audit curs 2
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Audit Curs 2TRANSCRIPT
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An Auditors Engagement
IAASB Standards
- Course 2 -
03.02.2015
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IAASBs Engagement Standards
Some engagement standards are based onInternational Framework for Assurance Engagements(assurance engagements), and others result from theRelated Services Framework (related servicesengagements).
Three sets of standards (ISAs, ISREs and ISAEs) share Three sets of standards (ISAs, ISREs and ISAEs) sharethe assurance engagement framework and onestandard set (ISRS) is based on the related servicesframework.
ISAs, ISREs, ISAEs and ISRSs are collectively referred toas the IAASBs Engagement Standards.
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Illustration 4.1
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Reasonable and Limited Assurance Engagements
Reasonable assurance engagement and limited assuranceengagement are the two types of assurance engagement.
The objective of a reasonable assurance engagement is areduction in assurance engagement risk to an acceptably lowlevel as the basis for a positive form of expression of thepractitioners conclusion - presents fairly in all materialrespectsrespects
The objective of a limited assurance engagement is a reductionin assurance engagement risk to a level that is acceptable in thecircumstances, as the basis for a negative form of expression ofthe practitioners conclusion. E.g., nothing has come to ourattention that causes us to believe that financial statementsdo not conform, in all material respects, with IFRS.
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Besides the International Framework for Assurance Engagements, ISAs, ISREs
and ISAEs, practitioners who perform assurance engagements are governed
by:
The IFAC Code of Ethics for Professional The IFAC Code of Ethics for Professional
Accountants
International Standards on Quality Control
(ISQCs)
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Assurance Engagements for Audits and Reviews for
Historical Financial Information (ISAs / ISREs)
Historical Financial Standards are divided into those
governed by International Standards on Auditing (ISAs)
and International Standards on Review Engagementsand International Standards on Review Engagements
(ISREs)
Audit standards are described in ISA 200-799. Special
Purpose Engagement and other examinations of historical
financial information is ISA 800 899 (except reporting
which is ISA 701).
Review standards are ISREs 2000 2699
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Assurance Engagements on Subject Matters Other than
Historical Financial Information (ISAEs)
The ISAE standards are divided into two parts:
(1) ISAEs 3000 3399 which are topics that
apply to all assurance engagements
(2) ISAEs 3400 3699 which are subject(2) ISAEs 3400 3699 which are subject
specific standards, for example standards
relating to examination of prospective financial
information
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Not all engagements performed by practitioners are assurance
engagements
Frequently performed engagements that are not
covered by the Assurance Framework are:
Engagements covered by International
Standards for Related Services (ISRS), such asStandards for Related Services (ISRS), such as
agreed-upon procedures and compilations.
The preparation of tax returns where no
conclusion conveying assurance is expressed.
Consulting (or advisory) engagements, such
as management and tax consulting.
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Related Services Framework (ISRSs)
Standards under this framework, InternationalStandards on Related Services (ISRSs), areapplied currently to two audit services:
Agreed-upon procedures (ISRS 4400) Agreed-upon procedures are assurance based on auditprocedures in a very limited agreed upon areawith a proscribed set of users.with a proscribed set of users.
Compilations (ISRS 4410 ).
Compilations offer no assurance.
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Assurance Engagements Defined
Assurance engagement means an
engagement in which a practitioner
(professional auditor), expresses a
conclusion (in report form) that is
designed to enhance the degree ofdesigned to enhance the degree of
confidence users have about the
evaluation of a subject matter against
identified criteria.
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Five elements for all assurance
engagements
(1) a three party relationship involving a
practitioner; a responsible party; and the
intended users,
(2) a subject matter, (2) a subject matter,
(3) suitable criteria,
(4) evidence
(5) an assurance
report.
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Illustration 4.2
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Three Party Relationship
The practitioner (e.g., auditor, accountant, expert)
gathers evidence to provide a conclusion to the intended
users about whether a subject matter (e.g., financial
statements) conforms, in all material respects, with
identified criteria. identified criteria.
The responsible party (usually management or the board
of directors) is one who is responsible for the subject
matter and is not the intended user.
The intended users are generally the addressee of the
assurance report.
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Illustration 4.3
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Subjec
t
Matte
r
The assurance engagement evaluateswhether the subject matter conforms tosuitable criteria that will meet the needs ofan intended user.
A subject matter of an assurance is the topicabout which the assurance is conducted.
Subject matter could be information such asfinancial statements, statistical information,non-financial performance indicators, rnon-financial performance indicators,capacity of a facility, etc.
The subject matter could also be systems andprocesses (e.g., internal controls, IT systems)or behavior (e.g., corporate governance,compliance with regulation, human resourcepractices).
