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CHAPTER 1:
CONCEPT OF AND NEED
FOR AUDIT
Instructor: Assoc.Prof. Dr. Doan Thanh Nga, CPA (Australia)
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CHAPTER 1 LEARNING OBJECTIVES
1-1 Define the concept of assurance and compare the purposes and
characteristics of reasonable and limited levels of assurance obtained
from different assurance engagements
1-2 State why users desire assurance reports and provide examples of the
benefits gained from them such as to assure the quality of an entity’s
published corporate responsibility or sustainability report
1-3 Compare the functions and responsibilities of the different parties
involved in an assurance engagement
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1. WHAT IS ASSURANCE?
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1.1. Definition
Assurance engagement: It is when a practitioner expresses a conclusion designed
to enhance the degree of confidence of the intended users other than the responsible
party about the outcome of the evaluation or measurement of a subject matter
against criteria.
1. WHAT IS ASSURANCE?
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1.1. Definition
5 key elements of an assurance engagement:
Criteria
Report
Evidence
Subject matter
Three party relationship
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1. WHAT IS ASSURANCE?
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1.1. Definition
Three people or groups of people
involved:
– the practitioner (accountant)
– the intended users
– the responsible party (the person(s)
who prepared the subject matter)
Three party relationship
1. WHAT IS ASSURANCE?
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1.1. Definition
Subject matter
The subject matter of an assurance engagement may vary considerably.
However, it is likely to fall into one of three categories:
•Data (for example, financial statements or business projections)
•Systems or processes (for example, internal control systems or computer
systems)
•Behaviour (for example, social and environmental performance or
corporate governance)
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1. WHAT IS ASSURANCE?
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1.1. Definition
Criteria
Criteria: to judge whether the information is reliable and can be trusted.
For example, in an assurance engagement relating to financial statements, the
criteria may be accounting standards
Other criteria:
oprocesses may be compared to establish industry best practices (accredited
management standards such as ISO 9000)
oor behaviours to ethical standards, corporate governance or
environmental standards.
1. WHAT IS ASSURANCE?
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1.1. Definition
Evidence
•The practitioner obtain and evaluate sufficient and appropriate evidence
to support the assurance opinion.
•The practitioner must obtain evidence as to whether the criteria have been
met.
•We will look at the collection of evidence in detail later in this Workbook.
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1. WHAT IS ASSURANCE?
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1.1. Definition
Report
•Provided in the form of a written report and will contain key information
and any issues or assurances given as a result of the engagement.
Context example: Assurance engagement
Workbook: page 7
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1. WHAT IS ASSURANCE?
1.1. Definition
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You are an accountant who has been approached by Jamal, who wants to invest in
Company X. He has asked you for assurance whether the most recent financial
statements of Company X are a reliable basis for him to make his investment decision.
Requirement
Identify the key elements of an assurance engagement in this scenario, if you accepted
the engagement.
Interactive question 1: Assurance engagement (p. 7)
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1. WHAT IS ASSURANCE?
1.2. Levels of assurance
Summary of types of engagement
Conclusion
given
Example of wording Evidence obtainedType of
engagement
Positive
expression
In our opinion, the financial
statements present fairly, in
all material respects, (or give
a true and fair view of) the
financial position of the
Company, and of its financial
performance and its cash
flows for the year.
Sufficient appropriate
evidence is obtained by:
•Obtaining an understanding
of the entity
•Assessing risk
•Responding to risk
•Performing further
procedures (sampling) to
draw a conclusion
Reasonable
assurance
engagement:
High level of
assurance (less
than absolute
assurance)
Eg: statutory
audit
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1. WHAT IS ASSURANCE?
1.2. Levels of assurance
Summary of types of engagement
Conclusion
given
Example of wording Evidence sought Type of
engagement
Negative
expression
Based on our work described in
this report, nothing has come to
our attention that causes us to
believe that internal control is
not effective, in all material
respects, based on XYZ criteria.
The evidence gathered
is limited, involving
techniques such as
enquiry and analytical
procedures
Limited
assurance
engagement
(less than
reasonable
assurance)
Eg: review of
