Auditing Week 1 - Assurance And Auditing: An Overview

Front 1

Definition of Assurance Engagement (5)

Back 1

Engagement in which practitioner aims to obt suff appropr evidence

in order to express a conclusion

designed to enh degree of confidence of intended users o/t resp party

abt outcome of measurement / evaluation

of an underlying subj matter against criteria

Front 2

5 Elements of Assurance Engagement

Back 2

3-party relationships

Underlying subject matter

Criteria

Sufficient appropriate evidence

Written Assurance report

Front 3

Who is involved in 3-party relationships?

Back 3

1. Assurance practitioner (auditor)

2. Responsible party (preparer)

3. Intended user

Front 4

What are the 5 underlying subject matters?

Back 4

1. Financial position and perf

2. Non-financial perf

3. Physical characteristics

4. Systems and processes

5. Behaviour

Front 5

Why is there value in the assurance service? (2)

Back 5

1. Independence

Users derive value fr knowledge tt assurance prov has no interest in info o/t for its usefulness

2. Expertise

Assurers must have competence to obt sufficient relevant info to prov reasonable basis for their conclusions

Requires prof judgment & skepticism

Front 6

What are the types of assurance engagements? (3)

Back 6

Reasonable Assurance Engagements

Limited Assurance Engagement

Agreed-on Procedures Engagements

Front 7

Reasonable Assurance Engagements (4)

Back 7

Commonly called 'audit engagements'

Reduce risk at acceptably low level

Positive expression of opinion ("it is t&f")

High level of assurance

Front 8

Limited Assurance Engagements (4)

Back 8

Commonly called 'review' engagements

Reduce risk to an acceptable level

Negative expression of opinion ("nth comes to my attention")

Moderate level of assurance

Front 9

Agreed-on Procedures (2)

Back 9

Provide no assurance

Auditors report their findings

Front 10

What is attestation engagement? (4)

Back 10

Responsible party measures / evaluates underlying subj matter against criteria

Assurer measures / evaluates underlying subj matter against criteria

Assurer attests the responsible party's statements

E.g. General Purpose Financial Statements

Front 11

Direct Engagement (2)

Back 11

Auditor directly measures / evaluates underlying subj matter against criteria

E.g. Adequacy of internal control

Front 12

Definition of Auditing (4)

Back 12

- To obtain reasonable assurance about whether the FRs as a whole

- is free from MM whether due to fraud / error

- enabling auditor to express an opinion on whether FR is prepared, in all material respects, in accordance with an applicable FR framework

- ASA 200.11: to report on the FR, and communicate as required by the ASAs, in accordance with auditor's findings

Front 13

What are the ethical principles contained in national and international codes of ethics (5)?

Back 13

Integrity

Objectivity

Professional competence and due care

Confidentiality

Professional behaviour

Front 14

Fundamental auditing principles (10)?

Back 14

Knowledge

Responsibility

QC

Rigour and scepticism

Evidence

Prof Judgment

Documentation

Communication

Association

Reporting

Front 15

Demand for assurance arises because users are not in a position to est the credibility of the info they are presented with. What is this due to? (4)

Back 15

1. Conflict of interest

Managers may present biased info, as they are also evaluated on the info

2. Consequence

Info provided forms the basis of many users' decisions

3. Complexity

Many users do not have expertise required to determine quality

4. Remoteness

Separation of owners fr mgmt prevents users fr assessing info quality

Front 16

Hypotheses explaining demand for assurance (3)

Back 16

1. Agency theory (stewardship hypothesis)

2. Info hypothesis

3. Insurance hypothesis

Front 17

What are 2 other benefits of assurance?

Back 17

1. recommendations by the assurance provider to improve efficiency and effectiveness of ops

AND / OR

2. positive influence on behaviour of ppl whose activities are being assured

Front 18

What is the expectation gap? (2)

Back 18

Gap that exists between what users expect of an auditor and the actual service auditors provide.

Made up of reasonableness gap and performance gap.

Front 19

What is the reasonableness gap? (In expectation gap)

Back 19

Gap between what society expects auditors to achieve and what they can be reasonably expected to accomplish

Front 20

What is the performance gap? (in expectation gap)

Back 20

Gap between what society can reasonably expect auditors to accomplish and what they are perceived to achieve

Subdivided into:

1. Deficient stds: gap btwn duties that can be reasonably expected of auditors and auditors' existing duties as defined by law & professional promulgations

2. Deficient performance: Gap between expected std of perf of auditors' existing duties and auditors' perceived perf, as expected and perceived by society

Front 21

What is the information gap?

Back 21

Info about the entity and the audit itself that is relevant to decision making but is not currently being provided through the:

1. Audited financial report /

2. Other corp disclosure mechs /

3. Through AR

Front 22

What is the communications gap?

Back 22

The diff between what users desire and understand what, and how, it is communicated by the assurance provider

Front 23

What are the 3 major issues in the expectation gap?

Back 23

1. early warning by auditors of corporate failure

2. Auditor's responsibility for the detection and reporting of earnings mgmt & fraud

3. Auditor's ability to comm diff levels of assurance

Front 24

What are other applications of the assurance function? (6)

Back 24

1. Compliance audit

2. Performance audit

3. Comprehensive audit

4. Internal audit

5. Forensic audit

6. Assurance on subj matter o/t historical info

Front 25

Compliance audit

Back 25

Examination for the purpose of reporting on legality and ctrl of ops

Front 26

Performance audit (4)

Back 26

Analyses org structure, internal sys, workflow and managerial perf - efficiency, effectiveness and economy of these

Front 27

Comprehensive audit (3)

Back 27

Incl components of

- Compliance

- Performance

- FR audits

Front 28

Internal audit

Back 28

audits performed by employees of entity as part of risk mgmt process

Front 29

Forensic audit

Back 29

Fraud detection

Front 30

Assurance on subj matter other than historical info (3)

Back 30

Prospective financial info

Internal control

Sustainability & carbon emissions reports

Front 31

Quality Control (3)

Back 31

QC implemented at both audit firm level & audit engagement level

ASA220:

Audit engagement team must implement QC procedures

Acknowledges enagement team may rely on audit firm's sys of QC

Front 32

APES 210

Back 32

Establishes auditors' responsibilities in relation to compliance with Aus auditing & assurance stds

Front 33

APES 320

Back 33

Est basic principles and essential procedures and provs guidance concerning firm's responsibilities for its sys of QC.

Front 34

What are the 6 elements of QC system for an audit?

Back 34

1. Leadership responsibilities for quality

2. Ethical requirements

3. Engagement acceptance and continuance

4. Human Resources

5. Engagement performance

6. Monitoring (ASA 220)

Front 35

What is engagement performance comprised of? (6)

Back 35

Direction

Performance

Supervision

Review

Consultation

QC --> REVIEW

Front 36

What are 4 other key QC procedures employed?

Back 36

1. Internal review (engagement QC review)

2. Periodical rotation of auditors

3. Peer reviews

4. Continuing prof development requirements