The main difference between a financial report audit, an environmental audit and an efficiency audit is the diverse objective of every audit. To be more precise, the objective of financial report audit is embodied in affording rational assurance on whether the financial report is prepared in almost all respects that is consistent with the financial reporting framework (Moroney, Campbell & Hamilton, 2011, p. 6). Then, the role of the environmental audit is to evaluate and check whether the operations of company are complying with internal policies of company and environmental regulations. In addition, the environmental audit can foresee some risks reasonably as well. In the last place, the purpose of the efficiency audit is to verify whether the corporate plans are effectively executed. In the meantime, the efficiency audit also can inspect whether the capital resources of company are exploited or not.
Specifically, the main differences between reasonable assurance and limited assurance are reflected in three respects, which the objective of assurance engagement, the diverse procedures of evidence-gathering and the assurance report (Moroney, Campbell & Hamilton, 2011, p.15). Speaking of the objective of assurance engagement, in a reasonable assurance engagement, the objective is to reduce the audit risk to an acceptance low level, in context of circumstances surrounding such engagement. In addition, the conclusion can be expressed in positive form (Moroney, Campbell & Hamilton, 2011, p.15). However, for limited assurance, the objective is to collect plenty information to express a negative opinion regarding the reliability on the basis of assured information (Moroney, Campbell & Hamilton, 2011, p.15). When it comes to the procedures of evidence-gathering, there is no doubt that these assurance engagements both obtain sufficient appropriate evidence through mandatory and systematic process. Whereas the difference is the evidence-gathering process of limited assurance is deliberately limited, as compared to a reasonable assurance engagement. The last difference is the assurance report. The report of reasonable assurance is a positive form of expression while the report of limited assurance is a negative form of expression (Moroney, Campbell & Hamilton, 2011, p.15).
First of all, the review of a company’s financial report is a limited assurance engagement. However, the audit of a company’s financial report is a reasonable assurance. Therefore, the latter (reasonable assurance) has the higher level of assurance than the former (limited assurance) (Moroney, Campbell & Hamilton, 2011, p. 11).
Secondly, from the case we can find that Chip is interested in purchasing the shoes of McLellan. Therefore, as the investor and chip should analysis of the historical and forecasted profitability. As compared to reviewed financial report. Only audited financial report is required to perform verification and substantiation procedures. Then, Chip can rely on audited financial report information to make a variety of decision. At the same time, Chip can use the report to assess the performance of company.
Moreover, chip demand audited financial reports only due to their desire for reliable information to some extent from the relevant information. This is because Ron Mclellan ran his business as a sole trader; therefore there is no remote user, like shareholders or lenders. In addition, his business is not very complex because the information is only the basic accounting records. In the meantime, Ron is the owner and the manager of McLellan’s shoes and thus has no competing incentive. Consequently，Chip need rely on the credible information of financial report because reliable information can aid users make decisions and assess the future viability of the company (Moroney, Campbell & Hamilton, 2011, p.27). Therefore, it is...
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