Assurance

Professional Stage: Knowledge level

Process of Assurance: Evidence and Reporting (Chapter- 4)
! "hat is the o#$ective of an assurance engage%ent&

The objective of an assurance engagement is to enable the practitioners to express an
opinion whether the subject of the assurance engagement is in accordance with the
identified criteria.
'! (efine audit evidence! "hat are the potentiall) tests carr) out to gather evidence&
(efine those!
Audit evidence
Audit evidence is all of the information used by the auditor in arriving at the conclusions
on which the audit opinion is based. This also includes, all the information contained
within the accounting records underlying the financial statements, and other information
gathered by the auditors from various parties.
There are potentially two types of test carry out to gather evidence, are:
*est of controls
Test of controls performed to obtain audit evidence about the effectiveness of
controls in preventing, detecting and correcting material misstatement at the
assertion level.
Su#stantive procedure
Audit procedures performed to detect material misstatements at the assertion level
including:
i) test of detail of classes of transaction, account balances and disclosures;
and
ii) ubstantive analytical procedures.
+! ,ow will )ou e-plain sufficient appropriate audit evidence&
!A "##, Audit $vidence re%uires auditors to obtain sufficient appropriate audit evidence
to be able to draw reasonable conclusions on which to base the audit opinion. ufficiency
and appropriateness are interrelated and apply to both tests of controls and substantive
procedure, where
ufficiency is the measure of the %uantity of audit evidence; and
Appropriateness is the measure of %uality or reliability of the audit evidence.
The %uality of audit evidence re%uired is affected by the level of ris& in the area being
audited, as well as by the %uality of evidence obtained. 'f the evidence is high %uality, the
auditor may re%uire less than it were poor %uality. (owever, obtaining a high %uantity of
poor %uality evidence will not cancel out its poor %uality.
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4! "hat %a) the generali.ation #e to help in assessing the relia#ilit) of audit evidence&
i! e! /ualit) of evidence!
E-ternal
Audit evidence from external source is more reliable than that obtained from the
records;
Auditor
$vidence obtained directly by the auditors is more reliable than obtained directly;
Entit)
$vidence obtained from the entities records is more reliable when related control
systems operate effectively;
"ritten
$vidence is the form of documents or written representations are more reliable than
oral representations; and
0riginals
)riginal documents are more reliable than photocopies.
1! "hat are financial state%ents assertions& (escri#e financial state%ent assertions!
*inancial statements assertions:
*inancial statements assertions are the representations by the management, explicit
or otherwise, that are embodied in the financial statements.
The auditor should use assertions for classes of transactions, account balances, and
presentation and disclosures in sufficient detail to form a basis for the assessment
of ris&s of material misstatement and the design and performances of further audit
procedure.
Assertions used by the auditors are:
Assertions about classes of transactions and events for the period under audit:
0ccurrence
Transactions and events that have been recorded have occurred and pertain to the
entity;
Co%pleters
All transactions and events that should have been recorded;
Accurac)
Amounts and other data relating to recorded transactions and events have been
recorded appropriately;
Cut off
Transactions and events have been recorded in correct accounting period; and
Classification
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Transactions and events have been recorded in proper accounts classifying
correctly;
Assertions about account balances at the period end:
E-istence
Assets, liability and e%uity interests exist;
Right and o#ligations
The entity holds or controls the rights to assets and liabilities are the obligations of
the entity;
Co%pleteness
All assets, liabilities and e%uity interests that should have been recorded; and
2aluation and allocation
+elated valuation and allocation adjustments are properly recorded.
Assertions about presentation and disclosure
Co%pleteness
All disclosures that have been disclosed;
Classification and understanda#ilit)
*inancial information is appropriately presented describe, and disclosures are
clearly expressed; and
Accurac) and valuation
*inancial and other information relating to valuation are disclosed fairly.
3! "hat is an un4ualified review report opinion&
!ase on our review, nothing has come to our attention that causes us to believe that the
accompanying financial statements do not give a true and fair view in accordance with
identified financial reporting framewor&.
5! "hat are e-plicit opinions&
'n respect of the state of the company,s affairs at the end of the financial year ;
'n respect of the company,s profit or loss for the financial year; and
The information given in the director,s report is consistent with the financial statements.
The companies Act re%uire the auditors to state explicitly whether in their opinion the above
explicit opinions are expressed.
6! "hat %a) #e few e-a%ple of su#stantive procedure&
The auditor must always carry out substantive test procedure on the material items as follows:
Agreeing the financial statements to the underlying accounting records;
$xamine other material journal entries;
$xamine other adjustments made in preparing the *s.
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ubstantive procedures fall into two categories. Those are:
a. Analytical procedure and
b. )ther procedures.
7! "hat are the audit procedures for o#taining audit evidence&
The auditor obtains audit evidence to draw reasonable conclusion on which to base the audit
opinion by performing audit procedures to:
+is& assessment procedure;
Test of controls; and
ubstantive procedures.
8! "hat are the %atters with which the auditors i%pl) satisfaction in an un4ualified report
under the CA 774&
-ertain re%uirements are reported on by exception. The auditor has to report if they have not
been met. The following are the matters with which the auditor implies satisfaction in an
un%ualified report under the -ompanies Act .//0:
All sums of money received and expended by the company and the matters in respect of
which the receipt and expenditure ta&es place;
All sales and purchase of goods by the company;
The assets and liabilities of the company; and
'n the case of a company engaged in production, distribution, mar&eting, transportation,
processing, manufacturing, milling, extracting and mining activities, and such particulars
relating to utili1ation of material, labor and overhead cost.
! 9n what cases the auditors: report is considered to #e %odified&
An auditors report is considered to be modified:
$mphasis of matter;
2atter that affect the auditors, opinion;
3ualified opinion;
4isclaimer opinion; and
Adverse opinion.
'! "hat are the #asic ele%ents of an audit report&
Title;
Address;
'ntroductory paragraph identifying the financial statements audited;
A statement of management,s responsibility for the *s;
A statement of auditor,s responsibility;
cope paragraph, including a description of the wor& performed by the auditor;
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)pinion paragraph containing an expression of opinion on the financial statements;
4ate of the report;
Auditor,s address; and
Auditor,s signature.
+! "hat is e-pectation gap&
The expectation gap is defined as the difference between the apparent public perceptions of the
responsibilities of auditors on the other hand the legal and professional reality.
't can also be said, the expectation gap is, what the assurance provider understands, he does
and what the user of the information believes, he does.
4! "hat are the contents of the assurance report of the 9nternational Standard on
Assurance Engage%ent (9SAE)&
The international standard on assurance engagements re%uires that an assurance report must
have the following components:
A title that clearly indicates the report is an independent assurance report;
An address;
An identification and description of the subject matter information and when appropriate,
the subject matter;
'dentification of the criteria;
5here appropriate, a description of any significant inherent limitation associated with the
evolution or measurement of the subject matter against the criteria;
5hen the criteria used to evaluate or measure the subject matter are available only to
specific intended users, or are relevant only to a specific purpose, a statement restricting
the use of the assurance report to those intended users or that purpose;
A statement to identify the responsible party and to describe the responsibilities of the
responsible party and the practitioner;
A statement that the engagement was performed in accordance with 'A$s;
A summary of the wor& performed;
The practitioner,s conclusion 6positive or negative);
The assurance report date; and
The name of the firm or practitioner with a specific location that has responsibility for the
engagement.

*he End
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