1、Chapter 1Assurance EngagementLecturer 陳丹12Several college seniors majoring in accounting are discussing career plans in “Big Four”. What career choices are available for them in the accounting firms?3Types of services provided by the firm the objective of an audit of financial statements is to enabl

2、e the auditor to express an opinion on whether the F/S are prepared, in all material respects, in accordance with an applicable financial reporting framework.4What?2. The purpose of external auditISA 25 Truth and fairnessTruthInformation is factual and conforms with reality Information complies with

3、 accounting standards and any relevant legislation. data is correctly transferred from accounting records to the financial statements.6 Truth and fairnessFairness Information is impartial and unbiasedInformation reflects the commercial substance of the transactions. 789Three categories of misstateme

4、nts:(i) Factual misstatements are misstatements about which there is no doubt.10Three categories of misstatements:(ii) Judgemental misstatements are differences arising from the judgements of management concerning accounting estimates that the auditor considers unreasonable, or the selection or appl

5、ication of accounting policies that the auditor considers inappropriate.11Three categories of misstatements:(iii) Projected misstatements are the auditors best estimate of misstatements in populations, involving the projection of misstatements identified in audit samples to the entire populations fr

6、om which the samples were drawn.12Three categories of misstatements:Truth and fairness = No misstatements13Materiality A matter is material if its omission or misstatement would reasonably influence the economic decisions of users taken on the basis of the F/Ss.14Materiality An expression of the rel

7、ative significance or importance of a particular matter in the context of the F/S as a whole.15case study (textbook P6) accountability VS responsibility16Why?3. Accountability, stewardship and agency statutory audits non-statutory why are some not-for-profit organizations required to have an audit?1

8、7advantage of statutory auditsauditors provide impartial view to shareholders.recommendations are made in relation to accounting and control system. auditors may detect fraud and error. 1819How?4. Audit process201. Types of services provided by the firm An Assurance engagement is one in which a prac

9、titioner 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.211. Types of services provided by the firm22Five elements of an assurance engag

10、ement Three separate parties Since audit is an assurance engagement, it has five elements. What are they?23 Audit of F/SReview of F/SHigh level of assuranceModerate level of assuranceReasonable assurance Limited assurance Positive assuranceNegative assurance F/Ss do give a true and fair view.Nothing

11、 has come to professional accountants attention to suggest that the F/Ss do not give a true and fair view.24Different levels of assurance Why different level of assurance?positivenegativeSufficient workThe extent of work carried out is normally lessAEIOUMore evidencesAEILess evidencesSo: More relian

12、ceLess reliance25why does auditor provide a high, but not absolute level of assurancelimitations of auditing2627281. Types of services provided by the firmAgreed-upon procedures The auditor simply provides a report of the factual findings of the engagement agreed by the auditor, entity and any appro

13、priate third parties. No assurance is expressed. Users of the report must judge for themselves the auditors procedures and findings and draw their own conclusions.291. Types of services provided by the firmCompilation engagement The practitioner is engaged to use his accounting expertise (as opposed

14、 to auditing expertise) to collect, classify and summarize financial information. No assurance is expressed.301. Types of services provided by the firmRelationship between EvidenceAccumulation and Assurance AttainedLevel ofAssurance AttainedNone(compilation)Moderate(review)High(audit)Minimal(compila

15、tion)Significant(review)Extensive(audit)Amount of Evidence Accumulated31SummaryEngagement Type of assurance providedExamplesExternal auditPositiveStatutory external auditReviewNegativeReview of interim F/SAgreed-upon proceduresNoneExamination of statement of financial positionExamination of segmenta

16、l sales and profitCompilationNonePreparation of F/SPreparation of tax return3233Past Exam QuestionsJune 15 Q5cJune 11 Q5aDec 10 Q2aJune 10 Q2aJune 08 Q5dDec 06 Q1cJune 05 Q5c June 08 Q5dA cash flow forecast prepared internally shows Smithson requiring significant additional cash within the next 12 m

17、onths to maintain even the current level of services. Smithsons auditors have been asked to provide a negative assurance report on this forecast.34(d) In the context of the cash flow forecast, define the term negative assurance and explain how this differs from the assurance provided by an audit rep

18、ort on statutory financial statements. (4 marks)351 mark per action (05 if brief or unclear)DefinitionAudit report = positive assuranceLimited audit proceduresLevel of reliance36Dec 06 Q1c When reporting on a cash flow forecast, explain the term negative assurance and why this is used. (4 marks)Defi

19、nitionConditions may not turn out as expected (future conditions do not agree with those under which the forecast was prepared)Forecast relates to future uncertaintyCash flow Reasonable not T&F 37June 05 Q5c The directors of Hood Enterprises have prepared a cash flow forecast for submission to the bank. They have asked you as the auditor to provide a negative assurance report on this forecast.Required:Briefly explain the difference between positive and negative assurance, outlining the advantages to the directors of providing negativ