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36 Cards in this Set
- Front
- Back
Definition of Assurance Engagement (5) |
Engagement in which practitioner aims to obt suff appropr evidence in order to express a conclusion designed to enh degree of confidence of intended users o/t resp party abt outcome of measurement / evaluation of an underlying subj matter against criteria |
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5 Elements of Assurance Engagement |
3-party relationships Underlying subject matter Criteria Sufficient appropriate evidence Written Assurance report |
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Who is involved in 3-party relationships? |
1. Assurance practitioner (auditor) 2. Responsible party (preparer) 3. Intended user |
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What are the 5 underlying subject matters? |
1. Financial position and perf 2. Non-financial perf 3. Physical characteristics 4. Systems and processes 5. Behaviour |
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Why is there value in the assurance service? (2) |
1. Independence Users derive value fr knowledge tt assurance prov has no interest in info o/t for its usefulness 2. Expertise Assurers must have competence to obt sufficient relevant info to prov reasonable basis for their conclusions Requires prof judgment & skepticism |
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What are the types of assurance engagements? (3) |
Reasonable Assurance Engagements Limited Assurance Engagement Agreed-on Procedures Engagements |
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Reasonable Assurance Engagements (4) |
Commonly called 'audit engagements' Reduce risk at acceptably low level Positive expression of opinion ("it is t&f") High level of assurance |
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Limited Assurance Engagements (4) |
Commonly called 'review' engagements Reduce risk to an acceptable level Negative expression of opinion ("nth comes to my attention") Moderate level of assurance |
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Agreed-on Procedures (2) |
Provide no assurance Auditors report their findings |
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What is attestation engagement? (4) |
Responsible party measures / evaluates underlying subj matter against criteria Assurer measures / evaluates underlying subj matter against criteria Assurer attests the responsible party's statements E.g. General Purpose Financial Statements |
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Direct Engagement (2) |
Auditor directly measures / evaluates underlying subj matter against criteria E.g. Adequacy of internal control |
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Definition of Auditing (4) |
- To obtain reasonable assurance about whether the FRs as a whole - is free from MM whether due to fraud / error - enabling auditor to express an opinion on whether FR is prepared, in all material respects, in accordance with an applicable FR framework - ASA 200.11: to report on the FR, and communicate as required by the ASAs, in accordance with auditor's findings |
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What are the ethical principles contained in national and international codes of ethics (5)? |
Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour |
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Fundamental auditing principles (10)? |
Knowledge Responsibility QC Rigour and scepticism Evidence Prof Judgment Documentation Communication Association Reporting |
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Demand for assurance arises because users are not in a position to est the credibility of the info they are presented with. What is this due to? (4) |
1. Conflict of interest Managers may present biased info, as they are also evaluated on the info 2. Consequence Info provided forms the basis of many users' decisions 3. Complexity Many users do not have expertise required to determine quality 4. Remoteness Separation of owners fr mgmt prevents users fr assessing info quality |
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Hypotheses explaining demand for assurance (3) |
1. Agency theory (stewardship hypothesis) 2. Info hypothesis 3. Insurance hypothesis |
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What are 2 other benefits of assurance? |
1. recommendations by the assurance provider to improve efficiency and effectiveness of ops AND / OR 2. positive influence on behaviour of ppl whose activities are being assured |
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What is the expectation gap? (2) |
Gap that exists between what users expect of an auditor and the actual service auditors provide. Made up of reasonableness gap and performance gap. |
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What is the reasonableness gap? (In expectation gap) |
Gap between what society expects auditors to achieve and what they can be reasonably expected to accomplish |
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What is the performance gap? (in expectation gap) |
Gap between what society can reasonably expect auditors to accomplish and what they are perceived to achieve Subdivided into: 1. Deficient stds: gap btwn duties that can be reasonably expected of auditors and auditors' existing duties as defined by law & professional promulgations 2. Deficient performance: Gap between expected std of perf of auditors' existing duties and auditors' perceived perf, as expected and perceived by society |
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What is the information gap? |
Info about the entity and the audit itself that is relevant to decision making but is not currently being provided through the: 1. Audited financial report / 2. Other corp disclosure mechs / 3. Through AR |
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What is the communications gap? |
The diff between what users desire and understand what, and how, it is communicated by the assurance provider |
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What are the 3 major issues in the expectation gap? |
1. early warning by auditors of corporate failure 2. Auditor's responsibility for the detection and reporting of earnings mgmt & fraud 3. Auditor's ability to comm diff levels of assurance |
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What are other applications of the assurance function? (6) |
1. Compliance audit 2. Performance audit 3. Comprehensive audit 4. Internal audit 5. Forensic audit 6. Assurance on subj matter o/t historical info |
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Compliance audit |
Examination for the purpose of reporting on legality and ctrl of ops |
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Performance audit (4) |
Analyses org structure, internal sys, workflow and managerial perf - efficiency, effectiveness and economy of these |
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Comprehensive audit (3) |
Incl components of - Compliance - Performance - FR audits |
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Internal audit |
audits performed by employees of entity as part of risk mgmt process
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Forensic audit |
Fraud detection |
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Assurance on subj matter other than historical info (3) |
Prospective financial info Internal control Sustainability & carbon emissions reports |
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Quality Control (3) |
QC implemented at both audit firm level & audit engagement level ASA220: Audit engagement team must implement QC procedures Acknowledges enagement team may rely on audit firm's sys of QC |
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APES 210 |
Establishes auditors' responsibilities in relation to compliance with Aus auditing & assurance stds |
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APES 320 |
Est basic principles and essential procedures and provs guidance concerning firm's responsibilities for its sys of QC. |
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What are the 6 elements of QC system for an audit? |
1. Leadership responsibilities for quality 2. Ethical requirements 3. Engagement acceptance and continuance 4. Human Resources 5. Engagement performance 6. Monitoring (ASA 220) |
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What is engagement performance comprised of? (6) |
Direction Performance Supervision Review Consultation QC --> REVIEW |
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What are 4 other key QC procedures employed? |
1. Internal review (engagement QC review) 2. Periodical rotation of auditors 3. Peer reviews 4. Continuing prof development requirements |