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Lecture-1

Shareholders’

 First agent - Board of Directors

 Second agent – auditors (will report back to shareholders)

It is a legal requirement in the UK for companies over a certain size to have an audit. Why is it so
important?

- It provides credibility to set of financial statements, give the shareholders confidence – the
accounts are true and fair
- Essential to ensure that companies their financial positions fairly and accurately, in
accordance with the accounting standards
- Help improve a company’s internal control
- Exemption from audit for small business
 Turnover at/under 10.2 m
 Total assets at/under 5.1 m

List 5 key elements of an assurance engagement

1. Three-party relationship (the company, shareholders, auditors)

2. Appropriate subject matter
3. Suitable criteria
4. Sufficient, appropriate evidence
5. A conclusion

Tesco

1. An audit assignment is conducted based on the samples from the population of transactions
where the sampling technique are designed to represent the entire population.

For the sample, the auditors test substantially if the transaction have been recorded with proper
compliance with the audit/financial statement assertions.

Therefore, for these samples tested, the auditors obtain a high level of assurance that the
recognition and recording of those transactions do not include any material misstatement.

However, since the audit test are not conducted for all transactions, hence there might still be
transactions which might contain misstatements which might be material to the financial
statements.

Therefore, a 'True and Fair' opinion does not mean that the accounts are 100% correct.