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What is an assurance engagement?
An engagement in which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the measurement or evaluation of an underlying subject matter against criteria
Who uses financial statements?
Investors
Suppliers
Customers
Lenders
Employees
Governments
General Public
4 reasons users demand financial statements
Remoteness
Complexity
Competing incentives
Reliability
Agency Theory
Due to the remoteness of the owners from the entity, the owners have an incentive to hire an auditor to assess information provided by management
Information Hypothesis
Due to the need for reliable information, users will demand that information be Iaudited to aid in decision making
Insurance Hypothesis
Investors demand audited financial statements to insure in part against potential losses
What is a financial statement audit?
An engagement designed to express an opinion about whether the financial statements are prepared in all material respects in accordance with a financial reporting framework
What is a compliance audit?
Involves gathering evidence to ascertain whether rules, policies, procedures, laws, and regulations have been followed
Ex. Tax audit
What is a performance audit?
Refers to the economy, efficiency, and effectiveness of an organizations activities
What is a comprehensive audit?
Combines elements of financial statements audit, compliance audit, and performance audit
What is an internal audit?
Provides assurance about various aspects of an organizations activities
What is corporate social responsibility (CSR) assurance?
Includes voluntary reporting about environmental, employee, and social subject matter
Incorporates both financial and non-financial information
Auditor must consider the impact of environmental issues on their client’s financial statements when conducting a financial statement audit
What is reasonable assurance?
Gathering sufficient evidence to form a positive expression of opinion regarding whether the information being assured is presented fairly
What is limited assurance?
Gathering sufficient evidence to form a conclusion regarding the reliability of the information being assured.
The practitioner expresses a conclusion on whether anything has come to their attention to lead them to believe the information being assured is not in accordance with the financial reporting framework
What does it mean to express no assurance?
Practitioner reports on factual findings and does not express any opinion.
Modified vs. Unmodified Opinions
Unmodified: the most common type of report - contains a clear opinion
Modified: all other reports
What does an unqualified modified report require?
An emphasis of matter
used so that the reader can pay appropriate attention to the issue raised, but does not change the auditor’s opinion
What are 5 attributes that information should have:
Relevant
Reliable
Comparable
Understandable
Fair presentation
3 responsibilities of an auditor:
Use professional scepticism
Use professional judgement
Use due care
What is the Audit Expectation Gap?
The difference between the expectations of assurance providers and financial statement or other users
How can the audit expectation gap be reduced?
Auditors performing their duties appropriately
Undertaking peer reviews
Reviewing and updating auditing standards
Educating the public
