Overview of Auditing and
Assurance Services
Intended Learning Outcomes
After the presentation, you should be able to:
• Understand the concept of assurance engagements
• Classify types of assurance engagements
• Appreciate basic auditing concepts
• Identify types of audits and auditors
Assurance Engagement
Assurance engagement means an agreement in which 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.
Sarbanes Oxley Act
Elements of Assurance Engagements
1. Three-party relationship involving
• A practitioner; a responsible party; and intended users
2. An appropriate subject matter
3. Suitable criteria
4. Sufficient appropriate evidence
5. A written assurance report in the form appropriate to a reasonable assurance
engagement or a limited assurance engagement
Classification of Assurance Engagements
As to level of assurance
1. Reasonable assurance engagement
 The objective is a reduction in assurance engagement risk to an acceptably low level
in the circumstances of the engagement as the basis for a positive form of
expression of the practitioner’s conclusion.
2.
Limited assurance engagement
 The objective is a reduction in assurance engagement risk to a level that is
acceptable in the circumstances of the engagement, but where the risk is greater
than for a reasonable assurance engagement, as a basis for a negative form of
expression of the practitioner’s conclusion.
Classification of Assurance Engagements
As to structure
1. Assertion-based engagement
 The evaluation or measurement of the subject matter is performed by the
responsible party, and the subject matter information is in the form of an assertion
by the responsible party that is made available to intended users.
2.
Direct-reporting engagement
 The practitioner either directly performs the evaluation or measurement of the
subject matter, or obtains a representation from the responsible party that has
performed the evaluation or measurement that is not available to the intended
users in the assurance report.
Assurance-Based Engagements
Audits
• High level of assurance that the financial statements are free of material
misstatements.
Reviews
• Limited investigation of much narrower scope than the audit and undertaken
for the purpose of providing limited (negative) assurance that the statements
are presented in accordance with identified Financial Reporting Standards.
Non-Assurance Engagements
Agreed-upon procedures
• An engagement in which the auditor is engaged to carry out those procedures
of an audit nature to which the auditor and the entity and any appropriate
third parties have agreed and to report on factual findings.
• Sarbanes Oxley Act (SOX)
Compilation
• An engagement in which an accountant is engaged to use his accounting
expertise to collect, classify and summarize financial information.
Non-Assurance Engagements
Preparation of tax returns where no conclusion is expressed, and tax consulting
Management consulting and other advisory services
• Professional services that employ the practitioner's technical skills, education,
observation, experiences and knowledge of the analytical procedures used in
consulting engagement.
Auditing
Auditing is a systematic process of objectively obtaining and evaluating evidence
regarding selected assertions about economic actions and events to ascertain the
degree of correspondence between those assertions and established criteria and
communicating the results to interested users.
Audit of Financial Statements
The objective of an audit of financial statements is to enable the auditor to express
an opinion whether the financial statements are prepared, in all material respects,
in accordance with an applicable financial reporting framework.
The purpose of an audit is to enhance the degree of confidence of intended users
in the financial statements. This is achieved by the expression of an opinion by the
auditor on whether the financial statements are prepared, in all material respects,
in accordance with an applicable financial reporting framework.
Overall Objectives of the Auditor
In conducting an audit of financial statements, the overall objectives of the auditor
are:
• To obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error,
thereby enabling the auditor to express an opinion on whether the financial
statements are prepared, in all material respects, in accordance with an
applicable financial reporting framework; and
• To report on the financial statements, and communicate as required by the
PSAs, in accordance with the auditor’s findings.
General Principles Governing the Audit of FS
Ethical Requirements Relating to an Audit of Financial Statements
• The auditor shall comply with relevant ethical requirements, including those
pertaining to independence, relating to financial statement audit
engagements.
Professional Skepticism
• The auditor shall plan and perform an audit with professional skepticism
recognizing that circumstances may exist that cause the financial statements
to be materially misstated.
General Principles Governing the Audit of FS
Professional Judgment
• The auditor shall exercise professional judgment in planning and performing
an audit of financial statements.
Sufficient Appropriate Audit Evidence and Audit Risk
• To obtain reasonable assurance, the auditor shall obtain sufficient appropriate
audit evidence to reduce audit risk to an acceptably low level and thereby
enable the auditor to draw reasonable conclusions on which to base the
auditor’s opinion.
Conduct of an Audit in Accordance with PSAs
Scope of an Independent Audit
“Scope of an audit” refers to the audit procedures that, in the auditor’s judgment
and based on PSAs, are deemed appropriate in the circumstances to achieve the
objective of the audit.
Types of Procedures
1. Risk Assessment Procedures
2. Test of Controls
3. Substantive Tests
Types of Audit
External Audit (Financial Statements Audit/Independent Audit)
• Examination of financial statements to determine whether they are presented
in accordance with applicable reporting framework.
Operational Audit (Management Audit/Performance Audit)
• Examination of all part of organization to determine the effectiveness and
efficiency of its operations.
Types of Audit
Compliance Audit
• Determination whether the auditee is following specific procedures or rules
set down by some higher authority.
Government Audit
• Determination whether government funds are being handled properly and in
compliance with existing laws and regulations.
Types of Audit
Internal Audit
• Designed to add value and improve organization’s operations
• Improve risk management, control and governance processes
Forensic Audit (Fraud Audit)
• Refers to the examination of evidence regarding an assertion to determine its
correspondence to established criteria carried out in a manner suitable to the
court.
Types of Auditors
1.
2.
3.
4.
External Auditors
Internal Auditors
Government Auditors
Forensic Auditors
Limitations of Audit
Absolute assurance in auditing is not attainable as a result of such factors as:
• The need for judgment
• The use of selective testing
• The inherent limitations of any accounting and internal control systems
• The fact that most of the evidence available to the auditor is persuasive,
rather than conclusive, in nature
Checklist
Understand the concept of assurance engagements
Classify types of assurance engagements
Appreciate basic auditing concepts
Identify types of audits and auditors