AF2100 Assurance – Week 1

Introduction to the module

How it will be taught
How you will be assessed
Introduction to assurance
Welcome
 Robert Stenhouse FCCA, FCA
 Director – National Accounting and
Audit Deloitte UK
 Specialising in audit methodology
 Past President of Association of
Chartered Certified Accountants
(ACCA)
 … a long time ago I was in your place
studying Accounting and Law degree
at Southampton University
Introduction to the module
 Assurance is about applying business knowledge …yours is growing …we
need you to use it

 Business knowledge comes from all your studies but also curiosity

 The course is linked to the certificate level of professional exams –

because you get exemptions in the future by completing it

 This means it is demanding but valuable

Course components
Teaching Teaching Contact Self- Student 
component  type  hours directed learning 
study  hours
hours

Lecture Lecture 22 98 120

Tutorial Tutorial 10 20 30
Total 32 118 150
Lectures and tutorials
 Lectures on Mondays
 Follow the structure of the
study manual
 Explain concepts
 Put in to context
 Tutorials Monday and
Tuesday
 Answer any questions on
previous weeks lecture
 Discuss set questions

Please do ask questions – it is evidence of curiosity

Reading and business and awareness
 Required reading will be on  Recommended reading text –
Moodle for each week The Audit Process by Gray,
 Primarily the ICAEW study guide Manson and Crawford
and question bank  FT.com
 Extracts from ISAs and standards  Other developments in the
 Other relevant articles audit world
Each week Moodle has quiz questions on the topics we have covered
Coursework and Examination
 Coursework 30%  Exam paper 70%
 Preparation of a essay in  2 ¼ hours
groups of 3-4  4 questions out of 6
 No more than 1750 words
 Past papers are on Moodle
 Additional marks for active
participation in the module
Don’t worry – please use the moodle forum for any questions about the module.
Assurance

The business case

What happens when people don’t

have confidence in you numbers
https://www.youtube.com/watch?v=Am8IK8DbFtk
Assurance Services

Assurance
Informal assurance Assurance Services
services services completed in
accordance with
completed by
professional
Audit
recognised standards accountants
Do we get any assurance from this?

https://www.youtube.com/watch?v=GZFiJISNV18
What is an Assurance Engagement?

An assurance engagement is an ‘engagement in

which a practitioner expresses a conclusion
designed to enhance the degree of confidence of
the intended users other than the responsible
party about the outcome of the evaluation or
measurement of a subject matter against
criteria.’
Examples of Assurance Engagements
 Surveyor reporting to a house purchaser on the condition of
a property
 Circularisation figures for media organisations
 Complaints handling
 Non- financial aspects of reporting

 Often relate to Data, Systems and Processes, or Behaviour

Assurance Engagements

Five elements
1. Three-part relationship – practitioner, responsible party,
intended users
2. Appropriate subject matter
3. Suitable criteria
4. Sufficient appropriate evidence
5. Written report in suitable form

BENEFIT – Independent, professional verification

Sufficient Appropriate Evidence
How do you obtain sufficient appropriate evidence:
 Understand the circumstances of the engagement
 Understand the business
 Assess the risks of rendering inappropriate conclusion
 Respond to risks
 Execute tests e.g., inspection, observation, recaclulation,
reperformance, analytical procedures, enquiry, substantive tests
to corroborate
 Evaluate evidence and conclude
Content of assurance report
 Title referring to independent assurance report
 Addressee
 Subject matter information and subject matter
 Identification of the criteria
 Any inherent or significant limitation
 Statement restricting use
 Responsible party and practitioner responsibilities
 Performed in accordance with ISAs
 Summary of work performed
 Practitioner’s conclusion
 Report date
 Name of firm/practitioner and location
Two levels of Assurance
Reasonable Assurance Limited Assurance
 A high but not absolute level  Limited Assurance
of assurance  Obtain lower level of sufficient
 Obtain sufficient and and appropriate evidence
appropriate evidence to  Negative conclusion … nothing
reduce risk to an acceptably has come to my attention that
low level … is not reasonable
 Positive conclusion e.g. …is  Often through review, analysis
reasonable and enquiry
 Testing procedures involved
An Audit in accordance with International Standards on Auditing (ISAs) is a reasonable
assurance engagement.
A Financial Statement Audit - Audit
• An Audit is the most important type of assurance service. All
large companies are by law required to have annual audits
and many other organisations choose to do so.

• An Audit is an independent opinion on whether the

financial statements give a true and fair view and have
been properly prepared in accordance with an applicable
financial reporting framework.
The main benefits of an Audit
• It gives Credibility to the financial statements

• An audit opinion gives a high but not absolute level of

assurance

• But ….Expectation gap

What do you think “True and Fair” means?
Audit Engagements
Five elements
1. Three-part relationship – Auditor, Company Directors,
Shareholders and …
2. Appropriate subject matter – financial statements
3. Suitable criteria – Accounting standards and Legislation
4. Sufficient appropriate evidence – Audit work in accordance
with auditing standards
5. Written report in suitable form – Reasonable assurance
Auditors Report
Extract of audit report

Full report runs to 7

pages!

Copy is on Moodle
Financial Reporting – Who Does What
Source ICAEW
Users of financial statement audit reports
 Members (intended users)  Regulators
 Potential investors
 Banks
 Creditors
 Revenue authorities
 Employees
 Other stakeholders
 Society at large
Financial Reporting – What gets audited
Source ICAEW
Assurance engagement acceptance
 Independence and Ethical requirements- Audit firm
 “Take on” procedures - Client Company Risk/Reward Assessment
 Competence
 Resources
 Communicate with present auditor
 Send Engagement Letter
Why are client “take on” procedures
important?
Wirecard auditor EY defends company post-scandal - Bing video
Administration - Engagement Letter
Acts as a formal contract between the client and the
auditor
 Minimises possible misunderstandings by defining clearly the
extent of the directors and auditors responsibilities (especially
important for non-statutory audit assignments)
 Provides written confirmation of acceptance
 Confirms the scope of the engagement and form of report
 Must be discussed and agreed with client
 Obtain client’s signature on duplicate letter
 Send to all new clients after appointment and review annually
Administration - Engagement Letter
Engagement Letter incorporates:

 Description of the engagement objective and responsibilities

 Scope of work
 Form of report – content and assurance
 Restrictions on use of reports
 Fees and billing arrangements
 Timetables and deadlines
ANY QUESTIONS?
Week 1 – Key messages
 Assurance is all about “enhancing confidence”
 Value comes, in part, from “independent, professional
verification”
 There are two levels of assurance “reasonable” and “limited”
 Audit is the most common reasonable assurance engagement
 “True and fair” is not absolute assurance
 Take on procedures are important to protect practitioner
reputation