Introduction to assurance 1

Question 1.
Define what type of assurance engagement the following opinion relates to? Support
your decision with appropriate facts.
“In our opinion, the financial statements present fairly, in all material respects the
financial position of Chamomile Company as at 31 December 2013, and of its financial
performance and its cash flows for the year then ended in accordance with International
Financial Reporting Standards”.

Question 2.

There is no precise definition of what is meant by reasonable or limited assurance.

Describe in what situation level of confidence is higher.
Answer:
- A reasonable assurance assignment is governed by more regulations/standards.
- In a reasonable assurance assignment, the procedures will be more thorough.
- In a reasonable assurance assignment, the evidence gathered must be of higher quality.

Question 3
Suggest four responsibilities of company directors in stewardship relationships.

Question 4
Describe the possible agency relationships among shareholders, directors and auditors.
Answer:
Shareholders: Shareholders are the company's owners. The auditor's job is to look out for
the shareholders' best interests. As a result, the auditor and the shareholders should have
a healthy working relationship.
Directors: A corporation's directors are responsible for ensuring that the company is run in
the best interests of its stockholders. The auditor's relationship with the board of directors
is largely determined by the board's makeup. The auditor's interaction with the director is
essentially when the directors comprise mostly of company officers. The board of
directors can assist the auditor by giving required information about the entity's
operations.
Question 5
Compare limited assurance and assurance provided by statutory audit filling in the table
below.

Limited Assurance provided

assurance by statutory audit

Level
Objective
Report type

Scope of procedures and their types

Question 6
Which of the following is NOT a responsibility of the auditor?
A To provide an opinion on the truth and fairness of the financial statements
B To conduct an audit in accordance with International Standards on Auditing
C To express an opinion on the company’s going concern status
 Introduction to assurance 2

Question 7

ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with International Standards on Auditing deals with, amongst other matters,
the responsibility for financial statements and the concept of reasonable assurance.
In general, ISA 200 considers that an audit in accordance with ISAs is designed to provide
reasonable assurance that the financial statements taken as a whole are free from
material misstatements in financial statements taken as a whole.
Reasonable assurance is a concept relating to the accumulation of the audit evidence
necessary for the auditor to conclude that there are no material misstatements in the
financial statements taken as a whole.
Reasonable assurance relates to the whole audit process.
However, there are inherent limitations in an audit that affect the auditor’s ability to
detect material misstatements. In addition, the work undertaken by the auditor to form
an opinion is, in many areas, determined by the judgement of the auditor.

Required:
a) State the respective responsibilities for financial statements of the
management of the entity and of its external auditors.
b) Describe the inherent limitations facing auditors in undertaking their work.
c) Describe the significant types of judgements made by auditors:
(i) in gathering evidence
(ii) in arriving at an opinion on the financial statements

Question 8
Following the International Audit and Assurance Standards Board’s Clarity Project, may
revised and redrafted ISAs were effective for audits of financial statements for periods
ending on or after 15 December 2010. One of the objectives of the Clarity Project was to
clarify mandatory requirements. This was done by changing the wording used in the ISAs
to indicate requirements which are expected to be applied in all audits. Some argue that
this introduced a more prescriptive (rules-based) approach, and that a principles-based
approach is more desirable.
Required:
a) Contrast the prescriptive and the principles-based approaches to auditing.
b) Outline the arguments for and against a prescriptive (rules-based) approach to
auditing.