ASSURANCE & AUDITING (OVERVIEW) pg. 4
Table of Contents ASSURANCE & AUDITING (OVERVIEW) pg. 4 .......................................................... 2 Framework for Assurance Engagements & Types of Assurance Engagements pg. 8 ........... 2 Define Auditing and Appreciate the Fundamental Principles pg. 14 ........................................... 4 Attributes of Accounting Information & Reasons for Demand For Assurance pg. 18 .......... 4 Expectation Gap, Different Levels of Assurance, and Auditor-Client-Public Relationship pg. 22 ........................................................................................................................................................................ 5 Auditing standards under the Corporations Act 2001 pg. 27 ......................................................... 6 Other applications of the Assurance Function pg. 28 ......................................................................... 6
THE STRUCTURE OF THE PROFESSION pg. 36 .......................................................... 7 Professional Status pg. 39 ............................................................................................................................... 7 Regulation of Auditing pg. 40 ........................................................................................................................ 7 Impacts of Internationalism on Auditing pg. 48 ................................................................................... 8 Characteristics of Professional Bodies, Accounting Firms & the Internal Structure of An Audit Firm pg. 52 ................................................................................................................................................ 8 Quality Control & Practice–monitoring Programs pg. 60 ................................................................. 8 Reasonable Care, Skill & Negligence pg. 65 ............................................................................................. 8 Auditor’s Legal Liability to Its Clients pg. 66 .......................................................................................... 8 Auditor’s Legal Liability to 3rd Parties pg. 73 ....................................................................................... 8 Alternative Methods to Limit Auditor’s Liability pg. 82 .................................................................... 8
ETHICS, INDEPENDENCE & CORPORATE GOVERNENCE ........................................... 8 Professional Ethics & Ethical Theories pg. 94 ........................................................................................ 8 Accounting Bodies’ Code of Ethics pg. 96 ................................................................................................ 9 Applying Ethical Decision-Making Techniques pg. 100 ..................................................................... 9 Auditor Independence pg. 102 .................................................................................................................. 10 Fee Determination pg. 119 .......................................................................................................................... 12 Corporate Governance pg. 121 .................................................................................................................. 12
Planning, Understanding the Entity and Assessing Business Risk .......................... 13 Client Acceptance and Continuance ........................................................................................................ 13 Audit Planning................................................................................................................................................... 14 Understanding the Entity & Its Environment ..................................................................................... 14 Developing an Overall Audit Strategy..................................................................................................... 15 Assigning & Scheduling Audit Staff pg. 222 ......................................................................................... 15
ELEMENTS OF THE FINANCIAL REPORT AUDIT PROCESS ....................................... 16 1
Contrast Between Auditing & Accounting pg. 146 ............................................................................ 16 Financial report assertions and Audit Objectives and procedures pg. 150 ........................... 17 Sufficient Appropriate Audit Evidence pg. 156 .................................................................................. 19 Audit Risk Model pg. 160 ............................................................................................................................. 20 Materiality pg. 165 .......................................................................................................................................... 20 Types of Audit Tests ....................................................................................................................................... 21 Using the work of an expert/component auditor pg. 174 ............................................................. 21 Documentation of audit work: audit working papers pg. 176 ..................................................... 21
Assessing Inherent Risk and Other Specific Business Risks .................................... 22 Inherent risk pg. 251 ...................................................................................................................................... 22 Fraud ..................................................................................................................................................................... 24 Related Parties .................................................................................................................................................. 26 Appropriateness of the Going Concern Basis pg. 273 ...................................................................... 27
Understanding & Assessing Internal Control ........................................................ 28 Internal Control and Audit Strategy pg. 291 ........................................................................................ 28 Internal Control Objectives pg. 294 ......................................................................................................... 28 Five Components of Internal Control pg. 297 ..................................................................................... 30 Considering internal control in a financial report audit pg. 305 ................................................ 31
ASSURANCE & AUDITING (OVERVIEW) pg. 4 Framework for Assurance Engagements & Types of Assurance Engagements pg. 8 Assurance Engagement An engagement in which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the measurement or evaluation of an underlying subject matter against criteria.
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5 Elements i. Three-party relationships: a. Assurance practitioner (auditor) b. Responsible party (preparer of the report as well as the BOD of the company being audited) c. Intended user ii. Underlying subject matter (the condition, event or behaviour being evaluated) iii. Criteria (Standards/Benchmarks) iv. Sufficient appropriate evidence v. A written assurance report
Auditors must have: a) Independence b) Expertise – Professional Judgement – Professional Scepticism
Types of Assurance Agreements pg. 12 i) Reasonably Assurance Agreements ii) Limited Assurance Agreements iii) No Assurance: – Agreed-upon Assurance Agreements
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Attestation & Direct Engagement Attestation – Measurement/Evaluation of the subject matter against criteria And applies assurance skills & techniques to obtain sufficient evidence for a conclusion, typically for written reports. Direct engagement – Direct Measurement/Evaluation against criteria, typically for non-written subjects, such as behaviour & events.
