CH # 1 WHAT IS ASSURANCE ?

AUDIT ENGAGEMENT The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. This is achieved by the expression of an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. INTERNATIONAL STANDARDS FOR AUDITING (ISA). REVIEW ENGAGEMENT

PRACTIONER(Auditor)
{Appointed by shareholders}

The purpose of review engagement is to enable a practioner to state whether on the basis of procedures which do not provide all the evidence that would be required in an audit, anything that has not come to the practioner s attention that causes the practioner to believe that financial statements are not prepared, in all material respects, in accordance with an applicable financial reporting framework. INTERNATIONAL STANDARDS FOR REVIEW ENGAGEMENT (ISRE).

ASSURANCES

REASONABLE ASSURANCE     
Unrestricted access to all information & explanations. High but not an absolute level of assurance. Its high --- professional expert, skepticism, planning, rules & regulations. Not absolute --- sampling/material basis (Time Constraint). Positive assurnace.

LIMITED ASSURANCE   
Moderate level of assurance which is less than reasonable assurance. Restricted to Inquiry and Analytical Procedures. Negative assurance.

Adds Credibility
 

SUBJECT MATTER(Financial Statements)

Prepare by Directors or Management. Intended users measures company s performance through Financial Statements.

Adds Credibility

(Measure Performance) Intended Users

(Shareholders)

(Prepare) Responsible Party

(Directors)

(APPOINT)

(Own)

COMPANY

(Manage)

AUDIT

BENEFITS  High quality & reliability

information circulates the market (gives investors faith & improves reputation of the market). 

LIMITATIONS
Financial information includes subjective and judgemental matters. Inherent limitations of controls used as audit evidence. Representations from management may have to be relied upon as the only source of evidence in some areas. Evidence is persuasive not conclusive. Do not review 100% of the transactions.

 

 Independent verification
(management value having their business scrutinised).

 Reduces the risk of management

bias, fraud & error.

 Enhances the credibility of the

information (especially for raising finance & for the tax authorities).

 

 Deficiencies may be highlighted in

the management letter.

DEFINATIONS:

STEWARDSHIP is the responsibility to take good care of resources. A steward is a person entrusted with management of
anoter s person s property, for example, when one person is paid to look after another person s house while the owner goes abroad on holiday. The Steward is accountable for the way he caries out his role.

A FIDUCIARY RELATIONSHIP is established, when one person has a duty of care towards someone else. It is relationship of good faith such as that between the directors of a company and the shareholders of the company. There is a separation of ownership and control in the sense that the shareholders own the company, while the directors take the decisions. The driectors must take their decisions in the intrests of the shareholders rather than in their own selfish personal intrests. ACCOUNTABILITY means that people in positions of power can be held to account for their actions, i.e. they can be
compelled to explain their decisions and can be criticised or punished if they abused their position.

 

AGENCY RELATIONSHIPS occur when one party, the principal, employs another party, the agent, to perform a task on their
behalf. For example, directors can be seen as the agents of shareholders, employees as the agents of directors and external auditors as agents of shareholders.

 

MATERIALITY Information is material if its ommission or misstatement could influence the economic decisions of users tken
on the basis of the financial statements.

TRUE Information which is not false.  FALSE The information which is not biased. VOCABULARY:Plausible (seeming reasonable or probable), Precision (expressed very clearly & with great detail), Persuasive (cause someone to do or believe something through reasoning or agreement), Conclusive (convincing or settling an issue quickly), Predator (take advantage of others), Intensive (very thorough), Unscrupulous (dishonest), Impartial (treating all equally), Subjective (based or influenced by personal opinions), Judgemental (the ability to make sound decisions).