Homework 1 – Answers

QUESTION 1

Assurance Engagement Statutory Audit

Not required by Law
Criteria decided by auditor and client
Report is to the client and for the use of
the client
Can be a negative or positive report and
a low level of assurance provided
Can be on all aspects of the business
Required by law
Performed in accordance with ISA’s and
client has no influence over the
procedures
Report is made to the shareholders
(members)
A positive report provided- higher level
of assurance but still only ‘reasonable
assurance’
Only concerned with aspects that
impact on the FS’s

1 mark per relevant point made

PLUS MARKS ON MERIT

QUESTION 2

Note: teeming and lading. Definition. noun. an attempt to hide missing funds by delaying
the recording of cash receipts in a business's books.

Teeming and lading is a bookkeeping fraud also known as short banking , delayed
accounting and lapping. It involves the allocation of one customer's payment to another in
order to make the books balance and often in order to hide a shortfall or theft.

Marks will be awarded for presentation and style

Letter should include the following points:

- A clear reminder of what a statutory audit involves

- The purpose and scope of a statutory audit
- The fact that we adopt a risk based approach and not a transaction based
one- therefore not all transactions were tested as outlined in our engagement
letter
- Mention that it was managements responsibility to both implement and review
internal control mechanisms that both prevent and detect fraudulent activity
- Mention that we could provide an assurance engagement specifically looking
at the IC’s to specifically test these systems- this would be a separate
assignment – forensic auditing assignment charged separately
- Mention that it was clients’ right to report to RSB – in this case the ACCA if
not fully satisfied and they will investigate further