AUDIT 2

• The audit committee is responsible for overseeing the financial reporting process, including reviewing significant accounting policies and judgments.
• Assurance services are independent professional services where a practitioner expresses a conclusion to enhance the confidence of users other than the responsible party about the outcome of an evaluation or measurement against criteria
• Assurance services are related to decision-making
• Assurance services are provided by independent professionals to capture information, improve its quality, and enhance its usefulness for decision-makers
• Assurance services cover a broad category of services including financial and non-financial information, systems and processes, behavioral and human resource practices
• Types of assurance services include risk assessment, information system reliability, business performance measurement, and electronic commerce
• The International Framework for Assurance Engagements (Framework) was issued by the IAASB in 2004 to provide a frame of reference for professional accountants providing assurance services
• In Malaysia, specific ISAs have identified four levels of engagements and their related forms of conclusions: Examination of Prospective Financial Information (ISAE 3400), Engagements to Review Financial Statements (ISRE 2400), Engagements to Perform Agreed-upon (ISRS 4400), Engagements to Compile Financial Information (ISRS 4410)
• Review engagements provide a conclusion in the form of negative assurance, stating whether any information indicates that assertions are not presented in conformity with applicable criteria
• Examination engagements result in a positive conclusion, with the practitioner making a direct statement on whether assertions conform to applicable criteria
• Agreed-upon procedures engagements involve procedures agreed upon by the practitioner, with the degree of assurance varying based on the specific procedures performed
• Special Purpose Audit engagements include audits of FS prepared on an Other Comprehensive Basis of Accounting (OCBOA), audits of specified elements, accounts, items, compliance with contractual agreements, and summarized FS
• The auditor should ensure there is an agreement with the client on the nature of the engagement and the report to be issued, understand the purpose and users of the information, and make appropriate changes to conform with auditing standards when reporting in a prescribed format
• The auditor's report for Special Purpose Audit must contain a clear written expression of opinion and include all basic elements usually found in an audit report
• The level of assurance provided by professional accountants' conclusion conveys the degree of confidence that intended users may place in the credibility of the subject matter
• IAASB identifies two levels of assurance: reasonable assurance and limited assurance
• Reasonable assurance engagements aim to enhance the confidence of intended users, providing less than absolute assurance but more than limited assurance to reduce engagement risk
• Assurance levels in auditing:

  • Intended users have less than absolute assurance but more than limited assurance
  • Objective is to reduce engagement risk to an acceptably low level
  • Conclusion must be expressed in a positive form
• Limited assurance engagement:

  • Objective is to provide less assurance by doing less work that may be appropriately understood by all involved parties
  • Conclusion should be in the negative form
  • A limited assurance engagement related to financial statements is referred to as a review
• Due Diligence Review:

  • Work commissioned by a client, involving agreed inquiries into aspects of the accounts, organization or activities of another organization
  • Common with takeovers and mergers, can be carried out by accountants, actuaries, surveyors, lawyers, and other professionals
• Review Engagement:

  • Partnership or sole proprietorship may have their financial statements reviewed or compiled by an auditor instead of having them audited
  • Management may believe an audit is unnecessary due to active owner involvement and lack of significant debt or regulatory requirements
  • A review provides limited assurance on the financial statements, while compilation provides no expressed assurance
• Review Engagement (cont.):

  • Less evidence is required for review services compared to an audit
  • Amount of evidence and assurance depends on the auditor's professional judgement
  • Must establish an understanding with the client, preferably in a written engagement letter about the services to be performed
• International Standards on Review Engagements (ISRE) 2400:

  • Previously known as ISA 910
  • Designed to allow auditors to express limited assurance that the financial statements are in accordance with approved accounting standards
  • Must be independent of the client
  • Procedures suggested include obtaining knowledge of accounting principles, making inquiries of management, performing analytical procedures, and obtaining a letter of representation
• Review Engagement (cont.):

  • Does not specifically require the auditor to obtain an understanding of the client's internal control, examine accounting records, or corroborate inquiries as in an audit
  • If auditor becomes aware of incorrect, incomplete, or unsatisfactory information, additional procedures should be performed before expressing a standard review services report
  • Review report conclusion stated in a negative form
• Review on Interim Financial information for Public Companies (ISRE 2410):

  • Does not provide a basis for expressing a positive-form opinion
  • No testing of accounting records, independent confirmations, or physical examinations ordinarily
  • Auditor must obtain sufficient information about the client's internal control for both annual and interim financial information
• Review Engagement (cont.):

  • Auditor's knowledge of annual audit procedures can be used in considering the scope and results of inquiries and analytical procedures
  • Under review engagements, the auditor shall make inquiries about the actions of directors and shareholders' meetings
  • Must obtain evidence that the interim financial information agrees or reconciles with the accounting records
• Review Engagement (cont.):

  • When the auditor determines there has been a departure from approved accounting standards, the report should be modified