderate level of assurance
0 Negative assurance e.g. ³nothing has come to our attention to suggest that the
FY do not show a T&F view´ therefore looks reasonable.
0 Need more evidence to support a higher level of assurance so limited assurance
generally is for cash flow forecasts, budgets etc«



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 10,
( 
 *2+,
( 2 riefly explain the difference between positive and
negative assurance, outlining the advantages to the directors of providing
negative assurance on their cash flow forecast. (4 marks)

 *3+,
( 2 In the context of the cash flow forecast, define the
term µnegative assurance¶ and explain how this differs from the assurance
provided by an audit report on statutory financial statements.(4 marks)


/ 

0 ______________
0 ______________
0 ______________
0 ______________
0 ______________
0 ______________
0 ______________

/! /

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Ycope of work governed by the law Ycope of work decided by parties

involved

Carry out in accordance with ethics, Carry out in accordance with ethics,
IYMs maybe other guidance

Report on T&F, Properly Prepared and Reporting depends on scope of work

directors¶ report consistent with FY

Report to members Report to party who engaged



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Independent confirmation to directors Cost

of profits

Mssurance of compliance with Time consuming

accounting standards

Can make recommendations on

systems

Mdds credibility to financial information



 



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% ! /

In addition to advantages common to all forms of audit a non-statutory audit can bring
other advantages.

a) For partners.
b) For taxation authorities
c) For loan

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0 It is not the auditor¶s responsibility to prepare and present the financial

statements.
0 This is the responsibility of the directors.


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There are certain misconceptions about the role of the auditor and this gap between
what the auditors actually do and what people think they do is known as the
expectations gap. 

#
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0 Mudit report includes details on responsibilities of auditors and directors.

0 Mudit report explains how the audit is conducted (test basis, reasonable
assurance etc.) Engagement letter.
0 Ytatement of directors¶ responsibilities in the financial statements.


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The expectation gap is the difference between the auditors¶ responsibilities and the
understanding the users have of assurance reports.

1. Users assume that the auditors are responsible for the preparation of
the financial statements, when in fact it¶s the directors.

2. Users assume it¶s the auditor is responsibility for detecting fraud when in fact
the auditors are concerned about detecting material misstatement which
could include fraud.

3. Users assume that the auditors check all work when in fact they test a sample.



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4. Users assume that the audit report is stating the Financial Ytatements are
correct when actually the auditors are stating they are factually materially
correct.


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0 Periodic Mudit
0 Interim Mudit
0 Continuous Mudit

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The ³agency theory´ implies the relationships between the various stakeholders in a
company. The ; 4&
( 5
)occurs when one party, 5)

)&, employs
another party, 5; , to perform a task on their behalf.



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Mccountability is the quality or state of being accountable, that is, being required or
expected to justify actions and decisions. It suggests an obligation or willingness to
accept responsibility for one¶s actions.

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Ytewardship another person¶s property

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Mgents are people employed or used to provide a particular service. In the case of a
company, the people being used to provide the service of managing the business also
have the second role of being people in their own trying to maximize their personal
wealth.

" Ã/

Materiality is an expression of the relative significance or importance of a particular

matter in the context of the financial statements as a whole.

M matter is material if its omission or misstatement would reasonably influence the

decisions of an addressee of the auditors¶ report.

Materiality may also be considered in the context of any individual primary statement
within the financial statements or of individual items included in them.



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The auditor must be concerned with identifying 'material' errors, omissions and
misstatements. oth the amount (quantity) and nature (quality) of
misstatements need to be considered.

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0 Muditing is not objective. Judgments have to be made

0 Not all items in the Financial statements are tested
0 Ãimitations in accounting and control systems
0 Mudit report has inherent limitations
0 Mudit report is issued a long time after the balance sheet date
0 Mudit evidence sometimes indicated what is probable, not certain

 



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/  %% "  


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The auditor provides a 5

;5+' ('(&, level of assurance that the information
is audited is free of material misstatement. This is expressed )(

:&4 in audit report
as reasonable assurance

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The objective of a review engagement is to enable a practitioner to state whether, on

the basis of procedures which do not provide all the evidence that would be required in
an audit, anything that has come to the practitioner¶s attention that causes the
practitioner to believe that the financial statements are not prepared, in all material
respects, in accordance with an applicable financial reporting network.

In a review engagement, therefore the auditor gives negative assurance, reporting that
he is not aware that anything is materially wrong.

5

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M review engagement has all the attributes of any assurance engagement:

0 the practitioner who conducts the work

0 the user who commissioned the work
0 a responsible party
0 the subject matter
0 the subject matter information
0 criteria
0 sufficient appropriate evidence which needs to be documented
0 a report

; )( ( 

The auditor simply provides a report of the actual findings, so no assurance is

expressed. Users of the report must instead judge for themselves the auditor procedure
and finding and draw their own conclusion

International Ytandard on Related Yervices (IYR) 4400, ³Ú  





M 

  
  
  

 . Examples of this type of
engagement could include the quantification of an insurance claim, or of the loss
suffered due to a fraud. The specialist area of forensic accounting and auditing could be
viewed as a specific type of agreed upon procedure engagement.




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(0)
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Users of the compiled information gain some benefit from the accountant¶s involvement,
but ( is expressed in the report.

Guidance to practitioners is given by the IMMY in IYR 4410, ³Ú  

 

  

 . Thus the engagement here is to prepare the financial
statements, and not to express any kind of opinion on them.

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0 Mgreeing the terms of the engagement in an engagement letterc
0 Deciding on a methodology for evidence gathering, and evaluation and
measurement to support a conclusionc
0 Mgreeing the type of report to be produced at the end of the engagement

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Mppointed y Yhareholders Directors
Reporting To Yhareholders Directors
Risk Management Yystems
Mnnual Financial (anything management
What they Check Ytatements ask them to check!)
Ãegally Requirement Usually Yes Typically No

Ideally, but hard to

Independence They Must e achieve


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(8 marks)

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(4 marks)



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The detailed audit planning and assessment of internal controls are

often carried out on an interim audit, which can be done without
waiting for the accounting year to end.

On very large audits, more than one interim audit visit may
be necessary.

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The Draft (unaudited) Financial Statements are now available.

The main focus is substantive testing ± results of control tests

determine how much substantive testing is required.

H.A.1
Objectives, characteristics and responsibilities (18 mins)

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