CHAPTER 12 –AUDIT RELATED SERVICES

Assurance Engagement

Types of Assurance

Reasonable Assurance Limited Assurance

SAAE – conclude subject matter confirms in all SAAE- Subject matter is plausible(believable) in
material respect (High degree of confidence) the circumstances – (low level of confidence)
- In depth procedures -Limited Procedures conducted
- Positively worded -Negatively Worded
-

Non-Assurance Engagement (Agreed upon procedures)

Audit Audit Related Services

Nature of Service Audit of FS Review Agreed upon
procedures
Level of assurance Reasonable Limited No Assurance
Provided
Report Provided Positive worded Negative worded Factual findings of
Opinion- Your kid will Opinion –I don’t think procedures
pass the exam your kid will fail in the
exam
Professional guidance ISAS ISRE –Review ISRS –Related Services
Eg: External Audit Engagement Eg: Fraud Investigation
ISAE- Assurance Insurance Claim
Engagement Verification, Due
Eg: Interim Audit, Diligence
Prospective FS,
Envirornmental /Social
Audit, Due Diligence

CHAPTER 13 – REVIEW OF INTERIM FINANCICAL INFORMATION

ISRE 2410 – Review of Interim Financial Information performed by the independent Auditor of the entity

Interim Financial Information – shorter than a FY, for first 6 months, Limited information and a
condensed form.

Acceptance considerations – (preconditions of Audit- same) + Additional factors

Why the did not use existing auditor?

Recurring in Nature – fee dependency will be there, Self review threat

Planning and Performance Review

ISRE 2410 and as per code of ethics, implement QC procedures, competence and resources
Use professional skepticism, Obtain SAAE, understand the client, Conduct audit procedures, comes to
conclusion,

Procedures

1. Analytical Procedures – compare with PY Audited FS, Budgets and forecast,Industry Average
Ratios, Last interim FS
2. Enquiries – usually to management
3. Inspection, Observation, Recalculation
4. Obtain written representation regarding preparation of FS

Limited Assurance Engagement – Negative Opinion

CHAPTER 14 –PROSPECTIVE FINANCIAL INFORMATION

ISAE 3400- EXAMINATION OF PFI

Financial information based on assumptions about events that may occur in the future and possible
actions by an entity, It may be in the form of forecast or a projection or a combination of both.

Forecast
Future events that management expects to take
place and the actions management expects to
take (Best estimate assumptions)
Projection
PFI prepared on the basis of hypothetical
assumptions about future events and
management actions – A mixture of best
estimate and hypothetical assumptions(it need
not be real or true)

Profit forecast

Income and Expenses – Accual basis

Depreciation included

Cashflow Forecast

Inflows and Outflow of Cash – Cash Basis

Depreciation not included

Acceptance considerations

Indented use of information – If external use –risk is higher

Information for General or Limited distribution – If general high risk

Nature of Assumptions hypothetical or best estimate – Hypothetical –high risk

Elements to be included in the information

The period covered by the information – short period – easier

Fees, Competence of the person prepared, other non-financial considerations

Procedures

1. Analytical Procedures – compare with PY Audited FS, Budgets and forecast,Industry Average
Ratios, Last interim FS
2. Enquiries – usually to management
3. Inspection, Observation, Recalculation
4. Obtain written representation regarding preparation of FS
- The intented use of PFI
- The completeness of significant management assumptions
- Managements acceptance of its responsibility for the PFI

CHAPTER 7 AUDIT OF SOCIAL , ENVIRONMENTAL AND INTEGRATED REPORTING (Envirrnmental Audit)

Corporate Social Responsibility

Integrated Reporting - not only on Financial ther than financial

KPIs – Key Performance Indicators – Financial /non-financial , fairness and validity of KPIs,

Risk faced by practitioners during KPIs

- Difficult to quantify/measure
- Difficult to define
- Hard to compare
- Subjectivity involved
- Hard to get evidence
- Lack skills and expertise
- Scope for manipulation

Procedures

Enquiry of mgmt. and experts

Recalculation of figures

Inspection of supporting documents

External confirmation – Certificate providers

Obtain written representation regarding preparation of FS

- The intented use of PFI

- The completeness of significant management assumptions
- Managements acceptance of its responsibility for the PFI
CHAPTER 15 –DUE DILIGENCE

No Assurance – Agreed upon procedures engagement

Limited Assurance – Practitioner express his opinion on the matter

-It is a fact finding exercise usually conducted to reduce risk of making a bad investment

- Reveal potential problems

- Information fir whether to acquire, when acquire & how much to pay
- Helps to increase confidence of stakeholders eg; Bank

Scope of Work

- Current affairs of company

- Prospects for future
- Past performance
- Knowledge about financial operational affairs, market position, legal issues,Tax Matters, HR

Benefits to client

 Decrease mgmt. time

 Identify operational issues and risk
 Liabilities
 Identify Assets not capitalized
 Helps in planning the acquisition
 Claims made by vendor
 Evaluation of post acquisition synergies
 Gather information

Acceptance consideration – Before accepting a Due diligence engagement

 Why they are not using existing external auditor

 Employee know about acquisition or not
 Whether it is a hostile takeover? Forced takeover
 Limited Assurance or agreed upon procedures
 Reason for acquisition
 Deadline for the report
 Any ethical threat is known

Due diligence procedures involce;

 Analytical Procedure – Past FS, Forecasts, Contracts entered

 Enquiries
 Related Party Trana=sactions
 Asset Register
 Board minutes
 Legal case against co
 Revoiew Tax correspondence
 Reiew industry data