Define Auditing and Appreciate the Fundamental Principles pg. 14 Auditing ➢ Systematic process of objectively obtaining & evaluation evidence ➢ Regarding assertions about economics actions & events ➢ To ascertain the correspondence between those assertions & established criteria ➢ Communicating results to intended users Fundamental Principles ➢ Knowledge ➢ Responsibility ➢ Quality Control (check) ➢ Rigour & Scepticism ➢ Evidence
➢ ➢ ➢ ➢ ➢
Professional Judgement Documentation Communication Association (check) Reporting
Attributes of Accounting Information & Reasons for Demand For Assurance pg. 18 Fundamental Characteristics ➢ Relevance ➢ Faithful Representation Enhancing Characteristics ➢ Comparability ➢ Verifiability ➢ Timeliness ➢ Understandability
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THE STRUCTURE OF THE PROFESSION pg. 36 .......................................................... 7 Professional Status pg. 39 ............................................................................................................................... 7 Regulation of Auditing pg. 40 ........................................................................................................................ 7 Impacts of Internationalism on Auditing pg. 48 ................................................................................... 8 Characteristics of Professional Bodies, Accounting Firms & the Internal Structure of An Audit Firm pg. 52 ................................................................................................................................................ 8 Quality Control & Practice–monitoring Programs pg. 60 ................................................................. 8 Reasonable Care, Skill & Negligence pg. 65 ............................................................................................. 8 Auditor’s Legal Liability to Its Clients pg. 66 .......................................................................................... 8 Auditor’s Legal Liability to 3rd Parties pg. 73 ....................................................................................... 8 Alternative Methods to Limit Auditor’s Liability pg. 82 .................................................................... 8
ETHICS, INDEPENDENCE & CORPORATE GOVERNENCE ........................................... 8 Professional Ethics & Ethical Theories pg. 94 ........................................................................................ 8 Accounting Bodies’ Code of Ethics pg. 96 ................................................................................................ 9 Applying Ethical Decision-Making Techniques pg. 100 ..................................................................... 9 Auditor Independence pg. 102 .................................................................................................................. 10 Fee Determination pg. 119 .......................................................................................................................... 12 Corporate Governance pg. 121 .................................................................................................................. 12
Planning, Understanding the Entity and Assessing Business Risk .......................... 13 Client Acceptance and Continuance ........................................................................................................ 13 Audit Planning................................................................................................................................................... 14 Understanding the Entity & Its Environment ..................................................................................... 14 Developing an Overall Audit Strategy..................................................................................................... 15 Assigning & Scheduling Audit Staff pg. 222 ......................................................................................... 15
ELEMENTS OF THE FINANCIAL REPORT AUDIT PROCESS ....................................... 16 1
Contrast Between Auditing & Accounting pg. 146 ............................................................................ 16 Financial report assertions and Audit Objectives and procedures pg. 150 ........................... 17 Sufficient Appropriate Audit Evidence pg. 156 .................................................................................. 19 Audit Risk Model pg. 160 ............................................................................................................................. 20 Materiality pg. 165 .......................................................................................................................................... 20 Types of Audit Tests ....................................................................................................................................... 21 Using the work of an expert/component auditor pg. 174 ............................................................. 21 Documentation of audit work: audit working papers pg. 176 ..................................................... 21
Assessing Inherent Risk and Other Specific Business Risks .................................... 22 Inherent risk pg. 251 ...................................................................................................................................... 22 Fraud ..................................................................................................................................................................... 24 Related Parties .................................................................................................................................................. 26 Appropriateness of the Going Concern Basis pg. 273 ...................................................................... 27
Understanding & Assessing Internal Control ........................................................ 28 Internal Control and Audit Strategy pg. 291 ........................................................................................ 28 Internal Control Objectives pg. 294 ......................................................................................................... 28 Five Components of Internal Control pg. 297 ..................................................................................... 30 Considering internal control in a financial report audit pg. 305 ................................................ 31
ASSURANCE & AUDITING (OVERVIEW) pg. 4 Framework for Assurance Engagements & Types of Assurance Engagements pg. 8 Assurance Engagement An engagement in which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the measurement or evaluation of an underlying subject matter against criteria.
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5 Elements i. Three-party relationships: a. Assurance practitioner (auditor) b. Responsible party (preparer of the report as well as the BOD of the company being audited) c. Intended user ii. Underlying subject matter (the condition, event or behaviour being evaluated) iii. Criteria (Standards/Benchmarks) iv. Sufficient appropriate evidence v. A written assurance report
Auditors must have: a) Independence b) Expertise – Professional Judgement – Professional Scepticism
Types of Assurance Agreements pg. 12 i) Reasonably Assurance Agreements ii) Limited Assurance Agreements iii) No Assurance: – Agreed-upon Assurance Agreements
3
Attestation & Direct Engagement Attestation – Measurement/Evaluation of the subject matter against criteria And applies assurance skills & techniques to obtain sufficient evidence for a conclusion, typically for written reports. Direct engagement – Direct Measurement/Evaluation against criteria, typically for non-written subjects, such as behaviour & events.
Define Auditing and Appreciate the Fundamental Principles pg. 14 Auditing ➢ Systematic process of objectively obtaining & evaluation evidence ➢ Regarding assertions about economics actions & events ➢ To ascertain the correspondence between those assertions & established criteria ➢ Communicating results to intended users Fundamental Principles ➢ Knowledge ➢ Responsibility ➢ Quality Control (check) ➢ Rigour & Scepticism ➢ Evidence
➢ ➢ ➢ ➢ ➢
Professional Judgement Documentation Communication Association (check) Reporting
Attributes of Accounting Information & Reasons for Demand For Assurance pg. 18 Fundamental Characteristics ➢ Relevance ➢ Faithful Representation Enhancing Characteristics ➢ Comparability ➢ Verifiability ➢ Timeliness ➢ Understandability
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