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AAA Revision

The document outlines the concept of assurance engagements, detailing the roles of practitioners, responsibility parties, intended users, and the subject matter involved. It distinguishes between reasonable and limited assurance, highlighting the objectives and principles of external auditors, as well as the stages of an external audit. Additionally, it addresses the expectation gap regarding common misconceptions about auditors' responsibilities and the nature of audit opinions.

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6 views

AAA Revision

The document outlines the concept of assurance engagements, detailing the roles of practitioners, responsibility parties, intended users, and the subject matter involved. It distinguishes between reasonable and limited assurance, highlighting the objectives and principles of external auditors, as well as the stages of an external audit. Additionally, it addresses the expectation gap regarding common misconceptions about auditors' responsibilities and the nature of audit opinions.

Uploaded by

Zoi Zak
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Revision ACCA – Class 1 25.01.

2025

1. What is an Assurance Engagement?


An assurance engagement is an engagement in which a practioner (Auditor) express a
conclusion, designed to enhanced the degree of confidence, of intended users rather than
responsibility party, about the outcome of subject matter against the criteria.

 Practioner: Auditor
 Responsibility Party: Directly Responsible to prepare the Financial Information – Company’s
Management Department
 Itended Users: Users rely on the Information – Shareholders, Investors, Users
 Subject Matter: Financial Statements, Internal Control Forecasts
 Criteria: IAS’s & IFRS, Legislation

The Five Elements of Assurance Engagement:

Criteria – IAS’s & IFRS, Legislation

Report – Audit Report – Assurance Repot

Evidence – Documents like Invoices, Receipts

Subject Matter – Financial Statements

Three Party- Itended Users, Practioner & Responsible Party

Levels and Types of Assurance

1. (A) Reasonable Assurance


 High BUT NOT absolute assurance
 Sufficient Appropriate Evidence
 Opinion Expressed Positively
‘ The Financial Statement gives a true and fair view’

(B) Characteristics:

- There are more extensive and though procedures

- There are more regulations and standards

- The evidence must be collected on their Higher Quality

2. (A) Limited Assurance


 Lower Level of Assurance
 Sufficient and Appropriate at a lower level
 Conclusion expressed negatively
‘ Examine a forecast’
(B) Review Engagement: Review Engagement is an example of Limited Assurance – Review the
Financial Statements.
- Fewer Procedures – less extensive procedure

- Lower Level of Assurance – may be misstated

- Less Costly – Less procedures, Less time, Less Costly


- Less Disruptive

The Confidence Inspired by a Reasonable Assurance is designed to be greater that inspired by a


Limited Assurance.

2. External Auditor:

The Objectives of an External Auditor?

- Obtain a Reasonable Assurance about whether the FS are free from misstatements, due to fraud
or errors.
- Express an opinion on whether the FS are prepared, in all material respect
- Report on FS and communicate as requested by IAS’s

Principles of an External Aduit:

a. Comply with criteria and standards

b. Comply with Audit Standards

c. Planning and Performing with Professional Skeptism

Stages of an External Audit:

1. Planning Stage:

- Obtain an understanding of Client Business, operations and assess the risk

- Performs the Analytical Procedures

- Develop the audit strategy (Scope, Timing)

- Selection of Audit Team

- Assess the Materiality

- Engagement Letter: Client and Auditor Approval


2. Substantive Stage:

- Auditor Performs procedures in order to obtain sufficient appropriate evidence

- Auditor obtains evidence through test of controls and substantive procedures

Substantive Procedures: Test of Details and Analytical Procedures

Test of Controls: Test the operating effectiveness of control to detect, correct misstatements, errors.

3. Completion Stage:

Final Procedure before the preparing the audit report and put their signatures

- Going Concern Review


- Overall Review of FS
- Evaluation of Misstatements
- Written Representation
- Subsequent Event

3. Expectation GAP:

The Difference (GAP) is between what people thinks that auditors do and what actually do:

a. Belief that auditors prepare the Financial Statements – Responsibility of Management

b. Belief that auditors test all the transactions – Examinate by a sample testing

c. Belief that auditors detect all the fraud

d. Belief that the unmodified or unqualifies auditors’ opinion guarantees the company is a going concern

Unmodified or Unqualifies Opinion is the best report for Audit, means that auditor conclude that FS
provide a true and fair view.

Going Concern means that the company will continue to have operations in the future.

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