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Audit and Internal review
Assurance engagement:

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

An assurance engagement means an engagement in which the practitioner expresses a conclusion designed to enhance the degree of confidence of the intended user other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.

Types of assurance engagements:
1.engagements intended to provide high or moderate levels of assurance
2.engagements to report internally and externally
3.engagements in the private or public sector

Levels of Assurance:
Auditing
Related services
Audit engagement:

The objective of an audit of F/S is to enable the auditor to express an opinion whether the F/S are prepared, in all material respects, in accordance with an identified financial reporting framework.

Review engagement:

The review engagement enables an auditor 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 auditor\u2019s attention that causes the auditor to believe that the financial statements are not prepared, in all

nature of
service
Audit
Review
Agreed upon
porcedures
compilation

Comparative
level of
assurance
provided

High, but
not absolute
assurance

moderate
assurance
No assurance No assurance
Report
provided
Positive
assurance on
assertion(s)
Negative
assurance on
assertion(s)

Factual
findings of
procedures

Identification
of info
compiled
material aspects, in accordance with an identified financial reporting
framework.
Agreed-upon procedures:

The auditor simply provides a report of the actual findings, so no assurance expressed. Users of the report must instead judge for themselves the auditor\u2019s procedures and findings, and draw their own conclusions from the auditor\u2019s work.

Compilation engagement:

Users of the compiled information gain some benefit from the accountant\u2019s (as opposed to auditor\u2019s) involvement, but no assurance is expressed on report.

Positive and Negative assurance:
Positive: in giving this, an accountant reports that financial statements do
give true and fair view.
Negative: an accountant reports that nothing has come to his attention to
suggest that the financial statements do not give a true and fair view.
Advantages of an Audit:

The need for an external audit arises primarily when the ownership and management of an enterprise are separated. There are however, certain inherent advantages in having financial statements audited even when no statutory requirement exists for such an audit.

\u2022Disputes between management may be more easily settled.
\u2022Major changes in ownership may be facilitated if past accounts contain
an unqualified audit report.
\u2022Applications to third parties for finance may be enhanced by audited
accounts.
\u2022The audit is likely to involve an in-depth examination of the business so
may enable the auditor to give constructive advice to management on
improving the efficiency of the business.
Disadvantages of an audit:
\u2022The audit fee. Unless required by local statute, it is unlikely that many
businesses would like to have their accounts audited.
\u2022The audit involves the client\u2019s staff and management in giving time to

providing information to the auditor. A professional auditor should therefore plan his audit carefully to minimize disruption which his work will cause.

Differences between internal and external audit:
Internal auditing
External auditing
Objectives

Means of advising the organization, as to whether its systems are running soundly.

To provide an opinion on
whether
the

financial statements provide a true and fair view of the org.

Legal basis

No legal basis, although it is advised that company should have regular internal audits.

Usually a requirement imposed by statute. For larger ltd and public comp.

Scope
Operational and financial
Financial focus
Approach

Risk based
Assess risks
Evaluate internal control

make recommendations for
improvements
Increasingly risk based
Responsibilit
y
Advice and recommend
Form an opinion
The Scope of External Audit
Chronology of an Audit:
\u2022Determine audit approach
1. Determine scope of audit.
2. The scope is already laid out by legislation for statutory audits.

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