Assurance

Professional Stage: Knowledge level

Process of Assurance: Evidence and Reporting (Chapter- 4)

1. What is the objective of an assurance engagement?

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.

2. Define audit evidence. What are the potentially tests carry out to gather evidence?
Define 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:

 Test 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.

 Substantive 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) substantive analytical procedures.

3. How will you explain sufficient appropriate audit evidence?

BSA 500, Audit Evidence requires auditors to obtain sufficient appropriate audit evidence
to be able to draw reasonable conclusions on which to base the audit opinion. Sufficiency
and appropriateness are interrelated and apply to both tests of controls and substantive
procedure, where
 Sufficiency is the measure of the quantity of audit evidence; and
 Appropriateness is the measure of quality or reliability of the audit evidence.

The quality of audit evidence required is affected by the level of risk in the area being
audited, as well as by the quality of evidence obtained. If the evidence is high quality, the
auditor may require less than it were poor quality. However, obtaining a high quantity of
poor quality evidence will not cancel out its poor quality.

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 4. What may the generalization be to help in assessing the reliability of audit evidence?
i. e. Quality of evidence.

 External
Audit evidence from external source is more reliable than that obtained from the
records;

 Auditor
Evidence obtained directly by the auditors is more reliable than obtained directly;

 Entity
Evidence obtained from the entities records is more reliable when related control
systems operate effectively;

 Written
Evidence is the form of documents or written representations are more reliable than
oral representations; and

 Originals
Original documents are more reliable than photocopies.

5. What are financial statements assertions? Describe financial statement assertions.

Financial statements assertions:

 Financial 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 risks 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:
 Occurrence
Transactions and events that have been recorded have occurred and pertain to the
entity;
 Completers
All transactions and events that should have been recorded;
 Accuracy
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
Transactions and events have been recorded in proper accounts classifying
correctly;

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 Assertions about account balances at the period end:
 Existence
Assets, liability and equity interests exist;
 Right and obligations
The entity holds or controls the rights to assets and liabilities are the obligations of
the entity;
 Completeness
All assets, liabilities and equity interests that should have been recorded; and
 Valuation and allocation
Related valuation and allocation adjustments are properly recorded.

Assertions about presentation and disclosure

 Completeness
All disclosures that have been disclosed;
 Classification and understandability
Financial information is appropriately presented describe, and disclosures are
clearly expressed; and
 Accuracy and valuation
Financial and other information relating to valuation are disclosed fairly.

6. What is an unqualified review report opinion?

Base 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 framework.

7. What are explicit opinions?

 In respect of the state of the company’s affairs at the end of the financial year ;
 In 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 require the auditors to state explicitly whether in their opinion the above
explicit opinions are expressed.

8. What may be few example of substantive 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;

 Examine other material journal entries;
 Examine other adjustments made in preparing the FSs.

Substantive procedures fall into two categories. Those are:

a. Analytical procedure and
b. Other procedures.

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9. What are the audit procedures for obtaining audit evidence?

The auditor obtains audit evidence to draw reasonable conclusion on which to base the audit
opinion by performing audit procedures to:

 Risk assessment procedure;

 Test of controls; and
 Substantive procedures.

10. What are the matters with which the auditors imply satisfaction in an unqualified report
under the CA 1994?

Certain requirements 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
unqualified report under the Companies Act 1994:

 All sums of money received and expended by the company and the matters in respect of
which the receipt and expenditure takes place;
 All sales and purchase of goods by the company;
 The assets and liabilities of the company; and
 In the case of a company engaged in production, distribution, marketing, transportation,
processing, manufacturing, milling, extracting and mining activities, and such particulars
relating to utilization of material, labor and overhead cost.

11. In what cases the auditors’ report is considered to be modified?

An auditors report is considered to be modified:

 Emphasis of matter;
 Matter that affect the auditors’ opinion;
 Qualified opinion;
 Disclaimer opinion; and
 Adverse opinion.

12. What are the basic elements of an audit report?

 Title;
 Address;
 Introductory paragraph identifying the financial statements audited;
 A statement of management’s responsibility for the FSs;
 A statement of auditor’s responsibility;
 Scope paragraph, including a description of the work performed by the auditor;
 Opinion paragraph containing an expression of opinion on the financial statements;
 Date of the report;
 Auditor’s address; and
 Auditor’s signature.
13. What is expectation gap?
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 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.

It 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.

14. What are the contents of the assurance report of the International Standard on
Assurance Engagement?

The international standard on assurance engagements requires 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;
 Identification of the criteria;
 Where appropriate, a description of any significant inherent limitation associated with the
evolution or measurement of the subject matter against the criteria;
 When 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 ISAEs;
 A summary of the work performed;
 The practitioner’s conclusion (positive or negative);
 The assurance report date; and
 The name of the firm or practitioner with a specific location that has responsibility for the
engagement.

The End

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