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Q1-
1. Three parties-
Intended user- the person who requires the assurance report
Responsible party- the organization which is responsible for preparing subject matter
Practitioner- professionally qualified accountant who will review the financial
statements.
2. Subject matter-
It’s the data which the responsible party has prepared which needs verification
3. Suitable criteria-
Subject matters are compared against the suitable criteria to provide an opinion
Eg-IFRS, ISA, IAS
4. Sufficient and appropriate evidence has to be obtained by practitioner to provide required
level of assurance.
5. An assurance report is the opinion provided by the practitioner to the intended user and the
responsible party.
Q2-
Auditor performs audit on sample basis
Financial statement consist judgmental matters.
All evidence are not conclusive but persuasive.
Auditor use his judgment when auditing financial statements.
Financial statement itself has inherent limitations.
Q3-
External audit provides high level of assurance but not absolute assurance, this is called
reasonable assurance. This provides comfort that the financial statements are free from
material misstatement.
Review engagements provide moderate level of assurance because the subject matter is
plausible. Practitioner perform basic procedures and concludes with negative opinion that
nothing has come to his attention that financial statements are materially misstated.
Q4-
External auditor is not in a position to provide reasonable assurance over the forecasted cash
flow
Report over forecasted cash flow should be negatively worded by practitioner stating that
nothing has come to his attention that the Brampton co cash flow forecast is materially
misstated.
Forecasted cash flow is plausible and auditor cannot confirm with supporting documents.
Therefore the auditor should give limited assurance over forecasted cash flow.
Q5-
Negative assurance means that nothing has come to the attention of the auditor that the cash
flow statement is materially misstated therefore the assurance is given in the absence of any
indication to the contrary.
Audit report provides positive or reasonable assurance, which is financial statement shows true
and fair view.
Using negative assurance, auditor is warning the user that the cash flow forecast may be
inaccurate. Less reliance can be placed on forecast than the financial statements, where the
positive assurance is given.
With using negative assurance auditor is also warning that limited audit procedures has been
done.
Q6-
a. Review engagement is an alternative for external audit where the practitioner collect
sufficient evidence to prove that nothing has come to the attention that financial
statements are not accordance with the financial reporting framework.
Review engagement differs to extend that they don’t undergo comprehensive
procedures such as analytical review procedure which is conducted on external audit.
b. External audit provides high but not absolute assurance, this is reasonable assurance.
Practitioner gives a comfort that financial statement is not materially misstated and
gives a true and fair view.
Review engagement is when practitioner gives opinion gathering sufficient evidence to
be satisfied that subject matter is plausible, in this case practitioner confirm nothing has
come to the attention that the subject matter contain material misstatement.
Q8.
True- Information is factual and conforms with reality that there are no factual errors. To be
true financial statements must comply with accounting standards and any relevant legislations.
True includes data being correctly transferred from accounting records to financial statements.
Fair- Information is clear, unbiased and impartial, and also plainly reflects the commercial
elements of the transaction of an entity.
Revision 01
Q2 benefits of external audit
Higher quality information which is more reliable improving the reputation in the
market.
Independent scrutiny and verification may be valuable to management.
Reduce the risk of management bias, fraud and error acting as a deterrent. It may
detect bias, fraud and error.
Enhance the credibility of financial statements
Deficiencies in the internal controls may be detected
Q3
Q4
Q6