Chapter 1 – Assurance and Auditing an Overview
The Framework for Assurance Engagements
* The framework defines an assurance engagement as ‘an engagement in which an assurance 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 * The following five elements of assurance engagement are identified 1. Three party relationships – between the practitioner (auditor), responsible party, intended user 2. Subject matter – financial position and performance, non-financial performance, physical characteristics, systems and processes, behavior 3. Subject criteria – criteria are the standards or benchmarks used to measure and evaluate the subject matter of an assurance engagement 4. Sufficient appropriate evidence – the engagement process fr an assurance engagement is a systematic methodology requiring specialized knowledge, a skill base and techniques for evidence gathering and evaluation to support a conclusion, irrespective of the nature of the engagement subject matter 5. A written assurance report – the practitioner draws a written conclusion that provides a level of assurance about the subject matter * The definition of assurance services is very broad in its coverage and includes both existing assurance services and newly evolving assurance services Independence
* Users derive knowledge that the assurance provider has no interest in the information other than its usefulness * Assurance independence is an absence of interests that create an unacceptable risk of material bias with respect to the quality or content of information that is the subject of an assurance engagement Expertise: Professional Judgment and Professional Skepticism * An assurance engagement requires the exercise of professional judgment (ASA 200.16), which involves the application of relevant training, knowledge and experience in making informed decisions about the courses of action that are appropriate in the circumstances of the assurance engagement * The auditor should also plan and perform the assurance engagement with professional skepticism, which is an attitude that includes a question mind, being alert to conditions that may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence (ASA 200.15) * It could be argued that professional reputation is the critical factor that adds value to the assurance services offered by the professional accountant The Structure of Assurance Standards and Pronouncements
* The Australian code of ethics APES 110, and the standard on quality control procedures for audit firms APES 320 are applicable to all assurance firms and engagements * The standards set by AUASB are divided between assurance standards and other AUASB standards * The assurance standards are governed by the framework for assurance engagement which provides a general framework for all assurance services, and defines and describes the elements of an assurance engagement * Under the assurance framework, the standards are split into three groups, comprising those relating to audits of historical financial information, to reviews of historical financial information, and to other assurance engagements * There is currently ASAE 3000, which contains requirements for all assurance engagements other than those on historical financial information * Standards have also been developed for some specific assurance engagements, such as standards for compliance engagements (ASAE 3100; no international equivalent) and for performance engagements (ASAE 3500) * When an auditor is undertaking other assurance services engagements, they should also refer to these standards; ASAE 3000.07 outlines that these standards provide helpful guidance to assurance practitioners * The objective of a limited...
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