ASSURANCE ENGAGEMENT AND AUDIT Edited By: Salim Saifullah-Al-Ahsan, Bsc Hons (OBU) UK, ACCA (Finalist
An assurance engagement is one in which a practitioner (auditor) expresses an opinion on a report prepared by an entity (auditor) which increases the confidence of the intended user (shareholder)
Three people or groups of people involved ± The practitioner (accountant) ± The intended users ± The responsible party (the person(s) who prepared the subject matter
Reasonable or Positive assurance It s where intensive procedures are undertaken to find high quality evidence, this in turn increase the credibility of the assurance given by practitioner. E.g. Audit Limited or Negative assurance It s also called moderate assurance, usually given in a review engagement. Practitioner agrees terms of engage and conducts analytical procedures, enquiries to produce a negative assurance report. i.e. Nothing has come to our attention that causes us to believe that the business have going concern threats Worked example: Assurance engagement In order to demonstrate these elements of an assurance engagement, the Worked example is that of a house purchase. Imagine you are buying a house. There are certain issues you would want assurance about, particularly whether the house is structurally sound. In this situation, you would be unlikely just to trust the word of the person who was selling the house but would seek the additional assurance of a qualified professional, such as a surveyor. You should already be able to see the first key element of an assurance engagement, which is the involvement of three people: You (the intended user) The house owner (the responsible party) The surveyor (the practitioner) The subject matter of this assurance engagement is the house in question. The surveyor will visit the house to test whether it is sound and will draw a conclusion.
The objective is to enable the auditor to express an opinion whether the financial statements represent true and fair view and are prepared. Certified lawyer etc ) Responsible party( Whoever prepares the information e. the surveyor will issue a report to you. Country specific regulation and accounting standard)
The statutory requirement for audit
Most countries impose a statutory requirement for an annual (external) audit to be carried out on the financial statements of most companies. outlining his opinion as to whether the house is sound or not. MBBS Doctor. -A written report (Audit report that is contained with the published F/S)
It s an official examination of the accounts of an entity by an auditor. the surveyor will obtain evidence from the house (for example. in many countries. Other entities. Auditor.Follow ISA/IAS -Sufficient appropriate evidence (Result of test) . Six elements -Three party relationships: y y y Practitioner (Professional accountant.The surveyor will judge whether the house is sound in the context of building regulations. This report will contain any limitations to his work. when you have read the surveyor s report.g. (I. Board of directors) Intended users( Whoever commissions the work e. if he was unable to access any of the property or he was unable to lift fitted carpets to inspect the floor underneath them. such as sole traders. when he has drawn a conclusion.
Ultimately. by looking for damp patches and making inspections of key elements of the house). in accordance with an applicable financial reporting framework. These are the criteria by which he will judge whether he can give you assurance that the house is structurally sound. The reader of financial statements)
-The subject matter (e.basis of review/work -Suitable criteria (The relevant framework) .e.g Performance of the company) . However. more confidence to pay the deposit. for example.g. clubs and
. partnerships. in all material respects. planning rules and best practice in the building industry. and correspondingly. you will have more assurance about the state of the property.Subject matter information (The annual F/S) . smaller companies are exempt from this requirement for an audit. take out a mortgage and buy that house. Lastly. In order to make a conclusion.
The shareholders own the company. in most large companies. Although the phrase true and fair view has no legal definition. even though this is not required by law. In small companies the shareholders may be the same people as the directors. the term true implies free from error. The auditor does not certify or guarantee that the financial statements a re correct. the two groups are different. The directors have a stewardship role. Small companies and these other entities may decide to have a voluntary audit. stewardship and agency
An audit of a company¶s accounts is needed because in companies. and fair implies that there is no undue bias in the financial statements or the way in which they have been presented. The company is managed and controlled by its directors. However. the owners of the business are often not the same persons as the individuals who manage and control that business.
Concepts of accountability. True and fair view (fair presentation) The auditor reports on whether (or not) the financial statements give a true and fair view. the position of the entity as at the end of the financial period and the performance of the entity during the period.societies are usually not subject to a statutory audit requirement. They look after the assets of the company and manage them on behalf of the shareholders.
. or present fairly.