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Questions and Answers
What type of assurance level does an assurance engagement provide when dealing with prospective financial information?
What type of assurance level does an assurance engagement provide when dealing with prospective financial information?
The auditor can express a definitive opinion on whether the results in prospective financial information will be achieved.
The auditor can express a definitive opinion on whether the results in prospective financial information will be achieved.
False
What is considered essential knowledge for an auditor in their field of practice?
What is considered essential knowledge for an auditor in their field of practice?
Exhaustive knowledge of accounting principles and techniques
An assurance engagement that deals with historical financial information is called an __________ engagement.
An assurance engagement that deals with historical financial information is called an __________ engagement.
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Match the following qualities with their descriptions:
Match the following qualities with their descriptions:
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Which of the following standards apply to the audit of historical financial information?
Which of the following standards apply to the audit of historical financial information?
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SRS 4400 relates to engagements for the examination of prospective financial information.
SRS 4400 relates to engagements for the examination of prospective financial information.
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What is the primary focus of SAE 3400?
What is the primary focus of SAE 3400?
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SQC 1 has been issued regarding standards on __________.
SQC 1 has been issued regarding standards on __________.
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Match the following standards to their corresponding type:
Match the following standards to their corresponding type:
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Study Notes
Assurance Engagements
- Assurance engagements are provided for matters other than historical financial information, such as prospective financial information, or assurance regarding the operation of controls
- Assurance engagements may provide either reasonable or limited assurance
- Reasonable assurance provides a high level of assurance
- Limited assurance provides only a moderate level of assurance
Qualities of an Auditor
- An auditor must possess various qualities, including tact, caution, firmness, good temper, integrity, discretion, industry, judgement, patience, clear-headedness, and reliability
- In addition, they must have a shine of culture to attain a greater height
- The auditor, who holds a position of trust, must have basic human qualities along with professional training and education
- An auditor should have an exhaustive knowledge of accounting in all branches
Engagement and Quality Control Standards
- The Standards issued under authority of ICAI Council are known collectively as Engagement Standards
- Engagement standards include Standards on Auditing (SAs), Standards on Review Engagements (SREs), Standards on Assurance Engagements (SAEs), Standards on Related Services (SRSs), and Standards on Quality Control (SQCs)
Standards on Auditing (SAs)
- Apply to the audit of historical financial information
- Examples include:
- SA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in accordance with Standards on Auditing
- SA 230 Audit Documentation
- SA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment
- SA 500 Audit Evidence
- Revised SA 700 Forming an Opinion and Reporting on Financial Statements
Standards on Review Engagements (SREs)
- Apply to Review of historical financial information
- Examples include:
- SRE 2400 (Revised) Engagements to Review Historical Financial Statements
- SRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity
Standards on Assurance Engagements (SAEs)
- Apply to assurance engagements other than audits or reviews of historical financial information
- Examples include:
- SAE 3400 The Examination of Prospective Financial Information
- SAE 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus
Standards on Related Services (SRSs)
- Apply in relation to agreed-upon procedures, compilation engagements and other related services
- Examples include:
- SRS 4400 Engagements to Perform Agreed-Upon Procedures Regarding Financial Information
- SRS 4410 (Revised) Compilation Engagements
Audit Risk
- Audit risk is the risk that the auditor gives an inappropriate audit opinion when the financial statements are materially misstated
- Audit risk may be expanded due to business risk
- Examples of potential business risk include:
- Expansion of the business (a potential related business risk might be, for example, that the demand has not been accurately estimated)
- The measurement and review of the entity’s financial performance
Understanding the Entity and its Environment
- Understanding the entity and its environment helps the auditor in planning the audit and in identifying areas requiring special attention
- Understanding the entity is a continuous, dynamic process of gathering, updating, and analyzing information throughout the audit
Audit Strategy and Audit Plan
- The audit strategy sets the broad overall approach to the audit, whereas the audit plan addresses the various matters identified in the overall audit strategy
- The audit strategy determines the scope, timing, and direction of the audit
- The audit plan describes how the strategy is going to be implemented
- The audit plan is more detailed than the overall audit strategy, which includes the nature, timing, and extent of audit procedures to be performed by engagement team members
Audit Plan Considerations
- Consider the results of preliminary engagement activities, including knowledge gained on other engagements performed by the engagement partner for the entity
- Examples include results of previous audits that involved evaluating the operating effectiveness of internal control
- Ascertain the nature, timing, and extent of resources necessary to perform the engagement
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Description
This quiz covers key aspects of assurance engagements, including different levels of assurance and essential auditor qualities. It also addresses engagement and quality control standards, providing a comprehensive understanding of the auditor's role in ensuring reliability and trustworthiness in financial contexts.
