Question Tag: Assurance

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  • 5 Marks

AA – Nov 2019 – L2 – Q1a – Introduction to Audit and Assurance Engagements

Explaining the difference between audit and assurance engagements, with a focus on statutory requirements and value to clients.

Accounting firms offer a wide range of professional services to their clients, including audit, other assurance, and related services. These services are regulated, with many jurisdictions requiring compliance with international standards and local regulations. The type of service delivered depends both on the statutory requirements and what will provide the most value to the client and users of the financial information.

Required:
Explain the difference between audit and assurance engagements. (5 marks)

  • An audit of financial statements is the examination of historical financial statements to enable the auditor to express an opinion whether the financial statements are prepared fairly, in all material respects or give a true and fair view, in accordance with an applicable financial reporting framework. An audit is a higher form of an assurance engagement performed only on historical financial information or statements.
  • An audit of financial statements is an assurance engagement.
  • Assurance engagement means an engagement 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. The outcome of the evaluation or measurement of a subject matter is the information that results from applying the criteria to the subject matter. Here, a professional accountant evaluates a subject matter, which is the responsibility of a third party, and forms a conclusion about the subject matter’s conformity with an identified criterion to provide the intended user a level of confidence about the subject matter.
  • Not all assurance engagements are audits. An example of non-audit assurance engagements is a Review assignment.
  • Audit engagement gives reasonable assurance– low level of risk. Non-audit assurance gives limited assurance – the risk is limited to the circumstance surrounding the engagement.
  • More time is spent on audit assurance than other non-audit assurance, and it is more costly too.

(5 points for 5 marks)

  • 10 Marks

AA – May 2017 – L2 – Q1a – Introduction to Audit and Assurance Engagements

Explanation of the purpose and role of external audit in large companies.

You are the audit manager of an audit firm where the purpose of an external audit and its role are not well understood. You have been asked to write some material for inclusion in your firm’s training materials dealing with these issues in the audit of large companies.
Required: In your paper, explain the purpose of an external audit and its role in the audit of large companies, for inclusion in your firm’s training materials.

The objective of an audit of financial statements is to enable the auditor to express an opinion on whether the financial statements are prepared in accordance with the applicable accounting framework. It provides reasonable assurance that the financial statements are free from material misstatements, which adds credibility to the financial statements. The audit enhances the reliability of the information presented, which is vital for shareholders and other stakeholders who rely on the financial statements for decision-making. The audit also reassures shareholders that the financial statements are free from fraud or error, although it is the directors’ responsibility to detect and prevent fraud. Additionally, an audit serves as an independent evaluation to determine whether financial statements give a true and fair view, which is crucial for capital market confidence, especially for large companies. Finally, auditors must be independent and qualified under legal frameworks such as the ICAG, which maintain the credibility of the auditing profession.

  • 5 Marks

AA – April 2022 – L2 – Q1a – Introduction to Audit and Assurance Engagements

State the primary and secondary objectives of an audit.

Audit is the examination or inspection of various books of accounts by an auditor to certify that the accounts have been prepared according to the principles of accounting and to determine whether the Financial Statements prepared reflect a true and fair view of the state of affairs of a business.

Required:
i) State the Primary objective of an audit.
ii) State the Secondary objectives of an audit. (5 marks)

i) The primary objective of an audit is to express an independent opinion on the financial statement.

ii) The secondary objectives of an audit are:

  • To fulfill legal requirements.
  • To add credibility to the financial statement.
  • To confirm the accuracy of figures, schedules, and notes that form part of the financial statements.
  • To prevent and detect fraud and errors.

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