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Suitable Criteria
Suitable criteria are the benchmarks (standards, objectives or set of rules) used to evaluate evidence or measure the subject matter of an assurance engagement.
International Financial Reporting Standards International Financial Reporting Standards
U.S. Generally Accepted Accounting Principles
national standards
internal control criteria
Applicable law, regulation or contract
An agreed level of performance
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Characteristics of Suitable
Criteria
(a) Relevance
(b) Completeness
(c) Reliability
(d) Neutrality(d) Neutrality
(e) Understandability
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Assurance Report
The practitioner provides a writtenreport containing a conclusion thatconveys the assurance obtained asto whether the subject matterconforms, in all material respects,conforms, in all material respects,with the identified criteria.
For instance, an audit of financialstatements provides an opinion onconformity with IFRS.
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Assurance Report Basic Elements
A title
An addressee:
A description of the subject matter.
A statement restricting the use of the assurance report
identification the responsible party
Statement - performed in accordance with ISAEs. Statement - performed in accordance with ISAEs.
A summary of the work undertaken
Identification of the criteria
The practitioners conclusion
The assurance report date.
The name and location of the firm or the practitioner
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Engagements to Review Financial Statements (ISRE 2400)
Where reviews of financial
statements differ most from a
financial statement audit is in the
limited procedures performedlimited procedures performed
(limited in inquiry of management
and analytical procedures) and the
review report.
Reviews are limited assurance
engagements.
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ISRE 2400 Objective of Review
The objective of a review of financial statements
is to enable an auditor to state whether, on the
basis of procedures which do not provide all the
evidence that would be required in an audit,
anything has come to the auditors attentionanything has come to the auditors attention
that causes the auditor to believe that the
financial statements are not prepared, in all
material respects, in accordance with the
applicable financial reporting framework
(negative assurance).
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Engagements to Review Interim Financial Statements (ISRE 2410)
The objective of a review of interim financial
information differs significantly from that of
an audit in accordance with ISAs. A review of
interim financial information does not provideinterim financial information does not provide
a basis for expressing an opinion.
A review may bring significant matters
affecting the interim financial information to
the auditors attention, but it does not provide
all of the evidence that would be required in
an audit.
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Review: Review of Financial Statements Conclusion
The review report should contain a clear
written expression of negative assurance.
The auditor should assess whether
anything has come to the auditors
attention based on the review that causes attention based on the review that causes
the auditor to believe the financial
statements do not give a true and fair
view (or are not presented fairly, in all
material respects,) in accordance with the
identified financial reporting framework.
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The Examination of Prospective
Financial Information (ISAE 3400)
Prospective financial information means financial
information based on assumptions about events that
may occur in the future. Prospective financial
information can be in the form of a forecast, a
projection or a combination of both. projection or a combination of both.
A forecast is prospective financial information prepared on the
basis of managements assumptions as to future events (best-
estimate assumptions).
A projection means prospective financial information prepared
on the basis of hypothetical assumptions about future events and
management actions which may or may not take place, such as a
possible merger of two companies.
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Related Services International Standards on Related Services
(ISRS)
Engagements covered by
International Standards for Related
Services, including:
Agreed-upon procedures (ISRS
4400)4400)
Compilation of financial or other
information (ISRS 4410)
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Engagements to Perform Agreed-Upon Procedures Regarding
Financial Information (ISRS 4400)
An agreed-upon procedures engagementis an engagement in which the partyengaging the professional accountant or theintended user determines the procedures tointended user determines the procedures tobe performed and the professionalaccountant provides a report of factualfindings as a result of undertaking thoseprocedures.
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Matters to be agreed between auditor and management
include the:
nature of the engagement including the fact
that no assurance will be expressed on the
procedures performed;
identification of the financial information to identification of the financial information to
which the agreed-upon procedures will be
applied;
nature, timing, and extent of the specific
procedures to be applied.
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Audit Procedures
Agreed
The auditor performs certain proceduresconcerning individual items of financialdata (for example, accounts payable,data (for example, accounts payable,accounts receivable, purchases fromrelated parties and sales and profits of asegment of an entity), a financial statement(for example, a balance sheet) or even acomplete set of financial statements.
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Engagements to
Compile Financial
Information (ISRS
4410)
The objective of a compilation
engagement is for the accountant to
use accounting expertise, as opposed
to auditing expertise, to collect,
classify and summarize financial
information. This ordinarily entails
reducing detailed data to a
manageable and understandable formmanageable and understandable form
without a requirement to test the
assertions underlying that
information.
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The accountant is not ordinarily
required to:
Make any inquiries of management to assess
the reliability and completeness of the
information provided;
Assess internal controls; Assess internal controls;
Verify any matters; or
Verify any explanations.
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Thank You for Your Attention
Any Questions?