Assurance and Audit

• Key Syllabus areas


  • Audit framework and regulation
  • Planning and risk assessment
  • Internal control
  • Audit evidence
  • Review and reporting
• Assurance assignment


  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 a subject matter against criteria
• Assurance assignment


  • 3rd party involvement
  • Subject matter
  • Suitable criteria
  • Sufficient appropriate evidence
  • Written assurance report
• Assurance assignment


  • Buying a house
  • Practitioner = Surveyor
  • Intended user = Buyer
  • Responsible party = Seller
  • Subject matter = House
  • Suitable criteria = Buildings regulations/Best practice
  • Sufficient evidence = Physical inspection
  • Written assurance report = Surveyors report
• Limited Assurance


  Moderate/Low levels of assurance, conclusion is expressed negatively
• Reasonable Assurance


  High but not absolute assurance, opinion expressed positively
• Reasonable assurance v Limited Assurance

  More regulations and standards, procedures would be more thorough, evidence will need to be of a higher quality
• Assurance engagements


  • Audit of financial statements
  • Review of a forecast/business plan
  • Review of internal controls
  • Fraud investigation
  • Due diligence
  • Environmental audit
• External Audit


  A common type of assurance engagement is the audit of a company's financial statements, governed by Companies Act 2006 and International Standards on Auditing (ISAs)
• ISA 200 Overall objectives of an independent auditor

  • Obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatement
  • Express an opinion as to whether the financial statements are prepared in accordance with the financial reporting framework
  • Report on the auditors findings
• Why do we have an audit?

  • Shareholders are often not involved in the day to day running of the business, management therefore need to give an account of their stewardship
  • Directors prepare the accounts and have an incentive to manipulate the financial statements
  • Auditors provide an external verification
• In order to comply with audit requirements, the auditor must


  • Comply with relevant ethical requirements
  • Plan and perform the audit with professional scepticism
  • Exercise professional judgement
  • Obtain audit evidence that is sufficient and appropriate on which to base their opinion
• Professional scepticism


  An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence
• Professional judgement

  The application of relevant training, knowledge and experience in making informed decisions about the courses of actions that are appropriate in the circumstances of the audit
• Benefits of an audit

  • Higher quality information giving investors confidence
  • Independent scrutiny may help management
  • Reduce the risk of management bias, fraud and error
  • Enhances the credibility of the financial statements for other stakeholders
  • Deficiencies in the internal control system may be highlighted
• Limitations of an audit

  • Financial statements include subjective estimates and 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
• Expectations gap


  • Belief that auditors test all transactions
  • Belief auditors will detect all fraud
  • Belief auditors prepare the financial statements
  • Belief that a clean audit opinion guarantees the company is a going concern
  • Belief that the statement of financial position shows the true value of a company
• Who can carry out an audit

  • A member of a recognised supervisory body eg ICAEW or ACCA and allowed to do so by that body
  • To sign off audit reports an individual must also hold a practising certificate and an audit qualification
  • The practice must hold an audit registration
  • Someone authorised by the state
• Who can't carry out an audit by law

  • Anyone that manages or works for the company
  • Anyone that has a business or personal connection to the company
• Code of Ethics requires auditors to be


  • Independent
  • Competent
  • Keep all information gained on an audit confidential
• Appointment & removal of auditors

  • Shareholders, directors (with member approval) or the Secretary of state can appoint auditors
  • Auditors can be removed by a simple majority vote at a general company meeting
  • Auditors can resign by giving written notice and a statement of circumstances
• Rights of an auditor

  • Access the company's books and records
  • Receive explanations and information needed
  • Receive notification and attend any general meetings of members
  • To be heard at such meetings on relevant matters
  • Receive copies of written resolutions
  • Request a general meeting to discuss circumstances of removal/resignation
  • Require the company to circulate circumstances of removal/resignation
• Duties of an Auditor

  • Audit the financial statements and provide an opinion on whether they give a true and fair view
  • Confirm the financial statements have been prepared in accordance with local laws
• Professional Standards


  The International Federation of Accountants (IFAC) promotes international regulation of the accountancy profession, including the International Audit and Assurance Standards Board (IAASB) which develops and promotes International standards on Auditing (ISAs)
• ISAs provide guidance to auditors, not legal requirements, for the audit of the financial statements, any departure from ISAs should be justified
• Different countries can set their own auditing standards or modify ISAs to suit national needs, if there is a conflict between ISAs and local standards, local regulations will apply
• The role of professional bodies

  • Promote quality within the profession through the provision of rigorous qualifications
  • Support to members
  • Giving technical expertise to governments on accounting and business
• To obtain membership


  • Complete exams
  • Demonstrate at least 3 years practical experience
  • Complete an ethical assessment
• To maintain membership


  • Demonstrate continuing CPD
  • Comply with the code of ethics
  • Professional bodies can take disciplinary action including fines, reprimands and withdrawal of membership
• The directors have indicated that they expect any fraud or error in the accounting records to be detected
• The directors believe audited financial statements should make it easier to obtain loan finance should they need it
• Corporate governance


  The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company's relationship with all its stakeholders
• Aim of Good Corporate Governance

  To ensure that companies are run well and in the interests of their shareholders, employees and other stakeholders holders such as the wider community, and to reduce the risk that Directors will abuse their powers
• Importance of Corporate Governance

  Corporate governance is the means by which a company is operated and controlled, the aim is to ensure companies are run well and in the interests of shareholders, employees and other key stakeholders such as the wider community, good corporate governance will also reduce the risk of directors abusing their power