AAA Unit 1

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A Auditing and Assurance AAA

Unit 1 - Assurance purpose and framework

Learning outcomes

1. Outline an overview of the framework

2. Identify and apply the elements and objectives of an assurance engagement.

3. Demonstrate how auditing standards, standards on review engagements and standards on assurance engagements are to be applied

4. Demonstrate the auditor's overall objectives and responsibilities when conducting an audit of financial statements.

5. Identify which entities are required to be audited by legislation.

1. Outline an overview of the framework

2. Identify and apply the elements and objectives of an assurance engagement

International Framework for Assurance Engagements issued by IAASB - defines and describes elements and objectives of an assurance engagement. Identifies engagements to which these standards apply.

An assurance engagement is 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.

Audit - a reasonable level of assurance

IAASB standards apply to different types of audit

The five elements of an assurance engagement (Int framework para 20)

1. A three party relationship involving a practitioner, a responsible party, and intended users;

2. An appropriate subject matter

3. Suitable criteria

4. Sufficient appropriate evidence; and

5. A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement.

Types of assurance engagements

Quality and quantity of evidence required is determined by the level of assurance that users of the subject matter require.

The higher the assurance level - the greater the quality and quantity of evidence gathered - the more confidence end users can have in subject matter.

1. Reasonable assurance engagements

an audit

positive opinion

higher quality evidence

e.g. audit of annual FS

2. Limited assurance engagements.

a review

negative conclusion

requires less/lower quality evidence

e.g. review of half-year FS

Principles of Assurance engagements

Engagement acceptance (Framework para 17) - Only accept whereby they satisfy relevant ethical standards (independence) and the 5 elements above exist.

Professional skepticism (Framework para 40) - Attitude of professional skepticism to determine any material misstatements that exist in the FS by using a questioning mind and being alerted to evidence that contradicts the reliability of documents or representations.

Materiality (F/W p47) - Apply materiality in accumulating sufficient evidence to support assurance, as impractical to test every transaction, amounts that are insignificant are given little audit effort

Assurance risk (FW p48) - Assurance risk must be reduced to an acceptably low level by obtaining sufficient audit evidence. It is the risk that the practitioner expresses an inappropriate conclusion when subject matter is materially misstated. There will always be some level of assurance risk as not every transaction is tested.

3. Demonstrate how Auditing Standards, Standards on Review Engagements and Standards on Assurance

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