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Chapter -01 Introduction to assurance

1. Three parties-
Intended user- the person who requires the assurance report
Responsible party- the organization which is responsible for preparing subject matter
Practitioner- professionally qualified accountant who will review the financial
2. Subject matter-
It’s the data which the responsible party has prepared which needs verification
3. Suitable criteria-
Subject matters are compared against the suitable criteria to provide an opinion
4. Sufficient and appropriate evidence has to be obtained by practitioner to provide required
level of assurance.
5. An assurance report is the opinion provided by the practitioner to the intended user and the
responsible party.

Auditor performs audit on sample basis
Financial statement consist judgmental matters.
All evidence are not conclusive but persuasive.
Auditor use his judgment when auditing financial statements.
Financial statement itself has inherent limitations.

External audit provides high level of assurance but not absolute assurance, this is called
reasonable assurance. This provides comfort that the financial statements are free from
material misstatement.
Review engagements provide moderate level of assurance because the subject matter is
plausible. Practitioner perform basic procedures and concludes with negative opinion that
nothing has come to his attention that financial statements are materially misstated.

External auditor is not in a position to provide reasonable assurance over the forecasted cash
Report over forecasted cash flow should be negatively worded by practitioner stating that
nothing has come to his attention that the Brampton co cash flow forecast is materially
Forecasted cash flow is plausible and auditor cannot confirm with supporting documents.
Therefore the auditor should give limited assurance over forecasted cash flow.

Negative assurance means that nothing has come to the attention of the auditor that the cash
flow statement is materially misstated therefore the assurance is given in the absence of any
indication to the contrary.
Audit report provides positive or reasonable assurance, which is financial statement shows true
and fair view.
Using negative assurance, auditor is warning the user that the cash flow forecast may be
inaccurate. Less reliance can be placed on forecast than the financial statements, where the
positive assurance is given.
With using negative assurance auditor is also warning that limited audit procedures has been

a. Review engagement is an alternative for external audit where the practitioner collect
sufficient evidence to prove that nothing has come to the attention that financial
statements are not accordance with the financial reporting framework.
Review engagement differs to extend that they don’t undergo comprehensive
procedures such as analytical review procedure which is conducted on external audit.
b. External audit provides high but not absolute assurance, this is reasonable assurance.
Practitioner gives a comfort that financial statement is not materially misstated and
gives a true and fair view.
Review engagement is when practitioner gives opinion gathering sufficient evidence to
be satisfied that subject matter is plausible, in this case practitioner confirm nothing has
come to the attention that the subject matter contain material misstatement.

True- Information is factual and conforms with reality that there are no factual errors. To be
true financial statements must comply with accounting standards and any relevant legislations.
True includes data being correctly transferred from accounting records to financial statements.
Fair- Information is clear, unbiased and impartial, and also plainly reflects the commercial
elements of the transaction of an entity.

Revision 01
Q2 benefits of external audit

 Higher quality information which is more reliable improving the reputation in the
 Independent scrutiny and verification may be valuable to management.
 Reduce the risk of management bias, fraud and error acting as a deterrent. It may
detect bias, fraud and error.
 Enhance the credibility of financial statements
 Deficiencies in the internal controls may be detected



External audit Review engagement

Gather sufficient appropriate evidence to be Gather sufficient appropriate evidence to be
able to draw reasonable conclusion able to draw limited conclusion
Concludes that the subject matters conforms Concludes that the subject matter with
in all material respects with identified suitable respect to identified suitable criteria,
criteria plausible in the circumstances
Gives a positively worded assurance opinion Gives a negatively worded assurance opinion
Gives high level of assurance Gives low or moderate level of assurance
Performs very through procedures to obtain Performs significantly lesser procedure –
sufficient appropriate evidence –TOC and mainly enquiry and analytical procedure
substantive procedure
In our opinion, financial statements give a true Nothing has come to our attention that
and fair view, and prepared in accordance financial statements not prepared, in all
with IFRS material respects, in accordance with
applicable financial reporting framework.