Assurance Assignment

 What is an Assurance Assignment?

o An assurance engagement is one 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 subject matter against criteria
 What are some key elements?

1. 3rd party involvement

2. Subject matter → what is covered by the audit report
3. Suitable criteria → *financial reports should be prepared in accordance with
international accounting standards
4. Sufficient appropriate evidence → evidence to support assurance that you
are giving to members
5. Written assurance report → people have an idea of what exactly they are
getting for their money

 What is a Practitioner?
o Responsible for determining the nature, timing & extent of procedures & must
pursue doubts & queries
 e.g. an auditor
 What is a Responsible Party?
o The person responsible for the information & assertions
 Who are the Intended Users?
o The person(s) for whom the practitioner prepares the assurance report
 the responsible party can be one of the intended users
 buying a house example

Practitioner = Surveyor

Intended user = Buyer

Responsible party = Seller

Subject matter = House

Suitable criteria = Building regulations/Best practice

Sufficient evidence = Physical inspection

Written assurance report = Surveyors report

 What are the main types of appropriate subject matter? - assurance takes many forms

1. Financial performance
2. Non-Financial performance - key indicators of efficiency & effectiveness
 3. Physical characteristics - capacity of a facility
4. Systems & processes - an entity’s internal control;/IT systems
5. Behaviour - corporate governance, compliance with regulation

 What is Reasonable Assurance?

o High, but not absolute, assurance

E.g. Audit of the Financial Statements

o Opinion expressed positively - ‘in our opinion, the financial statements give
a true and fair view’
 What is a Limited Assurance?
o Moderate/Low levels of assurance

E.g Assurance Assignment to Review a Forecast (Budget)

o Conclusion is expressed negatively - ‘nothing has come to our attention

which causes us to believe these assumptions do not provide a reasonable
basis for …’
 What is the difference between Reasonable & Limited Assurance?

1. More regulations & standards

2. Procedures would be more thorough
3. Evidence will need to be of a higher quality

 examples of assurance engagements

1. Audit of financial statements

2. Review of a forecast
3. Review of internal controls
4. Work of HMRC
5. Work of the National Audit Office

External Audit

 What are the ISA 200 overall objectives of an independent auditor?

1. Obtain reasonable assurance as to whether the financial statements as a
whole are free from material misstatement
2. Express an opinion as to whether the financial statements are prepared in
accordance with the financial reporting framework
3. To report on the auditors finding
 Why do we have an audit? *
1. Shareholders are often not involved in the day-to-day running of the business,
management therefore need to give an account of their stewardship
2. Directors prepare the accounts & have an incentive to manipulate the
financial statements
3. Auditors provide an external verification
 What are the benefits of an audit?

HIRED
 (+) Higher quality of information = gives investor confidence

(+) Independent scrutiny may help management

(+) Reduce the risk of management bias, fraud & error

(+) Enhances the credibility of the financial statements for other stakeholders

(+) Deficiencies in the internal control system may be highlights

 What are the limitations of an audit?

FIRED

(-) Financial statements include subjective estimates & judgement

(-) Internal controls may be relied upon by the auditors

(-) Representations from management are not always reliable

(-) Evidence is not always conclusive

(-) Do not test all transactions, only samples

 What is the expectations gap?